<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- ----
Act of 1934. For the quarterly period ended September 30, 1999.
____ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _________ to __________
Commission File Number: 000-27141
TIVO INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0463167
--------------------------------------------- --------------------------------
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
894 Ross Drive, Suite 100; Sunnyvale, CA 94089
--------------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
(408) 747-5080
--------------------------------------------------
(Registrant's telephone number including area code)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
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 outstanding shares of the registrant's Common Stock, $0.001 par
value, was 37,718,834 as of November 8, 1999.
<PAGE>
TIVO INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Balance Sheets 3
Statements of Operations 4
Statements of Stockholders' Equity 5
Statements of Cash Flows 7
Notes to Financial Statements 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT
MARKET RISK 29
PART II. OTHER INFORMATION 30
Item 1. LEGAL PROCEEDINGS 30
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 30
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 31
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 31
ITEM 5. OTHER INFORMATION 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 33
SIGNATURES 35
EXHIBIT INDEX 36
2
<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIVO INC.
(a development-stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro forma
December 31, September 30, September 30,
1998 1999 1999
------------ ------------- -------------
ASSETS (unaudited) (unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 2,248,000 $ 59,960,000 $ 59,960,000
Short-term investments.......................................... 164,000 8,240,000 8,240,000
Accounts receivable, net of allowance for doubtful accounts of
$143,000 as of September 30, 1999.............................. -- 8,844,000 8,844,000
Receivable from underwriters.................................... -- -- 91,763,000
Inventories..................................................... 120,000 1,066,000 1,066,000
Prepaid expenses and other...................................... 219,000 2,017,000 767,000
------------ ------------ -------------
Total current assets.......................................... 2,751,000 80,127,000 170,640,000
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $170,000, and $553,000 as of December 31, 1998,
and September 30, 1999, respectively.......................... 792,000 2,255,000 2,255,000
------------ ------------ -------------
Total assets.................................................... $ 3,543,000 $ 82,382,000 $ 172,895,000
============ ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Bank overdraft.................................................. $ 442,000 $ -- $ --
Accounts payable................................................ 305,000 4,685,000 4,685,000
Accrued liabilities............................................. 675,000 8,947,000 8,947,000
Deferred revenue................................................ -- 286,000 286,000
Current portion of obligations under capital lease.............. -- 347,000 347,000
------------ ------------ -------------
Total current liabilities..................................... 1,422,000 14,265,000 14,265,000
Long-term portion of obligations under capital lease............ -- 670,000 670,000
------------ ------------ -------------
Total liabilities............................................... 1,422,000 14,935,000 14,935,000
------------ ------------ -------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value $0.001:
Authorized shares at December 31, 1998,
September 30, 1999 (unaudited) and pro forma September 30,
1999 (unaudited), are 13,000,000, 26,538,789 and 26,538,789,
respectively.
Issued and outstanding shares at December 31, 1998,
September 30, 1999 (unaudited) and pro forma September 30,
1999 (unaudited) are 11,174,427, 21,819,444 and 21,819,444,
respectively............................................... $ 12,242,000 $102,814,000 $ 102,814,000
Common stock, par value $0.001:
Authorized shares at December 31, 1998,
September 30, 1999 (unaudited) and pro forma
September 30, 1999 (unaudited) are 25,500,000, 54,000,000 and
54,000,000, respectively.
Issued and outstanding shares at December 31, 1998,
September 30, 1999 (unaudited) and pro forma September 30,
1999 (unaudited), are 5,216,937, 8,489,920 and 14,656,795,
respectively............................................... 5,000 8,000 14,000
Additional paid-in capital...................................... 190,000 39,236,000 129,743,000
Deferred compensation........................................... -- (6,061,000) (6,061,000)
Prepaid marketing expenses...................................... -- (23,740,000) (23,740,000)
Note receivable................................................. -- (2,822,000) (2,822,000)
Losses accumulated during development stage..................... (10,316,000) (41,988,000) (41,988,000)
------------ ------------ -------------
Total stockholders' equity.................................... 2,121,000 67,447,000 157,960,000
------------ ------------ -------------
Total liabilities and stockholders' equity.................... $ 3,543,000 $ 82,382,000 $ 172,895,000
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
TIVO INC.
(a development-stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Three Months Ended Nine Months Ended August 4, 1997
------------------------------------ ------------------------------- (Inception), to
September 30, September 30, September 30,
1998 1999 1998 1999 1999
---------------- --------------- -------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Subscription revenues................. $ -- $ 33,000 $ -- $ 41,000 $ 41,000
Costs and expenses:
Cost of services..................... -- 611,000 -- 1,769,000 1,780,000
Research and development............. 1,659,000 1,977,000 3,468,000 4,975,000 10,946,000
Sales and marketing.................. 354,000 5,150,000 710,000 8,940,000 10,239,000
Sales and marketing--related parties. -- 4,946,000 -- 5,327,000 5,328,000
General and administrative........... 706,000 2,418,000 1,609,000 5,491,000 8,629,000
Stock-based compensation............. -- 501,000 -- 688,000 688,000
Other operating expense, net......... -- 4,808,000 -- 4,999,000 4,997,000
---------------- --------------- -------------- ------------- -------------
Loss from operations................ (2,719,000) (20,378,000) (5,787,000) (32,148,000) (42,566,000)
Interest income....................... 46,000 614,000 81,000 892,000 1,056,000
Interest expense and other............ (7,000) (281,000) (20,000) (416,000) (478,000)
---------------- --------------- -------------- ------------- -------------
Net loss............................ $ (2,680,000) $ (20,045,000) $ (5,726,000) $ (31,672,000) $ (41,988,000)
================ =============== ============== ============= =============
Net loss per share
Basic and diluted.................... $ (0.89) $ (3.44) $ (1.94) $ (6.53) $ (11.60)
================ =============== ============== ============= =============
Weighted average shares.............. 2,995,821 5,833,597 2,954,114 4,848,748 3,619,179
================ =============== ============== ============= =============
Pro forma net loss per share:
Basic and diluted................... $ (3.40) $ (6.50) $ (11.58)
=============== ============= =============
Pro forma weighted average shares.... 5,902,118 4,871,588 3,627,085
=============== ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
TIVO INC.
(a development-stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common stock Additional
------------------------ ---------------------- Paid-In Deferred
Shares Amount Shares Amount Capital Compensation
---------- ---------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 4, 1997.......................... -- $ -- -- $ -- $ -- $ --
Issuance of common stock for cash............... -- -- 2,916,664 3,000 7,000 --
Issuance of Series A preferred stock at $0.60
per share for cash............................. 5,000,000 2,990,000 -- -- -- --
Net loss........................................ -- -- -- -- -- --
---------- ----------- --------- ---------- ---------- ------------
BALANCE, DECEMBER 31, 1997....................... 5,000,000 2,990,000 2,916,664 3,000 7,000 --
Issuance of Series B preferred stock at $1.26
per share for cash............................. 3,660,914 4,609,000 -- -- -- --
Issuance of Series C preferred stock at $1.85
per share for cash............................. 2,500,000 4,618,000 -- -- -- --
Exercise of stock options for common stock...... -- -- 2,276,458 2,000 130,000 --
Common stock exchanged for services............. -- -- 198,586 -- 60,000 --
Series C preferred stock exchanged for services. 13,513 25,000 -- -- -- --
Common stock repurchases........................ -- -- (174,771) -- (7,000) --
Net loss........................................ -- -- -- -- -- --
---------- ----------- --------- ---------- ---------- ------------
BALANCE, DECEMBER 31, 1998....................... 11,174,427 12,242,000 5,216,937 5,000 190,000 --
Issuance of Series D preferred stock at $3.68
per share for cash............................. 1,358,695 4,973,000 -- -- -- --
Issuance of Series E preferred stock at $7.40
per share for cash............................. 270,270 1,982,000 -- -- -- --
Issuance of Series F preferred stock at $7.40
per share for cash............................. 405,405 2,960,000 -- -- -- --
Issuance of Series G preferred stock at $7.40
per share for cash............................. 1,013,513 7,431,000 -- -- -- --
Issuance of Series H preferred stock at $7.40
per share for cash............................. 1,351,351 9,992,000 -- -- -- --
Issuance of Series I preferred stock at $10.41
per share for cash............................. 3,121,994 31,494,000 -- -- -- --
Issuance of Series J preferred stock at $10.41
per share for cash............................. 3,123,789 31,740,000 -- -- -- --
Exercise of stock options for common stock...... -- -- 378,970 -- 854,000 --
Common stock exchanged for services............. -- -- 137,983 -- 337,000 --
<CAPTION>
Losses
Accumulated
Prepaid During The
Marketing Note Development
Expense Receivabl Stage Total
------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 4, 1997.......................... $ -- $ -- $ -- $ --
Issuance of common stock for cash............... -- -- -- 10,000
Issuance of Series A preferred stock at $0.60
per share for cash............................. -- -- -- 2,990,000
Net loss........................................ -- -- (595,000) (595,000)
------------ ---------- ------------ -----------
BALANCE, DECEMBER 31, 1997....................... -- -- (595,000) 2,405,000
Issuance of Series B preferred stock at $1.26
per share for cash............................. -- -- -- 4,609,000
Issuance of Series C preferred stock at $1.85
per share for cash............................. -- -- -- 4,618,000
Exercise of stock options for common stock...... -- -- -- 132,000
Common stock exchanged for services............. -- -- -- 60,000
Series C preferred stock exchanged for services. -- -- -- 25,000
Common stock repurchases........................ -- -- -- (7,000)
Net loss........................................ -- -- (9,721,000) (9,721,000)
------------ ---------- ------------ -----------
BALANCE, DECEMBER 31, 1998....................... -- -- (10,316,000) 2,121,000
Issuance of Series D preferred stock at $3.68
per share for cash............................. -- -- -- 4,973,000
Issuance of Series E preferred stock at $7.40
per share for cash............................. -- -- -- 1,982,000
Issuance of Series F preferred stock at $7.40
per share for cash............................. -- -- -- 2,960,000
Issuance of Series G preferred stock at $7.40
per share for cash............................. -- -- -- 7,431,000
Issuance of Series H preferred stock at $7.40
per share for cash............................. -- -- -- 9,992,000
Issuance of Series I preferred stock at $10.41
per share for cash............................. -- -- -- 31,494,000
Issuance of Series J preferred stock at $10.41
per share for cash............................. -- -- -- 31,740,000
Exercise of stock options for common stock...... -- -- -- 854,000
Common stock exchanged for services............. -- -- -- 337,000
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common stock Additional
------------------------- ------------------------ Paid-In Deferred
Shares Amount Shares Amount Capital Compensation
----------- ------------ ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock warrants for services. -- -- -- -- 295,000 --
Issuance of preferred stock warrants for
services....................................... -- -- -- -- 11,126,000 --
Amortization of prepaid marketing expenses...... -- -- -- -- -- --
Amortization of warrants........................ -- -- -- -- 329,000 --
Recognition of deferred compensation............ -- -- -- -- 6,749,000 (6,749,000)
Stock-based compensation........................ -- -- -- -- -- 688,000
Common stock repurchases........................ -- -- (225,166) -- (18,000) --
Issuance of common stock for marketing services. -- -- 1,852,329 2,000 12,038,000 --
Issuance of common stock for marketing services
and note receivable............................ -- -- 1,128,867 1,000 7,336,000 --
Net loss........................................ -- -- -- -- -- --
----------- ------------ ----------- ---------- ------------ -----------
BALANCE, SEPTEMBER 30, 1999
(unaudited).................................... 21,819,444 $102,814,000 8,489,920 $ 8,000 $ 39,236,000 $(6,061,000)
=========== ============ =========== ========== ============ ============
Pro forma:
Issuance of Common stock at $16.00 in initial
public offering for cash, net of offering
costs.......................................... -- -- 6,166,875 6,000 90,507,000 --
BALANCE, SEPTEMBER 30, 1999
Pro forma (unaudited).......................... 21,819,444 $102,814,000 14,656,795 $ 14,000 $129,743,000 $(6,061,000)
=========== ============ =========== ========== ============ ============
<CAPTION>
Losses
Accumulated
Prepaid During the
Marketing Note Development
Express Receivable Stage Total
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Issuance of common stock warrants for services. -- -- -- 295,000
Issuance of preferred stock warrants for
services....................................... (11,096,000) -- -- 30,000
Amortization of prepaid marketing expenses...... 3,911,000 -- -- 3,911,000
Amortization of warrants........................ -- -- -- 329,000
Recognition of deferred compensation............ -- -- -- --
Stock-based compensation........................ -- -- -- 688,000
Common stock repurchases........................ -- -- -- (18,000)
Issuance of common stock for marketing services. (12,040,000) -- -- --
Issuance of common stock for marketing services
and note receivable............................ (4,515,000) (2,822,000) -- --
Net loss........................................ -- -- (31,672,000) (31,672,000)
------------ ----------- ------------ ------------
BALANCE, SEPTEMBER 30, 1999
(unaudited).................................... $(23,740,000) $(2,822,000) $(41,988,000) $ 67,447,000
============ =========== ============ ============
Pro forma:
Issuance of common stock at $16.00 in initial
public offering for cash, net of offering
costs.......................................... -- -- -- 90,513,000
BALANCE, SEPTEMBER 30, 1999
Pro forma (unaudited).......................... $(23,740,000) $(2,822,000) $(41,988,000) $157,960,000
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements
6
<PAGE>
TIVO INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended Period from
September 30, August 4, 1997
----------------------------------------------- (Inception), to
Pro forma September 30,
1998 1999 1999 1999
------------- ------------- ------------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $ (5,726,000) $ (31,672,000) $ (31,672,000) $ (41,988,000)
Adjustments to reconcile net loss to net cash
used in operating activities: Depreciation and
amortization......................................... 143,000 383,000 383,000 640,000
Stock exchanged for services.......................... -- 337,000 337,000 397,000
Amortization of warrants for services................. -- 285,000 285,000 285,000
Amortization of prepaid marketing expenses............ -- 3,911,000 3,911,000 3,911,000
Stock-based compensation expense...................... -- 688,000 688,000 688,000
Changes in current assets and liabilities:
Receivable from underwriters......................... -- -- (91,763,000) --
Accounts receivable.................................. -- (8,844,000) (8,844,000) (8,844,000)
Inventories.......................................... -- (946,000) (946,000) (1,066,000)
Prepaid expenses and other........................... (108,000) (1,429,000) (179,000) (1,648,000)
Accounts payable..................................... 463,000 4,380,000 4,380,000 (4,685,000)
Deferred revenue..................................... -- 286,000 286,000 286,000
Accrued liabilities.................................. 133,000 8,272,000 8,272,000 8,947,000
------------ ------------- ------------- --------------
Net cash used in operating activities................ (5,095,000) (24,349,000) (114,862,000) (33,707,000)
------------ ------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment, net............ (344,000) (1,846,000) (1,846,000) (2,895,000)
Purchase of short-term investments.................... (1,649,000) (8,076,000) (8,076,000) (8,240,000)
------------ ------------- ------------- --------------
Net cash used in investing activities............... (1,993,000) (9,922,000) (9,922,000) (11,135,000)
------------ ------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred
stock, net of issuance costs......................... 4,609,000 90,572,000 90,572,000 102,814,000
Proceeds from issuance of common stock through initial
public offering, net of issuance costs............... -- -- 90,513,000 --
Net borrowings under capital lease.................... -- 1,017,000 1,017,000 1,017,000
Borrowings under line of credit....................... -- -- -- 610,000
Repayments under line of credit....................... -- -- -- (610,000)
Proceeds from issuance of common stock and exercise of
stock options........................................ 120,000 854,000 854,000 996,000
Repurchase of common stock............................ (7,000) (18,000) (18,000) (25,000)
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months Ended Period from
September 30, August 4, 1997
--------------------------------------------- (Inception), to
Pro forma September 30,
1998 1999 1999 1999
----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in bank overdraft........... 257,000 (442,000) (442,000) --
----------- ------------ ------------ ---------------
Net cash provided by financing 4,979,000 91,983,000 182,496,000 104,802,000
activities...................................... ----------- ------------ ------------ ---------------
NET INCREASE (DECREASE) IN CASH AND CASH (2,109,000) 57,712,000 57,712,000 59,960,000
EQUIVALENTS..................................... ----------- ------------ ------------ ---------------
CASH AND CASH EQUIVALENTS:
Balance at beginning of period.................. 2,110,000 2,248,000 2,248,000 --
---------- ----------- ----------- ---------------
Balance at end of period........................ $ 1,000 $59,960,000 $59,960,000 $ 59,960,000
========== =========== =========== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................... $ 19,000 $ 24,000 $ 24,000 $ 43,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Stock issued for a note receivable.............. $ -- $ 2,822,000 $ 2,822,000 $ 2,822,000
Equipment acquired under -- $ 1,099,000 $ 1,099,000 $ 1,099,000
capital lease...................................
Deferred stock-based compensation............... -- $ 6,631,000 $ 6,631,000 $ 6,631,000
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
TIVO INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months and nine months ended September
30, 1998 and 1999, and the period from August 4, 1997 (Inception) to September
30, 1999, and as of September 30, 1999 is unaudited)
1. NATURE OF OPERATIONS:
TiVo Inc. (the Company or TiVo) was incorporated in August 1997 as a
Delaware corporation with facilities in Sunnyvale, California. The Company has
developed a subscription-based personal television service (the TiVo Service)
that provides viewers with the ability to pause, rewind and play back any live
or recorded television broadcasts, as well as to search for, watch and record
programs. The TiVo Service also provides television listings, daily suggestions
and special viewing packages. The TiVo Service relies on three key components:
the personal video recorder, the TiVo remote control and the TiVo Broadcast
Center. Beginning in the fourth quarter of 1999, the Company is transitioning
the manufacturing and distribution of the personal video recorder and remote
control to Philips Business Electronics B.V. (Philips). Philips began marketing
the TiVo Service and the personal video recorder that enables the TiVo Service
in retail markets in the third quarter of 1999. The Company stopped selling
personal video recorders directly during the fourth quarter of 1999. Prior to
the transition, the personal video recorder and remote control were manufactured
by a contract manufacturer and, since March 1999, were sold by TiVo through its
web site and toll-free telephone number. The Company conducts its operations
through one reportable segment.
The Company is in the early stages of development and insignificant
subscription revenues have been generated to date. No assurance can be given
that a market for the TiVo Service and products that enable the TiVo Service
will develop, or that significant numbers of customers will be willing to pay
for the TiVo Service and products that enable the TiVo Service. Therefore, the
Company is identified as a development-stage company at this time. However, upon
the transfer of manufacturing and distribution responsibility to Philips and a
successful retail launch of the TiVo Service and products that enable the TiVo
Service, which began in the third quarter of 1999, the Company anticipates that
it will no longer be identified as a development-stage company.
The Company continues to be subject to certain risks common to companies in
similar stages of development, including the uncertainties outlined above, as
well as the uncertainty of availability of additional financing; dependence on
third parties for manufacturing and marketing and sales support; the uncertainty
of the market for personal television; dependence on key management; limited
manufacturing, marketing and sales experience; and the uncertainty of future
profitability.
The unaudited pro forma balance sheet, statements of operations, statements
of stockholders' equity and statement of cash flows as of September 30, 1999
include a receivable from underwriters for the proceeds and the common stock
from the initial public offering. The common stock is shown as if it was
outstanding on the effective date of the offering, September 29, 1999, instead
of the closing date of the offering, October 5, 1999.
Unaudited Interim Financial Statements
The accompanying balance sheet as of September 30, 1999 and the
accompanying statements of operations, stockholders' equity and cash flows for
the three months and nine months ended September 30, 1998 and 1999 included
herein have been prepared by the Company and are unaudited. The information
furnished in the unaudited financial statements referred to above includes all
normal adjustments that are, in the opinion of management, necessary for a fair
presentation of such financial statements. The results of operations for the
nine
9
<PAGE>
months ended September 30, 1999, are not necessarily indicative of the results
to be expected for the entire fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and cash equivalents
The Company classifies financial instruments as cash equivalents if the
original maturity of such instruments is three months or less.
Short-term investments
Short-term investments consist of commercial paper investments and
certificates of deposit with original maturities at date of purchase ranging
between three and six months. The Company classifies these investments as held
to maturity and records the instruments at amortized cost, which approximates
fair value due to the short maturities.
Inventories
Inventories consist of raw materials, primarily hard-disk drives and
enclosures. Inventory is valued at the lower of cost (first-in, first-out) or
market. Included in inventory costs are direct materials, direct labor and
allocated tooling costs. Once the Company transfers manufacturing responsibility
to Philips, during the fourth quarter of 1999, all inventory will be sold to
Philips. Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
<S> <C> <C>
------------ -------------
Raw materials.......................... $120,000 $1,066,000
------------ -------------
</TABLE>
Net Loss Per Common Share
Historical net loss per common share is calculated in accordance with SFAS
No. 128, "Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 (SAB No.
98). Under the provisions of SFAS No. 128 and SAB No. 98, basic net loss per
common share is computed by dividing net loss by the weighted average number of
common shares outstanding. Shares used in the computation of all net loss per
share amounts do not include repurchasable common stock issued to DIRECTV and
unvested, repurchasable common stock issued under the employee stock option
plans.
Diluted net loss per common share is calculated by dividing net loss by the
weighted average number of common shares and dilutive common share equivalents
outstanding. Diluted net loss per share does not include the effect of the
antidulutive common share equivalents.
Pro forma net loss per common share is calculated as if the common stock
from the initial public offering was outstanding at the effective date of the
public offering, September 29, 1999.
Stock-Based Compensation and Stock Exchanged for Services
The Company has elected to follow Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options. Under APB 25, when
the exercise price of employee stock options is less than the market price of
the underlying stock on the date of grant, compensation expense is recorded for
the difference between fair value and
10
<PAGE>
the exercise price. Expense associated with stock-based compensation is being
amortized on an accelerated basis over the vesting period of the individual
award, generally four years. The method of amortization is in accordance with
Financial Accounting Standards Board ("FASB") Interpretation No. 28, under which
the value assigned to options vesting in future periods is ratably amortized
beginning upon issuance of the option rather than at the vesting date. No stock
compensation expense was recorded in 1998. The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
Revenue Recognition
Subscription revenues represent revenues from customer subscriptions to the
TiVo Service. Subscriptions to the TiVo Service are available on a monthly,
annual or lifetime basis. Subscription fees are generally charged to customers'
credit cards and are generally billed in advance on a monthly basis. A lifetime
subscription covers the life of the particular personal video recorder
purchased. Revenues from subscriptions are recognized ratably over the
subscription period. Subscription revenues from lifetime subscriptions are
recognized ratably over a four-year period, the best estimate of the useful life
of the personal video recorder. Deferred revenue relates to subscription fees
collected but for which revenues have not been recognized.
Sales and Marketing--Related Parties
Sales and marketing--related parties consists of cash and noncash charges
related to the Company's agreements with DIRECTV, Inc. (DIRECTV), Philips and
Quantum Corporation (Quantum), all of which hold stock or warrants in the
Company.
Other Operating Expense, Net
Prior to the transition of manufacturing and distribution to Philips in the
fourth quarter of 1999, the Company sold personal video recorders directly to
consumers. The sales of personal video recorders less the cost of the personal
video recorders are classified as other operating expense, net. Other operating
expense, net is considered incidental to the Company's business. Other operating
expense, net is recognized upon shipment of the personal video recorder to the
customer. The Company records a provision for estimated warranty costs and
returns at the time of sale.
3. COMMITMENTS AND CONTINGENCIES:
The Company leases its office space under operating leases that expire on
March 31 and June 30, 2000. As of December 31, 1998, and September 30, 1999,
future minimum rental payments under this lease are $1,327,000 and $590,000,
respectively. Rent expense under operating leases was approximately $177,000,
$266,000, $427,000 and $749,000 for the three months ended September 30, 1998
and 1999, and the nine months ended September 30, 1998 and 1999, respectively.
Rent expense under operating leases was approximately $1,413,000 for the period
from inception to September 30, 1999.
Future minimum lease payments under capitalized equipment leases are
$1,117,000 as of September 30, 1999.
4. SUBSEQUENT EVENTS
Initial Public Offering
The Company's initial public offering (IPO) of 6,166,875 shares of
common stock with net proceeds of $91.8 million was effective on September 29,
1999 and closed on October 5, 1999. At the closing date, the preferred stock was
converted into common stock on a one-for-one basis and the warrants were
exercised. The following
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table summarizes the common stock outstanding at September 30, 1999 on an actual
basis, on a pro forma basis assuming the common stock from the initial public
offering was outstanding at the effective date of the initial public offering,
September 29, 1999, and on a pro forma basis as if the common stock from the
initial public offering was outstanding, the preferred stock had converted and
the warrants had been exercised at September 29, 1999.
<TABLE>
<CAPTION>
Pro forma including
IPO shares, preferred
stock and warrants
Pro forma including converted to common
Number of shares Actual IPO shares stock as of
outstanding as of September 30, 1999 as of September 30, 1999 September 30, 1999
<S> <C> <C> <C>
Common stock 8,489,920 14,656,795 37,591,392
Stock options 4,147,117 4,147,117 4,147,117
----------------- ---------------- ----------------
Total shares 12,637,037 18,803,912 41,738,509
----------------- ---------------- ----------------
</TABLE>
Facilities Lease
In October 1999, the Company entered into a new office lease with WIX/NSJ
Real Estate Limited Partnership. The lease begins on March 10, 2000 and has a
seven-year term. Monthly rent is approximately $116,000 with built-in base rent
escalations periodically throughout the lease term. Future minimum lease
payments under this lease are $22.9 million.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in Management's Discussion and Analysis of Financial
Condition and Results of Operations contains trend analysis and other forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those set forth in such
forward-looking statements as a result of the "Factors That May Affect Future
Operating Results" and other risks detailed in the Company's reports filed with
the Securities and Exchange Commission.
Results of Operations
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended
September 30, 1998
Subscription revenues. Subscription revenues for the nine months ended
September 30, 1999 was $41,000, compared to zero for the nine months ended
September 30, 1998. This increase is attributable to customer subscriptions to
the TiVo Service, which began in March 1999. As of September 30, 1999, we had
approximately 2,500 subscribers.
Cost of services. Cost of services consists primarily of employee salaries
and expenses related to providing the TiVo Service to subscribers. Cost of
services for the nine months ended September 30, 1999 was $1.8 million compared
to zero for the nine months ended September 30, 1998. This increase was
primarily attributable to the hiring of content programming and service
operation personnel in connection with the retail release of the TiVo Service
and the personal video recorder that enables the TiVo Service.
Research and development expenses. The Company's research and development
expenses consist primarily of employee salaries and related expenses and
consulting fees relating to the design of the personal video recorder that
enables the TiVo Service. Research and development expenses for the nine months
ended September 30, 1999 were $5.0 million compared to $3.5 million for the nine
months ended September 30, 1998. This increase was primarily attributable to the
hiring of additional engineering personnel and related costs.
Sales and marketing expenses. Sales and marketing expenses consist
primarily of employee salaries and related expenses, development of media
advertising, public relations activities and special promotions, trade shows and
the production of product related items, including collateral and videos. Sales
and marketing expenses for the nine months ended September 30, 1999 were $8.9
million compared to $710,000 for the nine months ended September 30, 1998. This
increase was primarily attributable to an increase in expenditures for trade
shows, public relations and advertising in connection with the retail release of
the TiVo Service and the personal video recorder that enables the TiVo Service.
We expect our marketing expenses to continue to increase significantly in
connection with the retail launch of the TiVo Service and the personal video
recorder that enables the TiVo Service. The retail launch started in the third
quarter of 1999 and will continue into the fourth quarter of 1999.
Sales and marketing--related parties. Sales and marketing--related parties
consist of cash and non-cash charges related to agreements with DIRECTV, Philips
and Quantum, all of which hold stock or warrants in the Company. Sales and
marketing--related parties for the nine months ended September 30, 1999 was $5.3
million compared to zero for the nine months ended September 30, 1998. The
increase is attributable to shipments of personal video recorders and to related
activations of the TiVo Service, which began in March 1999.
General and administrative expenses. General and administrative expenses
consist primarily of employee salaries and related expenses for executive,
administrative, accounting, information systems, customer service personnel,
facility costs, professional fees and recruiting. General and administrative
expenses for the
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nine months ended September 30, 1999 were $5.5 million compared to $1.6 million
for the nine months ended September 30, 1998. This increase was primarily
attributable to the hiring of additional administrative personnel and related
expenses and the costs of establishing Information Services and Service
Operations departments, which did not exist during the nine months ended
September 30, 1998.
Stock-based compensation. During 1999, we granted stock options with
exercise prices that were less than the estimated fair market value of the
underlying shares of common stock for accounting purposes on the date of grant.
This will result in stock-based compensation expense over the period that these
options vest. The stock-based compensation expense was approximately $688,000
for the nine months ended September 30, 1999.
Other operating expenses, net. Other operating expenses, net consists of
the proceeds from the sale of personal video recorders net of the cost of the
personal video recorders sold. For the nine months ended September 30, 1999,
other operating expenses, net was $5.0 million compared to zero for the nine
months ended September 30, 1998. We transitioned manufacturing and selling
personal video recorders in the fourth quarter of 1999 to Philips. The revenues
and costs resulting from the sale of personal video recorders are considered
incidental to our business and as such have been classified as other operating
expense, net.
Interest income. Interest income resulting from cash and cash equivalents
held in interest bearing accounts and short term investments was $892,000 for
the nine months ended September 30, 1999 compared to $81,000 for the nine months
ended September 30, 1998, as cash balances increased.
Interest expense and other. Interest expense and other was $416,000 for the
nine months ended September 30, 1999. This includes amortization of the value
assigned to the warrants of $392,000 and interest expense of $24,000 resulting
from borrowings under a capital lease agreement. For the nine months ended
September 30, 1998, interest expense and other was $20,000.
Quarterly Results of Operations
The following table represents certain unaudited statement of operations
data for our seven most recent quarters ended September 30, 1999. In
management's opinion, this unaudited information has been prepared on the same
basis as the audited annual financial statements and includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
representation of the unaudited information for the quarters presented. This
information should be read in conjunction with our financial statements,
including the notes thereto, included elsewhere in this prospectus. The results
of operations for any quarter are not necessarily indicative of results that may
be expected for any future period.
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<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- ------------- ------------ --------- -------- -------------
(unaudited, in thousands)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Subscription revenues................ $ -- $ -- $ -- $ -- $ -- $ 8 $ 33
Costs and expenses
Cost of services.................... -- -- -- -- (618) (552) (611)
Research and development............ (793) (1,016) (1,659) (2,146) (1,369) (1,630) (1,977)
Sales and marketing................. (134) (222) (354) (567) (2,056) (1,728) (5,150)
Sales and marketing--related -- -- -- -- -- (382) (4,946)
parties............................
General and administrative.......... (293) (610) (706) (1,337) (1,535) (1,489) (2,418)
Stock-based compensation............ -- -- -- -- -- (187) (501)
Other operating expense, net........ -- -- -- -- 12 (201) (4,808)
------- ------- ------- ------- ------- ------- --------
Loss from operations................ (1,220) (1,848) (2,719) (4,050) (5,566) (6,161) (20,378)
Interest income...................... 18 17 46 55 53 224 614
Interest expense and other........... (2) (11) (7) -- (2) (176) (281)
------- ------- ------- ------- ------- ------- --------
Net loss........................... $(1,204) $(1,842) $(2,680) $(3,995) $(5,515) $(6,113) $(20,045)
======= ======= ======= ======= ======= ======= ========
</TABLE>
We expect sales and marketing expenses to continue to increase
substantially in connection with the retail launch of the TiVo Service, which
began in the third quarter of 1999. To launch the TiVo Service in the retail
channel, we initiated an extensive advertising campaign, hired additional sales
and marketing personnel and began a marketing campaign through television,
radio, print and internet-based advertising and direct mail. We committed a
significant amount of human and financial resources to supplement the sales and
marketing efforts of our strategic partners, to participate in trade shows,
produce commercials and infomercials and create other marketing collateral. We
expect to continue to spend increasing amounts on sales and marketing to attract
subscribers and retailers.
The TiVo Service is enabled through a personal video recorder that is sold
in retail channels like other consumer electronic devices. As a result, we
anticipate that our business will be seasonal and we expect to generate a
significant number of our annual new subscribers during the holiday shopping
season. We also expect to generate a portion of future revenues from television
advertising, which tends to be seasonal and cyclical, reflecting overall
economic conditions as well as budgeting and buying patterns.
Liquidity and Capital Resources
From inception through September 30, 1999, we financed our operations and
met our capital expenditure requirements primarily from proceeds of the private
sale of equity securities totaling approximately $102.8 million, excluding the
net proceeds of our initial public offering of $90.5 million. At September 30,
1999, we had $60.0 million of cash and cash equivalents along with $8.2 million
of short-term investments. The expansion of our business will require
significant additional capital to fund operating losses, capital expenditures
and working capital needs.
Net cash used in operating activities was $24.3 million for the nine months
ended September 30, 1999. Net cash used during this period was primarily a
result of the research and development, sales and marketing and general and
administrative costs to support the development of the TiVo Service and the
personal video recorder that enables the TiVo Service. During the nine months
ended September 30, 1999 we began providing the TiVo Service, incurring a net
loss of $31.7 million. Uses of cash from operating activities included an
increase in accounts receivable of $8.8 million, an increase in prepaid expenses
and other of $1.4 million and an increase in inventory of $946,000. This was
offset by sources of cash from operating activities resulting from an increase
in accrued liabilities of $8.3 million, an increase in accounts payable of $4.4
million, and an increase in deferred revenue of $286,000.
Net cash used in investing activities was $9.9 million for the nine months
ended September 30, 1999. Net cash used in investing activities during the nine
months ended September 30, 1999 included $8.1 million for short term investments
and $1.8 million for the acquisition of property and equipment.
Net cash provided by financing activities was $92.0 million for the nine
months ended September 30, 1999. Of this amount, $90.6 million was received from
the issuance of Series D, E, F, G, H, I and J preferred stock to several
investors, including Vulcan Ventures Incorporated, Showtime Networks, Inc.,
DIRECTV, NBC Multimedia, Inc., Philips Corporate External Ventures B.V.,
Advance/Newhouse, CBS Corporation, Comcast Interactive, Cox Communication,
Discovery Communications, Liberty Media Corporation, TV Guide Interactive,
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The Walt Disney Company (through its wholly owned subsidiary Catalyst
Investments L.L.C.), America Online, Inc. and Sony Corporation of America, Inc.
Additionally, we obtained $1.0 million of financing through a capital lease and
$854,000 from the issuance of common stock for stock options exercised. Cash was
used to offset a bank overdraft of $442,000 during the period.
In December 1997, we established a $750,000 line of credit with a financial
institution, which expired on August 15, 1999. The line was partially utilized
to secure a letter of credit in the amount of $600,000, which expired in July
1999. No amounts were outstanding at September 30, 1999.
We have commitments under facilities operating leases of $590,000 and
obligations under capital leases of $1.0 million as of September 30, 1999. The
obligations under the capital lease relate to equipment leased under a total
available lease line of $2.5 million, which expires in February 2000.
On April 8, 1999, we entered into a secured convertible debenture purchase
agreement with New Enterprise Associates VII, L.P., Institutional Ventures VII,
L.P. and two other stockholders. In connection with the agreement, we issued
warrants. The value assigned to these warrants is being amortized over the six-
month term of the commitment. As of September 30, 1999, we had no outstanding
amounts under this agreement. All of the warrants issued under the terms of this
agreement expired upon the completion of our initial public offering and were
exercised at the completion of our initial public offering.
Our future capital requirements will depend on a variety of factors,
including market acceptance of personal television and the TiVo Service, the
resources we devote to developing, marketing, selling and supporting our
products and other factors. We expect to devote substantial capital resources:
. to subsidize the sale of personal video recorders;
. to hire and expand our engineering, sales and marketing and customer
support organizations;
. for a new facility; and
. for general corporate purposes.
We believe that our cash and cash equivalents, the net proceeds from the
sale of our preferred stock and the net proceeds from the initial public
offering will be sufficient to fund our operations for at least the next 12
months. Despite our expectations, we may need to raise additional capital before
the end of the next 12 months. Beyond one year, we may need to raise additional
funds in order to:
. fund anticipated growth, including significant increases in personnel,
office facilities and computer systems;
. develop new or enhance existing services or products;
. expand into new markets and respond to competitive pressures; or
. acquire or invest in complementary businesses, technologies, services
or products.
In addition, in order to meet long-term liquidity needs, we may need to
raise additional funds, establish a credit facility or seek other financing
arrangements. Additional funding may not be available on favorable terms or at
all. See "Factors That May Affect Future Operating Results--If we are unable to
raise additional capital on acceptable terms, our ability to effectively manage
growth and build a strong brand could be harmed."
Year 2000 Issue
Many computer programs have been written using two digits rather than four
to define the applicable year. This poses a problem at the end of the century
because these computer programs would not properly recognize the year format.
This could result in major system failures or miscalculations that could disrupt
our
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business. We have formulated a year 2000 plan to assess and address any year
2000 issues and have created a year 2000 task force headed by our chief
information officer to implement the plan.
We use an internal calendar in both the personal video recorder and the
TiVo broadcast service center. The personal video recorder uses an internal
calendar for recording shows as well as to dial into the TiVo broadcast service
center for nightly downloads of program guide data and other content. The TiVo
broadcast service center uses a calendar to distribute program guide data and
content.
State of Readiness
The TiVo Service and the personal video recorder that enables the TiVo
Service have been tested for year 2000 compliance and, at this time, there are
no known issues.
We have completed an initial assessment of the criticality of our
suppliers' technology being year 2000 compliant. We are currently testing the
year 2000 compliance of any vendors' and suppliers' interfaces that have a high
impact on our business. Those third-party interfaces with moderate impact on our
business were assessed by reviewing these third parties' web sites or by
requesting a letter from such parties to prove compliance. We do not intend to
conduct further investigation on those third-party technologies that have a low
impact on our business other than reviewing these parties' web sites.
As we have added strategic partners, we have inquired as to the year 2000
compliance of their systems. To date, all critical partners we are working with
have indicated that their systems are, or will be prior to the end of 1999, year
2000 compliant. We have not required any formal paperwork from, or conducted any
tests with, these partners.
We have completed an assessment of our information technology systems,
which includes, but is not limited to, hardware and software required to support
our broadcast service center as well as our internal business systems. We also
assessed our non-information technology systems, which include facility date
sensitive systems. Most information technology systems have been purchased in
the last six months. Year 2000 compliance has always been a major part of the
selection criteria. Our assessment included the following steps:
. identification of categories of hardware and software that need to be
evaluated;
. listing of all hardware and software by category and rated by
criticality;
. determination of any known year 2000 issues;
. adoption of a proof assessment approach based on criticality to our
business;
. creation of a high level plan for assessment and remediation by item;
and
. implementation of the plan.
We completed our year 2000 assessment in September 1999 and plan to
complete interface testing and remediation by November 30, 1999. At this stage,
we are not aware of any year 2000 issues that would have a material effect on
our business.
Costs
As of September 30, 1999, we have incurred costs of approximately $20,000,
and we expect to incur an additional $15,000, in connection with identifying,
evaluating and addressing year 2000 compliance issues. All of the expenses to
date have related to, and are expected to continue to relate to, operating costs
associated with time spent by our employees in the evaluation process and some
charges related to upgrades identified during our vendor communications or
testing.
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Risks
Our ongoing attention to year 2000 issues may identify material non-
compliance issues with the TiVo Service or the personal video recorder, our
informational technology systems or the systems of our partners or suppliers. We
may not be able to successfully resolve these issues, or it may be costly to do
so. In addition, we cannot assure you that governmental agencies, utility
companies, third-party service providers and others outside of our control will
be year 2000 compliant. The failure by such entities to be year 2000 compliant
could result in a systemic failure beyond our control, such as a prolonged
telecommunications or electrical failure, which could prevent us from delivering
upgrades and regular downloads to the personal video recorders that enable the
TiVo Service or otherwise impact the functionality of the personal video
recorder. Any of these occurrences would have a material adverse effect on our
business.
Contingency Plans
Year 2000 issues that impair the delivery of the TiVo Service will be
addressed via software upgrades to the TiVo broadcast service center and/or the
personal video recorder via the nightly download of data over the telephone
line. Up to 12 days of program guide data can be stored on the personal video
recorder. The program guide data related to the 12th day into the future is
downloaded onto the personal video recorder every night. If a year 2000 issue
prevents this nightly download of program guide data, there would still be up to
12 days of program guide data on the personal video recorder at that point in
time. Each day a download does not arrive, however, there would be one less day
the subscriber could record in the future. After the 12th day following a year
2000 issue that impacts these nightly downloads, the personal video recorder
could only be used in "non-service mode" until a software fix could be
downloaded. In non-service mode, a subscriber could still use the pause, rewind
and fast forward features, but could only record programs by manually
programming the channel and time into the personal video recorder.
If the personal video recorder's downloading process malfunctioned due to a
year 2000 issue, or if software downloads were unable to remedy the problem, the
personal video recorder would have to be returned and repaired either by TiVo or
its manufacturing partners.
To address potential facility-related year 2000 issues on our most critical
systems, we are moving the TiVo broadcast service center into co-location at
UUnet in November 1999. The UUnet co-location is equipped with generators that
can provide several weeks of back-up power.
The results of our assessment and testing were taken into account in
determining the nature and extent of our contingency plans.
Impact of Inflation
We believe that inflation has not had a significant impact on our operating
results.
Recently Issued Accounting Standards
We have adopted SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information" in 1998. SFAS No. 131 established standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 also establishes standards for related disclosure
about products and services, geographic areas, and major customers. The adoption
of SFAS No. 131 required no additional disclosures in our consolidated financial
statements as we operate in a single reportable segment.
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Factors That May Affect Future Operating Results
In addition to the other information included in this Report, the following
factors should be considered in evaluating our business and future prospects:
We have recognized very limited revenue, have incurred significant net losses
and may never achieve profitability.
We have recognized limited revenues, have incurred significant losses and
have had substantial negative cash flow. From our inception in August 1997 to
September 30, 1999, we had $41,000 of subscription revenues. As of September 30,
1999, we had an accumulated deficit of $42.0 million. We expect to incur
significant operating expenses over the next several years in connection with
the continued development and expansion of our business. As a result, we expect
to continue to incur losses for the foreseeable future. The size of these net
losses depends in part on the growth in our subscriber base and on our expenses.
With increased expenses, we will need to generate significant additional
revenues to achieve profitability. Consequently, we may never achieve
profitability, and even if we do, we may not sustain or increase profitability
on a quarterly or annual basis in the future.
Our limited operating history may make it difficult for us or investors to
evaluate trends and other factors that affect our business.
We were incorporated in August 1997 and have been obtaining subscribers and
selling personal video recorders only since March 31, 1999. Prior to that time,
our operations consisted primarily of research and development efforts. As of
September 30, 1999, we had sold only a limited number of personal video
recorders and obtained a limited number of subscribers to the TiVo Service.
Sales and subscriptions to date have been generated through limited marketing
campaigns, word-of-mouth and our web site. As a result of our limited operating
history, our historical financial and operating information is of limited value
in evaluating our future operating results. In addition, any evaluation of our
business and prospects must be made in light of the risks and difficulties
encountered by companies offering products or services in new and rapidly
evolving markets. For example, it may be difficult to accurately predict our
future revenues, costs of revenues, expenses or results of operations. Personal
television is a new product category for consumers and it may be difficult to
predict the future growth rate, if any, or size of the market for our products
and services. We may be unable to accurately forecast customer behavior and
recognize or respond to emerging trends, changing preferences or competitive
factors facing us. As a result, we may be unable to make accurate financial
forecasts and adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall. This inability could cause our net losses in a
given quarter to be greater than expected, which could cause the price of our
stock to decline.
If our retail launch is not successful, consumers and consumer electronics
manufacturers may not accept the TiVo service and products that enable the TiVo
service.
Our success depends upon a successful retail launch of the TiVo Service and
related personal video recorders, which began in the third quarter of 1999 and
will continue through the 1999 holiday season. During this time, we will rely
principally on Philips to manufacture, market, sell and support the personal
video recorder that enables the TiVo Service. We also will rely on the efforts
of DIRECTV to market, sell and support the TiVo Service to DIRECTV subscribers.
The launch requires, among other things, that we:
. educate consumers on the benefits of the TiVo Service and related
personal video recorder, which will require an extensive marketing
campaign;
. commit a substantial amount of human and financial resources to
achieve retail distribution; and
. coordinate our own sales, marketing and support activities with those
of Philips, DIRECTV and other strategic partners.
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We or our strategic partners may not achieve any or all of these
objectives. In addition, the launch may be delayed, consumers may perceive the
TiVo Service and related personal video recorder as too expensive or complex and
our marketing campaign may not effectively attract new subscribers. Because of
competitive offerings or changing preferences, consumers may delay or decline
the purchase of the TiVo Service and related personal video recorder. All of
these events would reduce consumer demand and market acceptance, diminish our
brand and impair our ability to attract subscribers to the TiVo Service.
We have agreed to share a substantial portion of the revenue we generate from
subscription fees with some of our strategic partners. We may be unable to
generate enough revenue to cover these obligations.
We have agreed to share a substantial portion of our subscription and other
fees with some of our strategic partners in exchange for manufacturing,
distribution and marketing support and discounts on key components for personal
video recorders. Given how these amounts are calculated, we may be required to
share substantial portions of the subscription and other fees attributable to
the same subscriber with multiple partners. These agreements require us to share
a portion of our subscription fees whether or not we reduce the price of the
TiVo Service. If we reduce our subscription fees in response to competitive or
other market factors, our operating results would be adversely affected. Our
decision to share subscription revenues is based on our expectation that our
partnerships will help us obtain subscribers, broaden market acceptance of
personal television and increase our future revenues. If these expectations are
not met, we may be unable to generate sufficient revenue to cover our expenses
and obligations.
We depend on a limited number of third parties to manufacture, distribute and
supply critical components and services for the personal video recorders that
enable the TiVo Service. We may be unable to operate our business if these
parties do not perform their obligations.
The TiVo Service is enabled through the use of a personal video recorder
made available by a limited number of third parties. In addition, we rely on
sole suppliers for a number of key components for the personal video recorders.
We do not control the time and resources that these third parties devote to our
business. We cannot be sure that these parties will perform their obligations as
expected or that any revenue, cost savings or other benefits will be derived
from the efforts of these parties. If any of these parties breaches or
terminates its agreement with us or otherwise fails to perform their obligations
in a timely manner, we may be delayed or prevented from commercializing our
products and services. Because our relationships with these parties are non-
exclusive, they may also support products and services that compete directly
with us, or offer similar or greater support to our competitors. Any of these
events could require us to undertake unforeseen additional responsibilities or
devote additional resources to commercialize our products and services. This
outcome would harm our ability to compete effectively and quickly achieve market
acceptance and brand recognition.
In addition, we face the following risks in relying on these third parties:
If our manufacturing partnerships with Philips and other third parties are
not successful, we may be unable to establish a market for our products and
services. We initially manufactured the personal video recorders that enable the
TiVo Service through a third-party contract manufacturer. We have entered into
an agreement with Philips to manufacture and distribute the personal video
recorders that enable the TiVo Service. We have transitioned manufacturing of
the personal video recorder from the third-party contract manufacturer to
Philips, and Philips assumed manufacturing responsibility in the fourth quarter
of 1999. However, we have no minimum volume commitments from Philips or any
other manufacturer. The transition to using Philips as sole manufacturer, and
its ability to reach sufficient production volume of the personal video recorder
to satisfy anticipated demand, is subject to delays and unforeseen problems such
as defects, shortages of critical components and cost overruns. Moreover,
Philips and any other manufacturer will require substantial lead times to
manufacture anticipated quantities of the personal video recorders that enable
the TiVo Service. Philips may
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have very little time to remedy unforeseen delays or problems that may arise.
Such delays and other problems could impair our retail launch and brand image
and make it difficult for us to attract subscribers. In addition, the loss of
Philips would require us to identify and contract with alternative sources of
manufacturing, which we may be unable to do and which could prove time-consuming
and expensive. Although we expect to contract with additional consumer
electronics companies for the manufacture of personal video recorders in the
future, we may be unable to establish additional relationships on acceptable
terms.
If our corporate partners fail to perform their obligations, we may be
unable to effectively market and distribute our products and services. As part
of our retail launch, Philips is distributing the personal video recorder that
enables the TiVo Service. We will rely on Philips' sales force, marketing budget
and brand image to promote and support the personal video recorder and the TiVo
Service. After the retail launch, we expect to continue to rely on Philips and
other strategic partners to promote and support the personal video recorder and
other devices that enable the TiVo Service. The loss of one or more of these
partners would require us to undertake more of these activities on our own. As a
result, we would spend significant resources to support personal video recorders
and other devices that enable the TiVo Service. We also expect to rely on
DIRECTV and other partners to provide marketing support for the TiVo Service.
The failure of one or more of these partners to provide anticipated marketing
support will require us to divert more of our limited resources to marketing the
TiVo Service. If we are unable to provide adequate marketing support for the
personal video recorder and the TiVo Service, our ability to attract subscribers
to the TiVo Service will be limited.
We are dependent on single suppliers for several key components and
services. If these suppliers fail to perform their obligations, we may be unable
to find alternative suppliers or deliver our products and services to our
customers on time. We currently rely on sole suppliers for a number of the key
components and services used in the personal video recorders and the TiVo
Service. For example:
. Quantum is the sole supplier of the hard disk drives;
. NEC is the sole supplier of the application specific integrated
circuit, a semiconductor device;
. Sony is the sole supplier of the MPEG2 encoder semiconductor device;
and
. Tribune Media Services is the sole supplier of program guide data.
We cannot be sure that alternative sources for these and other key
components and services used in the personal video recorders and the TiVo
Service will be available when needed or, if available, that these components
and services will be available on favorable terms. If our agreements with
Quantum, NEC, Sony or Tribune Media Services were to terminate or expire, or if
we were unable to obtain sufficient quantities of these components or required
program guide data, our search for alternate suppliers could result in
significant delays, added expense or disruption in product availability.
Our ability to generate revenues from subscription fees is unproven and may
fail.
We expect to generate a substantial portion of our revenues from
subscription fees for the TiVo Service. Many of our potential customers already
pay monthly fees for cable or satellite television services. We must convince
these consumers to pay an additional subscription fee to receive the TiVo
Service. The availability of competing services that do not require subscription
fees will harm our ability to effectively attract subscribers. In addition, the
personal video recorder that enables the TiVo Service can be used to record
programs and pause, rewind and fast forward through live or recorded shows
without an active subscription to the TiVo Service. If a significant number of
purchasers of our personal video recorders use these devices without subscribing
to the TiVo Service, our revenue growth will decline and we may not achieve
profitability.
Our business is expanding rapidly and our failure to manage growth could
disrupt our business and impair our ability to generate revenues.
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Since we began our business in August 1997, we have significantly expanded
our operations. We anticipate continued expansion in our headcount, facilities
and infrastructure to support potential growth in our subscriber base and to
allow us to pursue market opportunities. This expansion has placed, and will
continue to place, a significant strain on our management, operational and
financial resources and systems. Specific risks we face as our business expands
include:
We need to attract and retain qualified personnel, and any failure to do so
may impair our ability to offer new products or grow our business. Our success
will depend on our ability to attract, retain and motivate managerial,
technical, marketing and customer support personnel. Competition for such
employees is intense, especially for engineers in the San Francisco Bay Area,
and we may be unable to successfully attract, integrate or retain sufficiently
qualified personnel. If we are unable to hire, train, retain and manage required
personnel, we may be unable to successfully introduce new products or otherwise
implement our business strategy.
Any inability of our systems to accommodate our expected subscriber growth
may cause service interruptions or delay our introduction of new services. We
internally developed many of the systems we use to run the TiVo Service and
perform other processing functions. The ability of these systems to scale as we
rapidly add new subscribers is unproven. We must continually improve these
systems to accommodate subscriber growth and add features and functionality to
the TiVo Service. Our inability to add additional software and hardware or to
upgrade our technology, systems or network infrastructure could adversely affect
our business, cause service interruptions or delay the introduction of new
services.
We will need to provide acceptable customer support, and any inability to
do so will harm our brand and ability to generate and retain new subscribers.
Our ability to increase sales, retain current and future subscribers and
strengthen our brand will depend in part upon the quality of our customer
support operations. Some customers require significant support when installing
the personal video recorder and becoming acquainted with the features and
functionality of the TiVo Service. We have limited experience with widespread
deployment of our products and services to a diverse customer base, and we may
not have adequate personnel to provide the levels of support that our customers
require. In addition, we have entered into agreements with third parties to
provide this support and will rely on them for a substantial portion of our
customer support functions. Our failure to provide adequate customer support for
the TiVo Service and personal video recorder will damage our reputation in the
personal television and consumer electronics marketplace and strain our
relationships with customers and strategic partners. This could prevent us from
gaining new or retaining existing subscribers and could cause harm to our
reputation and brand.
We will need to improve our operational and financial systems to support
our expected growth, and any inability to do so will adversely impact our
billing and reporting. To manage the expected growth of our operations and
personnel, we will need to improve our operational and financial systems,
procedures and controls. Our current and planned systems, procedures and
controls may not be adequate to support our future operations and expected
growth. For example, we expect to replace our accounting and billing system
within the next year. Delays or problems associated with any improvement or
expansion of our operational systems and controls could adversely impact our
relationships with viewers and cause harm to our reputation and brand. Delays or
problems associated with any improvement or expansion of our operational systems
and controls could also result in errors in our financial and other reporting.
If we are unable to create multiple revenue streams, we may not be able to
cover our expenses or meet our obligations to strategic partners and other third
parties.
Although our initial success will depend on building a significant customer
base and generating subscription fees from the TiVo Service, our long-term
success will depend on securing additional revenue streams such as:
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. advertising;
. revenues from networks; and
. electronic commerce or couch commerce.
In order to derive substantial revenues from these activities, we will need
to attract and retain a large and growing base of subscribers to the TiVo
Service. We also will need to work closely with television advertisers, cable
and satellite network operators, electronic commerce companies and consumer
electronics manufacturers to develop products and services in these areas. We
may not be able to effectively work with these parties to develop products that
generate revenues that are sufficient to justify their costs. In addition, we
are currently obligated to share a portion of these revenues with one of our
strategic partners. Any inability to attract and retain a large and growing
group of subscribers and strategic partners will seriously harm our ability to
support new services and develop new revenue streams.
It will take a substantial amount of time and resources to achieve broad
market acceptance of the TiVo Service and products that enable the TiVo Service
and we cannot be sure that these efforts will generate a broad enough subscriber
base to sustain our business.
Personal television products and services represent a new, untested
consumer electronics category. The TiVo Service is in an early stage of
development and many consumers are not aware of its benefits. As a result, it is
uncertain whether the market will demand and accept the TiVo Service and
products that enable the TiVo Service. Retailers, consumers and potential
partners may perceive little or no benefit from personal television products and
services. Likewise, consumers may not value, and may be unwilling to pay for the
TiVo Service and products that enable the TiVo Service. To develop this market
and obtain subscribers to the TiVo Service, we will need to devote a substantial
amount of time and resources to educate consumers and promote our products. We
may fail to obtain subscribers, encourage the development of new devices that
enable the TiVo Service and develop and offer new content and services. We
cannot be sure that a broad base of consumers will ultimately subscribe to the
TiVo Service or purchase the products that enable the TiVo Service.
We face intense competition from a number of sources, which may impair our
revenues and ability to generate subscribers.
The personal television market is new and rapidly evolving and we expect
competition from a number of sources, including:
Internet-related companies and companies offering similar products and
services. We are likely to face intense direct competition from companies such
as WebTV Networks Inc., America Online, Inc., Replay Networks, Inc. and X-TV.
These companies offer, or have announced their intention to offer, products with
one or more of the TiVo Service's functions or features and, in some instances,
combine these features with Internet browsing or traditional broadcast, cable or
satellite television programming. Many of these companies have greater brand
recognition and market presence and substantially greater financial, marketing
and distribution resources than we do. For example, Microsoft Corporation
controls and provides financial backing to WebTV. Some of these companies also
have established relationships with third party consumer electronic
manufacturers, network operators and programmers, which could make it difficult
for us to establish relationships and enter into agreements with these third
parties. Some of these competitors also have relationships with our strategic
partners. For example, DIRECTV recently formed an alliance with America Online.
Faced with this competition, we may be unable to expand our market share and
attract an increasing number of subscribers to the TiVo Service.
Established competitors in the consumer electronics market. We compete with
consumer electronic products in the television and home entertainment industry.
The television and home entertainment industry is
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characterized by rapid technological innovation, a small number of dominant
manufacturers and intense price competition. As a new product category, personal
television enters a market that is crowded with several established products and
services. The competition for consumer spending in the television and home
entertainment market is intense, and our products and services will compete
with:
. satellite television systems;
. video on demand services; and
. laser disc players.
Most of these technologies or devices have established markets, a broad
subscriber base and proven consumer acceptance. In addition, many of the
manufacturers and distributors of these competing devices have substantially
greater brand recognition, market presence, distribution channels, advertising
and marketing budgets and promotional and other strategic partners. Faced with
this competition, we may be unable to effectively differentiate the personal
video recorder or the TiVo Service from these devices.
Personal television, in general, and TiVo, specifically, also compete with
traditional advertising media such as print, radio and television for a share of
advertisers' total advertising budgets. If advertisers do not perceive personal
television as an effective advertising medium, they may be reluctant to devote a
significant portion of their advertising budget to promotions on the TiVo
Service.
If we are unable to introduce new products or services, or if our new products
and services are unsuccessful, the growth in our subscriber base and revenues
may suffer.
To attract and retain subscribers and generate revenues, we must continue
to add functionality and content and introduce products and services which
embody new technologies and, in some instances, new industry standards. This
challenge will require hardware and software improvements, as well as new
collaborations with programmers, advertisers, network operators, hardware
manufacturers and other strategic partners. These activities require significant
time and resources and may require us to develop and promote new ways of
generating revenue with established companies in the television industry. These
companies include television advertisers, cable and satellite network operators,
electronic commerce companies and consumer electronics manufacturers. In each of
these examples, a small number of large companies dominate a major portion of
the market and may be reluctant to work with us to develop new products and
services for personal television. If we are unable to further develop and
improve the TiVo Service or expand our operations in a cost-effective or timely
manner, our ability to attract and retain subscribers and generate revenue will
suffer.
If we do not successfully establish strong brand identity in the personal
television market, we may be unable to achieve widespread acceptance of our
products.
We believe that establishing and strengthening the TiVo brand is critical
to achieving widespread acceptance of our products and services and to
establishing key strategic partnerships. The importance of brand recognition
will increase as current and potential competitors enter the personal television
market with competing products and services. Our ability to promote and position
our brand depends largely on the success of our marketing efforts and our
ability to provide high quality services and customer support. These activities
are expensive and we may not generate a corresponding increase in subscribers or
revenues to justify these costs. If we fail to establish and maintain our brand,
or if our brand value is damaged or diluted, we may be unable to attract
subscribers and effectively compete in the personal television market.
Product defects, system failures or interruptions to the tivo service may have
a negative impact on our revenues, damage our reputation and decrease our
ability to attract new subscribers.
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Our ability to provide uninterrupted service and high quality customer
support depends on the efficient and uninterrupted operation of our computer and
communications systems. Our computer hardware and other operating systems for
the TiVo Service are vulnerable to damage or interruption from earthquakes,
floods, fires, power loss, telecommunication failures and similar events. They
are also subject to break-ins, sabotage, intentional acts of vandalism and
similar misconduct. These types of interruptions in the TiVo Service may reduce
our revenues and profits. Our business also will be harmed if consumers believe
our service is unreliable. In addition to placing increased burdens on our
engineering staff, service outages will create a flood of customer questions and
complaints that must be responded to by our customer support personnel. Any
frequent or persistent system failures could irreparably damage our reputation
and brand.
We have detected and may continue to detect errors and product defects.
These problems can affect system uptime, result in significant warranty and
repair costs and cause customer relations problems. Correcting errors in our
software requires significant time and resources, which could delay product
releases and affect market acceptance of the TiVo Service. Any delivery by us of
products or upgrades with undetected material product defects or software errors
could harm our credibility and market acceptance and sales of our products.
Intellectual property claims against us can be costly and could result in the
loss of significant rights.
From time to time, we may be subject to intellectual property litigation
which could:
. be time-consuming and expensive;
. divert management's attention and resources away from our business;
. cause delays in product delivery and new service introduction;
. cause the cancellation of new products or services; or
. require us to pay significant royalties or licensing fees.
The emerging enhanced-television industry is highly litigious, particularly
in the area of on-screen program guides. Additionally, many patents covering
interactive television technologies have been granted but have not been
commercialized. For example, we are aware of at least seven patents for pausing
live television. A number of companies in the enhanced-television industry earn
substantial profits from technology licensing, and the introduction of new
technologies such as ours is likely to provoke lawsuits from such companies. A
successful claim of infringement against us, our inability to obtain an
acceptable license from the holder of the patent or other right or our inability
to design around an asserted patent or other right could cause us to cease
manufacturing the personal video recorder or providing our service, or both,
which would eliminate our ability to generate revenues.
In addition, we are aware that some media companies may attempt to form
organizations to develop standards and practices in the personal television
industry. These organizations or individual media companies may attempt to
require companies in the personal television industry to obtain copyright or
other licenses. A number of articles have appeared in the recent press regarding
the formation of a consortium of broadcast and cable television networks called
the Advanced Television Copyright Coalition. Some of those articles have
indicated that the coalition is prepared to support litigation and to explore
legislative solutions unless the members of the personal television industry
agree to obtain license agreements for use of the companies' programming. We
have received letters from Time Warner Inc. and Fox Television stating that
these entities believe our personal television service exploits copyrighted
networks and programs without the necessary licenses and business arrangements.
Lawsuits or other actions taken by these types of organizations or companies
could make it more difficult for us to introduce new services, delay widespread
consumer acceptance of our products and services, restrict our use of some
television content, increase our costs and adversely affect our business.
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Our success depends on our ability to secure and protect patents, trademarks
and other proprietary rights.
Our success and ability to compete are substantially dependent upon our
internally developed technology. We rely on patent, trademark and copyright law,
trade secret protection and confidentiality or license agreements with our
employees, customers, partners and others to protect our proprietary rights.
However, the steps we take to protect our proprietary rights may be inadequate.
We have filed patent applications and provisional patent applications covering
substantially all of the technology used to deliver the TiVo Service and its
features and functionality. To date, none of these patents has been granted, and
we cannot assure you that any patents will ever be granted, that any issued
patents will protect our intellectual property or that third parties will not
challenge any issued patents. In addition, other parties may independently
develop similar or competing technologies designed around any patents that may
be issued to us. Our failure to protect our proprietary rights could have a
material adverse effect on our business.
Laws or regulations that govern the television industry and the delivery of
programming could expose us to legal action if we fail to comply or could
require us to change our business.
Personal television and the delivery of television programming through the
TiVo Service and a personal video recorder represents a new category in the
television and home entertainment industries. As such, it is difficult to
predict what laws or regulations will govern our business. Changes in the
regulatory climate or the enforcement or interpretation of existing laws could
expose us to additional costs and expenses and could require changes to our
business. For example, copyright laws could be applied to restrict the capture
of television programming, which would adversely affect our business. It is
unknown whether existing laws and regulations will apply to the personal
television market. Therefore, it is difficult to anticipate the impact of
current or future laws and regulations on our business.
The Federal Communications Commission has broad jurisdiction over the
telecommunications and cable industries. The majority of FCC regulations, while
not directly affecting us, do affect many of the strategic partners on whom we
substantially rely for the marketing and distribution of the personal video
recorder and the TiVo Service. As such, the indirect effect of these regulations
may adversely affect our business. In addition, the FCC could promulgate new
regulations, or interpret existing regulations in a manner that would cause us
to incur significant compliance costs or force us to alter the features or
functionality of the TiVo Service.
We need to safeguard the security and privacy of our subscribers' confidential
data, and any inability to do so may harm our reputation and brand.
The personal video recorder collects and stores viewer preferences and
other data that many of our subscribers consider confidential. Any compromise
or breach of the encryption and other security measures that we use to protect
this data could harm our reputation and expose us to potential liability.
Advances in computer capabilities, new discoveries in the field of cryptography,
or other events or developments could compromise or breach the systems we use to
protect our subscribers' confidential information. We may be required to make
significant expenditures to protect against security breaches or to remedy
problems caused by any breaches.
Uncertainty in the marketplace regarding the use of data from subscribers
could reduce demand for the TIVo Service and result in increased expenses.
Consumers may be concerned about the use of personal information gathered
by the TiVo Service and personal video recorder. Under our current policy, we
do not access this data or release it to third parties. Privacy concerns,
however, could create uncertainty in the marketplace for personal television and
our products and services. Changes in our privacy policy could reduce demand
for the TiVo Service, increase the cost of
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doing business as a result of litigation costs or increased service delivery
costs, or otherwise harm our reputation and business.
We would lose revenues and incur significant costs if our systems or those of
our key partners or suppliers are not year 2000 compliant.
Many computer programs have been written using two digits rather than four
to define the applicable year. This poses a problem at the end of the century
because these computer programs do not properly recognize the year. This could
result in major system failures or miscalculations that would disrupt our
business.
We completed our year 2000 assessment in September 1999 and plan to
complete interface testing and remediation by November 30, 1999. At this stage,
we are not aware of any year 2000 issues that would have a material effect on
our business. Our assessment, however, may not have identified material non-
compliance issues with the TiVo Service or the personal video recorder, our
information technology systems or the systems of our partners or suppliers. If
present, we may not be able to successfully resolve these issues, or it may be
costly to do so. In addition, we cannot assure you that governmental agencies,
utility companies, third-party service providers and others outside of our
control will be year 2000 compliant. Such entities' failure to be year 2000
compliant could result in a systemic failure beyond our control. For example, a
prolonged telecommunications or electrical failure, which could prevent us from
delivering upgrades and regular downloads to the personal video recorders that
enable the TiVo Service, could adversely impact the functionality of the
personal video recorder. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Issue."
In the future, our revenues and operating results may fluctuate significantly,
which may adversely affect the market price of our common stock.
We expect our revenues and operating results to fluctuate significantly due
to a number of factors, many of which are outside of our control. Therefore, you
should not rely on period-to-period comparisons of results of operations as an
indication of our future performance. It is possible that in some future periods
our operating results may fall below the expectations of market analysts and
investors. In this event, the market price of our common stock would likely
fall.
Factors that may affect our quarterly operating results include:
. demand for personal video recorders and the TiVo Service;
. the timing and introduction of new services and features on the TiVo
Service;
. seasonality and other consumer and advertising trends;
. changes in revenue sharing arrangements with our strategic partners;
. entering into new or terminating existing strategic partnerships;
. changes in the subsidy payments we make to certain strategic partners;
. changes in our pricing policies, the pricing policies of our
competitors and general pricing trends in the consumer electronics
market;
. loss of subscribers to the TiVo Service; and
. general economic conditions.
Because our expenses precede associated revenues, unanticipated shortfalls
in revenue could adversely affect our results of operations for any given period
and cause the market price of our common stock to fall.
Seasonal trends may cause our quarterly operating results to fluctuate, which
may adversely affect the market price of our common stock.
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Consumer electronic product sales have traditionally been much higher
during the holiday shopping season than during other times of the year. Although
predicting consumer demand for our products will be very difficult, we believe
that sales of personal video recorders and new subscriptions to the TiVo Service
will be disproportionately high during the holiday shopping season when compared
to other times of the year. If we are unable to accurately forecast and respond
to consumer demand for our products, our reputation and brand will suffer and
the market price of our common stock would likely fall.
We expect that a portion of our future revenues will come from targeted
commercials and other forms of television advertising enabled by the TiVo
Service. Expenditures by advertisers tend to be seasonal and cyclical,
reflecting overall economic conditions as well as budgeting and buying patterns.
A decline in the economic prospects of advertisers or the economy in general
could alter current or prospective advertisers' spending priorities or increase
the time it takes to close a sale with our advertisers, which could cause our
revenues from advertisements to decline significantly in any given period.
If we are unable to raise additional capital on acceptable terms, our ability
to effectively manage growth and build a strong brand could be harmed.
We expect that our existing capital resources will be sufficient to meet
our cash requirements through at least the next 12 months. However, as we
continue to grow our business, we may need to raise additional capital, which
may not be available on acceptable terms. If we cannot raise necessary
additional capital on acceptable terms, we may not be able to develop or enhance
our products and services, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements.
If additional capital is raised through the issuance of equity securities,
the percentage ownership of our existing stockholders will decline, stockholders
may experience dilution in net book value per share, or these equity securities
may have rights, preferences or privileges senior to those of the holders of our
common stock. Any debt financing, if available, may involve covenants limiting,
or restricting our operations or future opportunities.
We have agreed to subsidize the cost of manufacturing personal video
recorders, which may adversely affect our operating results and ability to
achieve profitability.
Philips assumed manufacturing responsibility for the personal video
recorders in the fourth quarter of 1999. We have agreed to pay Philips a per
unit subsidy for each personal video recorder that it manufactures and sells. A
portion of the subsidy amount is paid when the personal video recorder is
shipped. The remaining portion is due when the subscriber activates the TiVo
Service. The amount of the payments can vary depending upon Philips'
manufacturing costs and selling prices. In addition, in the event Philips is
unable to manufacture the personal video recorders at the costs currently
estimated or if selling prices are less than anticipated, we will owe additional
amounts to Philips, which could adversely affect our operating results. We are
obligated to pay a portion of the subsidy when the personal video recorder is
shipped, and we will not receive any revenues related to the unit until the unit
is sold and the purchaser activates the TiVo Service. We may make additional
subsidy payments in the future to consumer electronic and other manufacturers in
an effort to maintain a commercially viable retail price for the personal video
recorders and other devices that enable the TiVo Service.
The lifetime subscriptions to the Tivo Service that we currently offer commit
us to providing services for an indefinite period. The revenue we generate from
these subscriptions may be insufficient to cover future costs.
We currently offer subscriptions that commit us to provide service for as
long as the original subscriber uses the personal video recorder purchased. We
receive the lifetime subscription fee for the TiVo Service in advance and
amortize it as revenue over four years, which is our estimate of the service
life of the personal video
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recorder. If these lifetime subscribers use the personal video recorder for
longer than anticipated, we will incur costs without a corresponding revenue
stream. If we spend amounts received from lifetime subscriptions prior to the
end of the lifetime commitment period, we will be required to fund ongoing costs
from other sources.
If we lose key management personnel, we may not be able to successfully
operate our business.
Our future performance will be substantially dependent on the continued
services of our senior management and other key personnel. The loss of any
members of our executive management team and our inability to hire additional
executive management could harm our business and results of operations. In
addition, we do not have employment agreements with, or key man insurance
policies for, any of our key personnel.
We have recently hired several senior executive officers. Any inability by
these individuals to execute our business strategy and manage our growth could
harm our ability to generate revenues and achieve profitability.
Several members of our executive management team were hired in 1999,
including our Chief Financial Officer and Vice President of Finance, our Vice
President of Business Development, our Vice President of Human Resources, our
Vice President of Sales and our Vice President of Information Technology and
Chief Information Officer. These individuals do not have significant experience
working with the other members of our management team, and therefore may require
time to adequately familiarize themselves with the nature of our business and
operations. We cannot assure you that these individuals will be able to
successfully work together or manage any growth we may experience. The process
of integrating these individuals into our management team may detract from the
operation of our business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
TiVo's exposure to market risk for interest rate changes relates
primarily to its investment portfolio. TiVo had no derivative financial
instruments as of December 31, 1998 and September 30, 1999. TiVo places its
investment portfolio in high quality credit instruments and the amount of
credit exposure to any one issue, issuer and type of instrument is limited.
TiVo does not expect any material loss with respect to its investment
portfolio.
TiVo's investments are principally confined to our cash and cash
equivalents and short-term investments, which have short maturities and,
therefore, minimal and immaterial market risk.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
TiVo is not currently engaged in any legal proceedings. However, TiVo is
aware that media companies and other organizations may support litigation or
explore legislative solutions unless the members of the personal television
industry agree to obtain license agreements for the use of certain programming.
TiVo has received letters from Time Warner Inc. and Fox Television stating that
these entities believe TiVo's personal television service exploits copyrighted
networks and programs without the necessary licenses and business arrangements.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Since July 1, 1999, TiVo has issued and sold unregistered securities as
follows:
(a) Between July 1, 1999 and September 30, 1999, an aggregate of
378,970 shares of common stock were issued to employees upon exercise
of options with exercise prices ranging from $0.13 to $10.50. The
consideration received for such shares was $854,000.
(b) In July 1999, TiVo sold 3,121,994 shares of its Series I
Preferred Stock at $10.41 per share to eight investors for net
proceeds of approximately $31.5 million.
(c) In July 1999, TiVo issued a warrant to purchase up to an
aggregate of 192,123 shares of Series I Preferred Stock at an exercise
price of $10.41 per share to an investor.
(d) In August and September 1999, TiVo sold 3,123,789 shares of its
Series J Preferred Stock at $10.41 per share to two investors for net
proceeds of approximately $31.7 million.
All sales of common stock made pursuant to the exercise of stock options
granted under the Amended and Restated 1997 Equity Incentive Plan and 1999
Equity Incentive Plan to TiVo's officers, directors, employees and consultants
were made in reliance on Rule 701 under the Securities Act of 1933, as amended
("the Securities Act") or on Section 4(2) of the Securities Act. All other
sales were made in reliance on Section 4(2) of the Securities Act and/or
Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment and represented to TiVo that the shares were being acquired for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the securities.
TiVo's Registration Statement on Form S-1 (Registration No. 333-83515)
under the Securities Act of 1933, as amended, for the initial public offering
became effective on September 29, 1999. In the offering, we sold an aggregate of
6,166,875 shares of our common stock for an initial price of $16.00 per share,
including 666,875 shares pursuant to the exercise of the underwriters' over-
allotment option. The net proceeds from the offering were approximately $90.5
million. The managing underwriters were Credit Suisse First Boston, Allen &
Company Incorporated, BancBoston Robertson Stephens and Thomas Weisel Partners
LLC. The aggregate underwriting fees were approximately $6.9 million. Upon the
closing of the initial public offering in October 1999, all outstanding shares
of our preferred stock were automatically converted, on a one-for-one basis,
into shares of common stock. All warrants to purchase common and preferred stock
outstanding immediately prior to the closing of the initial public offering,
were simultaneously exercised and converted into shares of common stock.
Following the closing of the initial public offering, TiVo filed an amendment to
its Amended and Restated Certificate of Incorporation with the Delaware
Secretary of State that authorizes two million (2,000,000) shares of
undesignated preferred stock. For additional information about our capital
stock, please
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refer to "Description of Capital Stock" in TiVo's Registration Statement (SEC
File No. 333-83515) filed with the Securities and Exchange Commission.
TiVo expects to use the net offering proceeds from its initial public
offering for working capital and general corporate purposes, including
advertising and promotion of the TiVo Service and the TiVo brand, product
development, and expansion of its sales, marketing and service capabilities.
The use of proceeds does not represent a material change in the use of proceeds
as described in TiVo's prospectus dated September 29, 1999 comprising part of
TiVo's Registration Statement on Form S-1, as amended, filed with the Securities
and Exchange Commission (SEC File No. 333-83515). TiVo has not declared or paid
any cash dividends on its capital stock and does not anticipate paying any cash
dividends in the foreseeable future.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Since July 1, 1999, TiVo has submitted the following matters to a vote of
security holders:
(a) In July 1999, in connection with the preparation for its initial
public offering (the "IPO"), TiVo solicited the written consent of its
stockholders with respect to various matters. The matters for which stockholder
consent was solicited were as follows:
PROPOSAL 1: Approval of TiVo's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of the
IPO.
PROPOSAL 2: Approval of the amendment and restatement of TiVo's
Bylaws, to be effective upon the closing of the IPO.
PROPOSAL 3: Approval of the amendment and restatement of TiVo's 1999
Equity Incentive Plan.
PROPOSAL 4: Approval of the adoption of TiVo's 1999 Employee Stock
Purchase Plan.
PROPOSAL 5: Approval of the adoption of TiVo's 1999 Non-Employee
Directors' Stock Option Plan.
PROPOSAL 6: Approval of the form of indemnity agreement to be entered
into between TiVo and its officers and directors.
The voting of stockholders with respect to each of the foregoing proposals
was as follows:
<TABLE>
<CAPTION>
----------------------------------------------------
Consents Received Consents Not Received
----------------------------------------------------
<S> <C>
20,367,975 3,521,062
----------------------------------------------------
</TABLE>
(b) In July 1999, in connection with its proposed sale of Series I
Preferred Stock, TiVo solicited the written consent of its stockholders with
respect to (i) the amendment and restatement of TiVo's Certificate of
Incorporation, and (ii) increasing the authorized size of TiVo's Board of
Directors. The voting of stockholders with respect to each of the foregoing
proposals was as follows:
31
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------
Consents Received Consents Not Received
----------------------------------------------------
<S> <C>
20,367,975 3,521,062
----------------------------------------------------
</TABLE>
(c) In August 1999, in connection with its proposed sale of Series J
Preferred Stock, TiVo solicited the written consent of its stockholders with
respect to the amendment and restatement of TiVo's Certificate of Incorporation.
The voting of stockholders with respect to the foregoing proposal was as
follows:
<TABLE>
<CAPTION>
----------------------------------------------------
Consents Received Consents Not Received
----------------------------------------------------
<S> <C>
20,367,975 3,521,062
----------------------------------------------------
</TABLE>
Item 5. OTHER INFORMATION
None
32
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.2* Amended and Restated Certificate of Incorporation.
3.4* Amended and Restated Bylaws.
4.3* Ninth Amended and Restated Investor Rights Agreement between
TiVo and certain investors, dated as of August 6, 1999.
10.1* Form of Indemnification Agreement between TiVo and its officers
and directors.
10.2* TiVo's 1999 Equity Incentive Plan and related documents.
10.3* TiVo's Amended and Restated 1997 Equity Incentive Plan and
related documents.
10.4* TiVo's 1999 Employee Stock Purchase Plan and related documents.
10.5* TiVo's 1999 Non-Employee Directors' Stock Option Plan and
related documents.
10.6*+ Hard Disk Drive Supply Agreement between Quantum Corporation and
TiVo, dated November 6, 1998.
10.7*+ Master Agreement between Phillips Business Electronic B.V. and
TiVo, dated March 31, 1999.
10.8*+ Marketing Agreement between DIRECTV, Inc. and TiVo, dated April
13, 1999.
10.9*+ Agreement between NBC Multimedia, Inc. and TiVo, dated April 16,
1999.
10.10* Sublease Agreement between Verity, Inc. and TiVo, dated February
23, 1998.
10.11* Amendment to Sublease Agreement between Verity, Inc. and TiVo,
dated November 1998.
10.12* Second Amendment to Sublease Agreement between Verity, Inc. and
TiVo, dated March 1999.
10.13* Consent of Landlord to Sublease between Verity, Inc. and TiVo,
dated February 23, 1998.
10.15* Master Lease Agreement between Comdisco, Inc. and TiVo, dated
February 12, 1999.
10.16*+ Warrant Purchase and Equity Rights Agreement between Quantum
Corporation and TiVo, dated November 6, 1998 and related
documents.
10.17* Warrant to Purchase Shares of Series A Preferred Stock issued to
Randy Komisar, dated March 18, 1998.
10.18* Warrant Agreement between Comdisco, Inc. and TiVo, dated
February 12, 1999.
10.19* Secured Convertible Debenture Purchase Agreement between TiVo
and certain of its investors, dated April 8, 1999, and related
documents.
10.20* First Amendment to Hard Disk Supply Agreement between Quantum
and TiVo, dated June 25, 1999.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.21* TiVo's 401(k) Plan, effective December 1, 1997.
10.22*+ Tribune Media Services Television Listing Agreement between
Tribune Media Services and TiVo, dated June 1, 1998.
10.23*+ Amendment to the Data License Agreement between Teleworld Inc.,
and Tribune Media Services, Inc. between Tribune Media Services
and TiVo, dated November 10, 1998.
10.24 Lease Agreement between WIX/NSJ Real Estate Limited Partnership
and TiVo, dated October 6, 1999.
27.1++ Financial Data Schedule.
</TABLE>
_______________________
* Incorporated by reference to the same numbered exhibit previously filed with
TiVo's Registration Statement on Form S-1 (SEC File No. 333-83515).
+ Confidential treatment granted as to portions of this exhibit.
++ Submitted as an exhibit only in the electronic format of this Quarterly
Report on Form 10-Q submitted to the Securities and Exchange Commission.
b. Reports on Form 8-K
TiVo did not file any reports on Form 8-K during the quarter ended
September 30, 1999.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TIVO INC.
Date: November 15, 1999 /s/ Michael Ramsay
------------------
Michael Ramsay
President, Chief Executive Officer, and
Chairman of the Board of Directors
(Principal Executive Officer)
Date: November 15, 1999 /s/ David H. Courtney
---------------------
David H. Courtney
Chief Financial Officer and Vice President of
Finance (Principal Financial and Accounting
Officer)
35
<PAGE>
TIVO INC.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.2* Amended and Restated Certificate of Incorporation.
3.4* Amended and Restated Bylaws.
4.3* Ninth Amended and Restated Investor Rights Agreement between TiVo
and certain investors, dated as of August 6, 1999.
10.1* Form of Indemnification Agreement between TiVo and its officers and
directors.
10.2* TiVo's 1999 Equity Incentive Plan and related documents.
10.3* TiVo's Amended and Restated 1997 Equity Incentive Plan and related
documents.
10.4* TiVo's 1999 Employee Stock Purchase Plan and related documents.
10.5* TiVo's 1999 Non-Employee Directors' Stock Option Plan and related
documents.
10.6*+ Hard Disk Drive Supply Agreement between Quantum Corporation and
TiVo, dated November 6, 1998.
10.7*+ Master Agreement between Philips Business Electronics B.V. and
TiVo, dated March 31, 1999.
10.8*+ Marketing Agreement between DIRECTV, Inc. and TiVo, dated April 13,
1999.
10.9*+ Agreement between NBC Multimedia, Inc. and TiVo, dated April 16,
1999.
10.10* Sublease Agreement between Verity, Inc. and TiVo, dated February
23, 1998.
10.11* Amendment to Sublease Agreement between Verity, Inc. and TiVo,
dated November 1998.
10.12* Second Amendment to Sublease Agreement between Verity, Inc. and
TiVo, dated March 1999.
10.13* Consent of Landlord to Sublease between Verity, Inc. and TiVo,
dated February 23, 1998.
10.15* Master Lease Agreement between Comdisco, Inc. and TiVo, dated
February 12, 1999.
10.16*+ Warrant Purchase and Equity Rights Agreement between Quantum
Corporation and TiVo, dated November 6, 1998 and related documents.
10.17* Warrant to Purchase Shares of Series A Preferred Stock issued to
Randy Komisar, dated March 18, 1998.
10.18* Warrant Agreement between Comdisco, Inc. and TiVo, dated February
12, 1999.
10.19* Secured Convertible Debenture Purchase Agreement between TiVo and
certain of its investors, dated April 8, 1999, and related
documents.
10.20* First Amendment to Hard Disk Supply Agreement between Quantum and
TiVo, dated June 25, 1999.
36
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.21* TiVo's 401(k) Plan, effective December 1, 1997.
10.22*+ Tribune Media Services Television Listing Agreement between Tribune
Media Services and TiVo, dated June 1, 1998.
10.23*+ Amendment to the Data License Agreement between Teleworld Inc., and
Tribune Media Services, Inc. between Tribune Media Services and
TiVo, dated November 10, 1998.
10.24 Lease Agreement between WIX/NSJ Real Estate Limited Partnership and
TiVo, dated October 6, 1999.
27.1++ Financial Data Schedule.
- -----------
* Incorporated by reference to the same numbered exhibit previously filed with
the Company's Registration Statement on Form S-1 (SEC File No. 333-83515).
+ Confidential treatment granted as to portions of this exhibit.
++ Submitted as an exhibit only in the electronic format of this Quarterly
Report on Form 10-Q submitted to the Securities and Exchange Commission.
37
<PAGE>
EXHIBIT 10.24
LEASE AGREEMENT
(NNN TENANT IMPROVEMENTS)
BASIC LEASE INFORMATION
Lease Date: October 6, 1999
Landlord: WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
Landlord's Address: c/o Legacy Partners Commercial, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404-1167
Tenant: TiVo, Inc.,
a Delaware corporation
Tenant's Address: 894 Ross Drive
Sunnyvale, California 94089
Premises: Approximately 127,124 rentable square feet as
shown on Exhibit A, consisting of the Buildings
---------
Premises Address: 2160 and 2190 Gold Street
San Jose, California 95002
Buildings: Buildings D & E Approximately 127,124
rentable square feet
Lot: APN 015-34-27, 015-34-28, 015-34-77, 015-34-78
Park: Legacy TechPark @ 237 Approximately 302,186
rentable square feet
Term: March 10, 2000 ("Commencement Date"), through
March 9, 2007 ("Expiration Date")
Base Rent ((P)3): One Hundred Fifteen Thousand Five Hundred Thirteen
and 20/100 Dollars ($115,513.20) per month
commencing March 10, 2000 through June 9, 2000, or
until adjustment as set forth below.
Adjustments to Base Rent: Effective three calendar months following the
Building D Commencement Date, the Base Rent shall
increase to $172,168.20 per month ($1.354 NNN per
rentable sf)
Effective nine calendar months following the
Building D Commencement Date, the Base Rent shall
increase to $228,823.20 per month ($1.80 NNN per
rentable sf)
Effective twelve calendar months following the
Building D Commencement Date, the Base Rent shall
increase to $235,687.90 per month ($1.854 NNN per
rentable sf)
Effective the first anniversary of the Building D
Commencement Date, the Base Rent shall increase to
$242,806.84 per month ($1.91 NNN per rentable sf)
Effective the second anniversary of the Building D
Commencement Date, the Base Rent shall increase to
$250,091.04 per month ($1.967 NNN per rentable sf)
Effective the third anniversary of the Building D
Commencement Date, the Base Rent shall increase to
$257,593.77 per month ($2.026 NNN per rentable sf)
Effective the fourth anniversary of the Building D
Commencement Date, the Base Rent shall increase to
$265,321.59 per month ($2.087 NNN per rentable sf)
Effective the fifth anniversary of the Building D
Commencement Date, the Base Rent shall increase to
$273,316.60 per month ($2.15 NNN per rentable sf)
Advance Rent ((P)3): One Hundred Fifteen Thousand Five Hundred Thirteen
and 20/100 Dollars ($115,513.20)
Security Deposit ((P)4): Seven Hundred Fifty Thousand and 00/100 Dollars
($750,000.00) subject to Section 4 herein.
*Tenant's Share of Operating Expenses ((P)6.1): 42.07% of the Park
*Tenant's Share of Tax Expenses ((P)6.2): 42.07% of the Park
*Tenant's Share of Common Area Utility Costs ((P)7.2): 42.07% of the Park
*Tenant's Share of Utility Expenses ((P)7.1): 100% of the Buildings
*The amount of Tenant's Share of the expenses as referenced above shall be
subject to modification as set forth in this Lease.
Permitted Uses ((P)9): The Premises shall be used solely for general
office use, design, research and development,
sales, and light manufacturing and services and
for no other purposes without Landlord's prior
written consent, but only to the extent permitted
by the City of San Jose and all agencies and
governmental authorities having jurisdiction
thereof
Parking Spaces: Four hundred thirty-two (432) non-exclusive and
non-designated spaces
<PAGE>
Broker ((P)33): Cornish and Carey Commercial, Inc. for Tenant
BT Commercial for Landlord
Exhibits: Exhibit A - Premises, Building, Lot and/or Park
Exhibit B - Tenant Improvements
Exhibit C - Rules and Regulations
Exhibit D - Covenants, Conditions and Restrictions
Exhibit E - Tenant's Initial Hazardous Materials
Disclosure Certificate
Exhibit F - Change of Commencement Date - Example
Exhibit G - Sign Criteria
Addenda: Addendum 1 Option to Extend the Lease
Addendum II Right of First Offer
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
1. Premises.............................................................. 1
2. Occupancy; Adjustment of Commencement Date............................ 1
3. Rent.................................................................. 1
4. Security Deposit...................................................... 2
5. Condition of Premises; Tenant Improvements............................ 2
6. Additional Rent....................................................... 2
7. Utilities and Services................................................ 3
8. Late Charges.......................................................... 4
9. Use of Premises....................................................... 4
10. Alterations; and Surrender of Premises................................ 5
11. Repairs and Maintenance............................................... 5
12. Insurance............................................................. 6
13. Limitation of Liability and Indemnity................................. 7
14. Assignment and Subleasing............................................. 7
15. Subordination......................................................... 9
16. Right of Entry........................................................ 10
17. Estoppel Certificate.................................................. 10
18. Tenant's Default...................................................... 10
19. Remedies for Tenant's Default......................................... 10
20. Holding Over.......................................................... 11
21. Landlord's Default.................................................... 11
22. Parking............................................................... 11
23. Transfer of Landlord's Interest....................................... 11
24. Waiver................................................................ 12
25. Casualty Damage....................................................... 12
26. Condemnation.......................................................... 13
27. Environmental Matters/Hazardous Materials............................. 13
28. Financial Statements.................................................. 15
29. General Provisions.................................................... 15
30. Signs................................................................. 16
31. Mortgagee Protection.................................................. 16
32. Warranties of Tenant.................................................. 16
33. Brokerage Commission.................................................. 17
34. Quiet Enjoyment....................................................... 17
35. Satellite Dish(es) and Antennae....................................... 17
36. Collateral for Performance of Lease Obligations....................... 17
</TABLE>
<PAGE>
NNN TENANT IMPROVEMENTS
LEASE AGREEMENT
The Basic Lease Information set forth on Page 1 and this Lease are and shall be
construed as a single instrument.
1. PREMISES
Landlord hereby leases the Premises to Tenant upon the terms and conditions
contained herein. Tenant shall have the right to use, on a non-exclusive basis,
parking areas and ancillary facilities located within the Common Areas of the
Park, subject to the terms of this Lease. Landlord and Tenant hereby agree that
for purposes of this Lease, as of the Lease Date, the rentable square footage
area of each of the Premises, the Building, the Phase (if any) and the Park
shall be deemed to be the number of rentable square feet as set forth in the
Basic Lease Information. Tenant hereby acknowledges that the rentable square
footage of the Premises may include a proportionate share of certain areas used
in common by all occupants of the Building, the Phase (if any) and/or the Park
(for example corridors, common restrooms, an electrical room or telephone room).
Tenant further agrees that the number of rentable square feet of any of the
Building, the Phase (if any) and the Park may subsequently change after the
Lease Date commensurate with any modifications to any of the foregoing by
Landlord, and Tenant's Share shall accordingly change. The term "Project" as
used herein shall mean and collectively refer to the Buildings, the Common
Areas, the Lot, the Phase (if any) and the Park.
2. OCCUPANCY; ADJUSTMENT OF COMMENCEMENT DATE
2.1 Landlord shall deliver possession of the Premises with the Shell
Improvements (defined in Exhibit B hereto) Substantially Complete on or before
November 15, 1999. If Landlord, for any reason whatsoever, cannot deliver
possession of the Premises to Tenant on such date in such condition, Landlord
shall not be subject to any liability nor shall the validity of the Lease be
affected; provided, the Term of this Lease and the Commencement Date shall be
extended one (1) day for each day of delay in delivering the Premises with the
Shell Improvements completed. Subject to the foregoing, Tenant's obligation to
pay Rent shall commence on the earlier to occur of (i) the Commencement Date or
(ii) the date on which Tenant has Substantially Completed the Tenant
Improvements (as defined in Exhibit B). Provided, however, if the Tenant
Improvements for Building D are not Substantially Complete as of the
Commencement Date, Rent for Building D shall not commence until the earlier of
(i) the date the Tenant Improvements for Building D are Substantially Complete
or (ii) April 6, 2000 (the "Building D Commencement Date"). Notwithstanding the
above, the Expiration Date shall be extended or adjusted commensurately for any
delay or advancement in the Building D Commencement Date. Base Rent shall not
adjust until three calendar months following the Building D Commencement Date,
as set forth in the Basic Lease Information. In the event Tenant subleases or
assigns any portion of Building D prior to the commencement of the tenth month
after the Building D Commencement Date, Tenant shall pay to Landlord any rental
proceeds received from such sublease or assignment. If the commencement date
and/or the expiration date of this Lease is other than the Commencement Date and
Expiration Date specified in the Basic Lease Information, Landlord and Tenant
shall execute a written amendment to this Lease, substantially in the form of
Exhibit F hereto, wherein the parties shall specify the actual commencement
- ---------
date, expiration date and the date on which Tenant is to commence paying Rent.
The word "Term" whenever used herein refers to the initial term of this Lease
and any valid extension(s) thereof. Notwithstanding the foregoing, if possession
of the Premises are not delivered by Landlord with the Shell Improvements
Substantially Complete on or before June 1, 2000, Tenant shall have the right to
terminate this Lease by notice given to Landlord within ten (10) days of such
date, whereupon Landlord shall promptly return to Tenant the Security Deposit
and all unearned Rent theretofore paid by Tenant and this Lease shall terminate.
2.2 Within three (3) business days after, in each case, the Substantial
Completion of the Tenant Improvements for Building E and Substantial Completion
of the Tenant Improvements for Building D, representatives of Landlord and
Tenant shall make a joint inspection of the Tenant Improvements for each
Building and the results of such inspections shall be set forth in a written
list specifying the incomplete items as well as those items for which
corrections need to be made (the "Punchlist Items"). Landlord and Tenant shall
promptly (by no later than three (3) business days after the date of inspection
of a Building) and in good faith approve the written list of Punchlist Items.
Tenant shall use commercially reasonable efforts to cause the Punchlist Items to
be promptly completed and/or corrected, as applicable. The performance of the
work associated with the Punchlist Items shall be performed in such a manner so
as not to preclude or substantially prevent Tenant's ability to conduct its
operations in the Premises. Upon the completion of the Punchlist Items, to
Tenant's reasonable satisfaction, Tenant shall immediately notify Landlord in
writing that such items have been completed to Tenant's reasonable satisfaction.
2.3 Landlord shall permit Tenant to enter the Premises prior to the
actual Commencement Date for the limited purpose of performing the Tenant's Work
(defined in Exhibit B hereto). In no event may Tenant conduct its business or
---------
operations from the Premises until after the Commencement Date. Such entry and
occupancy shall be at Tenant's sole risk and subject to all the provisions of
this Lease, including the requirement to perform all of Tenant's obligations
hereunder (other than the obligation to pay Rent), including without limitation,
the obligation to obtain the insurance and deliver insurance certificates as
required pursuant to Section 12 and Exhibit B of this Lease.
3. RENT
On the date that Tenant executes this Lease, Tenant shall deliver to Landlord
the original executed Lease, the Advance Rent (which shall be applied against
the Rent payable for the first month(s) Tenant is required to pay Rent), the
Security Deposit, and all insurance certificates evidencing the insurance
required to be obtained by Tenant under Section 12 and Exhibit B of this Lease.
---------
Tenant agrees to pay Landlord the Base Rent, without prior notice or demand,
abatement (except as specifically provided herein), offset, deduction or claim,
in advance at Landlord's Address on the Commencement Date and thereafter on the
first (1st) day of each month throughout the balance of the Term of the Lease.
In addition to the Base Rent, Tenant shall pay Landlord in advance on the
Commencement Date and thereafter on the first (1st) day of each month throughout
the balance of the Term of this Lease, as Additional Rent, Tenant's Share of
Operating Expenses, Tax Expenses, Common Area Utility Costs, and Utility
Expenses. The term "Rent" whenever used herein refers to the aggregate of all
these amounts. If Landlord permits Tenant to occupy the Premises without
requiring Tenant to pay rental payments for a period of time, the waiver of the
requirement to pay rental payments shall only apply to the waiver of the Base
Rent. The Rent for any fractional part of a calendar month at the commencement
or expiration or termination of the Lease Term shall be a prorated amount of the
Rent for a full calendar month based upon a calendar month. To the extent not
already paid as part of the Advance Rent any prorated Rent shall be paid on the
Commencement Date, and any prorated Rent for the final calendar month hereof
shall be paid on the first day of the calendar month in which the date of
expiration or termination occurs.
1
<PAGE>
4. SECURITY DEPOSIT
Simultaneously with Tenant's execution and delivery of this Lease, Tenant shall
deliver to Landlord, as a Security Deposit for the faithful performance by
Tenant of its obligations under this Lease, the amount specified in the Basic
Lease Information. If Tenant is in default hereunder, Landlord may, but without
obligation to do so, use all or any portion of the Security Deposit to cure the
default or to compensate Landlord for all damages sustained by Landlord in
connection therewith. Tenant shall, immediately on demand, pay to Landlord a sum
equal to the portion of the Security Deposit so applied or used to replenish the
amount of the Security Deposit held to increase such deposit to the amount
initially deposited with Landlord. As soon as practicable after the expiration
or termination of this Lease, Landlord shall return the Security Deposit to
Tenant, less such amounts as are reasonably necessary to remedy Tenant's
default(s) hereunder. If the cost to remedy Tenant's default(s) hereunder
exceeds the amount of the Security Deposit, Tenant shall promptly deliver to
Landlord any and all of such excess sums. Landlord shall not be required to keep
the Security Deposit separate from other funds, and, unless otherwise required
by law, Tenant shall not be entitled to interest on the Security Deposit. In no
event or circumstance shall Tenant have the right to any use of the Security
Deposit and, specifically, Tenant may not use the Security Deposit as a credit
or to otherwise offset any payments required hereunder. Notwithstanding the
above, in the event Tenant has achieved a market capitalization value of at
least $500,000,000, as of the 13/th/ and/or 25/th/ months of the Term, a portion
of Tenant's Security Deposit equal to $476,683 shall be applied to the Rent for
the 13/th/ and 25/th/ months. However, in the event Tenant's market
capitalization value is below $500,000,000 as of the first day of the 13/th/ or
25/th/ month, Tenant's Security Deposit shall remain on account with Landlord.
Tenant shall be required to provide written documentation outlining Tenant's
market value for Landlord's review and acceptance prior to the application of
any portion of the Security Deposit to the Rent. In an event, a Security Deposit
in the amount of $273,317.00 shall remain on account as Tenant's permanent
security deposit.
Tenant shall be entitled to substitute an irrevocable standby letter of credit
("Letter of Credit") for a portion of the cash Security Deposit referenced
above. The Letter of Credit shall be issued to Landlord, as beneficiary, in
accordance with the provisions of Section 36 below.
5. CONDITION OF PREMISES; TENANT IMPROVEMENTS
Landlord warrants and represents that, as of the date Landlord delivers
possession of the Premises to Tenant, the Shell Improvements (as defined in
Exhibit B) will be substantially complete. Tenant agrees to accept the Premises
- ---------
on the Commencement Date as then being suitable for Tenant's intended use and in
good operating order, condition and repair in its then existing "AS IS"
condition, except as otherwise set forth in Exhibit B hereto. The Tenant
---------
Improvements (defined in Exhibit B) shall be installed in accordance with the
---------
terms, conditions, criteria and provisions set forth in Exhibit B. Except as
---------
otherwise set forth in this Lease, by taking possession of the Premises, Tenant
shall be deemed to have accepted the Premises in good condition and state of
repair. Tenant expressly acknowledges and agrees that neither Landlord nor any
of Landlord's agents, representatives or employees has made any representations
as to the suitability, fitness or condition of the Premises for the conduct of
Tenant's business or for any other purpose, including without limitation, any
storage incidental thereto. Any Tenant Improvements to be constructed hereunder
shall be in compliance with the requirements of the ADA (defined below), and all
costs incurred for purposes of compliance therewith shall be a part of and
included in the costs of the Tenant Improvements.
6. ADDITIONAL RENT
It is intended by Landlord and Tenant that this Lease be a "triple net lease."
The costs and expenses described in this Section 6 and all other sums, charges,
costs and expenses specified in this Lease other than Base Rent are to be paid
by Tenant to Landlord as additional rent (collectively, "Additional Rent").
6.1 Operating Expenses:
6.1.1 Definition of Operating Expenses. Tenant shall pay to Landlord
Tenant's Share of all Operating Expenses as Additional Rent. The term "Operating
Expenses" as used herein shall mean the total amounts paid or payable by
Landlord in connection with the ownership, management, maintenance, repair and
operation of the Premises and the other portions of the Project. These Operating
Expenses may include, but are not limited to, Landlord's cost of: (i) repairs
to, and maintenance of, the roof membrane, the non-structural portions of the
roof and the non-structural elements of the perimeter exterior walls of the
Building; (ii) maintaining the outside paved area, landscaping and other common
areas of the Park. The term "Common Areas" shall mean all areas and facilities
within the Park exclusive of the Premises and the other portions of the Park
leasable exclusively to other tenants. The Common Areas include, but are not
limited to, interior lobbies, mezzanines, parking areas, access and perimeter
roads, sidewalks, rail spurs (if any), and landscaped areas; (iii) annual
insurance premium(s) insuring against bodily injury and property damage
(including, if Landlord elects, "all risk" or "special form or equivalent"
coverage) and all other insurance, including, but not limited to, earthquake and
flood for the Project (if the same be available at commercially reasonably
rates), rental value insurance against loss of Rent for a period of at least
nine (9) months commencing on the date of loss, and subject to the provisions of
Section 25 below, any deductible; (iv) (a) modifications and/or new improvements
to any portion of the Project occasioned by any rules, laws or regulations
effective subsequent to the Lease Date; (b) reasonably necessary replacement
improvements to any portion of the Project after the Commencement Date; and (c)
new improvements to the Project that reduce operating costs or improve
life/safety conditions, all of the foregoing as reasonably determined by
Landlord, in its sole but reasonable discretion; provided, if such costs are of
a capital nature, then such costs or allocable portions thereof shall be
amortized on a straight-line basis over the estimated useful life of the capital
item, as reasonably determined by Landlord, in accordance with generally
accepted real estate accounting practices, together with reasonable interest on
the amortized balance; (v) the management and administration of any and all
portions of the Project, including, without limitation, a property management
fee, accounting, auditing, billing, postage, salaries and benefits for clerical
and supervisory employees, whether located on the Project or off-site, payroll
taxes and legal and accounting costs and all fees, licenses and permits related
to the ownership, operation and management of the Project; (vi) preventative
maintenance and repair contracts including, but not limited to, contracts for
elevator systems (if any) and heating, ventilation and air conditioning systems,
lifts for disabled persons, if Landlord elects to so procure; (vii) security and
fire protection services for any portion of the Project, if and to the extent,
in Landlord's sole discretion, such services are provided; (viii) supplies,
materials, equipment, rental equipment and other similar items used in the
operation and/or maintenance of the Project; (ix) any and all levies, charges,
fees and/or assessments payable to any applicable owner's association or similar
body; (x) any barrier removal work or other required improvements, alterations
or work to any portion of the Project generally required under the ADA (defined
below) after the Commencement Date (the "ADA Work"); provided, if such ADA Work
is required under the ADA due to Tenant's particular use of the Premises or any
Alteration (defined below) made to the Premises by or on behalf of Tenant, then
the cost of such ADA Work shall be borne solely by Tenant and shall not be
included as part of the Operating Expenses; and (xii) the repairs and
maintenance items set forth in Section 11.2 below.
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6.1.2 Operating Expense Exclusions. Notwithstanding anything to the
contrary contained herein, for purposes of this Lease, the term "Operating
Expenses" shall not include the following: (i) costs (including permit, license,
and inspection fees) incurred in renovating, improving, decorating, painting, or
redecorating vacant space or space for other tenants within the Project; (ii)
costs incurred because Landlord or another tenant actually violated the terms
and conditions of any lease for premises within the Project; (iii) legal and
auditing fees (other than those fees reasonably incurred in connection with the
maintenance and operation of all or any portion the Project), leasing
commissions, advertising expenses, and other costs incurred in connection with
the original leasing of the Project or future re-leasing of any portion of the
Project; (iv) depreciation of the Building or any other improvements situated
within the Project; (v) any items for which Landlord is entitled to
reimbursement by insurance or by direct reimbursement by any other tenant of the
Project; (vi) costs of repairs or other work necessitated by fire, windstorm or
other casualty (excluding any deductibles) and/or costs of repair or other work
necessitated by the exercise of the right of eminent domain to the extent
insurance proceeds or a condemnation award, as applicable, is actually received
by Landlord for such purposes; provided, such costs of repairs or other work
shall be paid by the parties in accordance with the provisions of Sections 25
and 26, below; (vii) other than any interest charges for capital improvements
referred to in Section 6.1.1(iv) hereinabove, any interest or payments on any
financing for the Building, the Phase or the Project, interest and penalties
incurred as a result of Landlord's late payment of any invoice (provided that
Tenant pays Tenant's Share of Operating Expenses and Tax Expenses to Landlord
when due as set forth herein), and any bad debt loss, rent loss or reserves for
same; (viii) costs associated with the investigation and/or remediation of
Hazardous Materials (hereafter defined) present in, on or about any portion of
the Project, unless such costs and expenses are the responsibility of Tenant as
provided in Section 27 hereof, in which event such costs and expenses shall be
paid solely by Tenant in accordance with the provisions of Section 27 hereof;
(ix) Landlord's cost for the repairs and maintenance items set forth in Section
11.3, below; (x) overhead and profit increment paid to Landlord or to
subsidiaries or affiliates of Landlord for goods and/or services in the Project
to the extent the same exceeds the costs of such by unaffiliated third parties
on a competitive basis; or any costs included in Operating Expenses representing
an amount paid to a person, firm, corporation or other entity related to
Landlord which is in excess of the amount which would have been paid in the
absence of such relationship; and (xi) any payments under a ground lease or
master lease.
6.2 Tax Expenses: Tenant shall pay to Landlord Tenant's Share of all
real property taxes applicable to the Project. Prior to delinquency, Tenant
shall pay any and all taxes and assessments levied upon Tenant's Property
(defined below in Section 10) located or installed in or about the Premises by,
or on behalf of Tenant. To the extent any such taxes or assessments are not
separately assessed or billed to Tenant, then Tenant shall pay the amount
thereof as invoiced by Landlord. Tenant shall also reimburse and pay Landlord,
as Additional Rent, within ten (10) days after demand therefor, one hundred
percent (100%) of (i) any increase in real property taxes attributable to any
and all Alterations (defined below in Section 10), Tenant Improvements,
fixtures, equipment or other improvements of any kind whatsoever placed in, on
or about the Premises for the benefit of, at the request of, or by Tenant after
the Commencement Date or the Building D Commencement Date, as applicable, and
(ii) taxes and assessments levied or assessed upon or with respect to the
possession, operation, use or occupancy by Tenant of the Premises or any other
portion of the Project. The term "Tax Expenses" shall mean and include, without
limitation, any form of tax and assessment (general, special, supplemental,
ordinary or extraordinary), commercial rental tax, payments under any
improvement bond or bonds, license fees, license tax, business license fee,
rental tax, transaction tax or levy imposed by any authority having the direct
or indirect power of tax (including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other improvement
district thereof) as against any legal or equitable interest of Landlord in the
Premises or any other portion of the Project or any other tax, fee, or excise,
however described, including, but not limited to, any value added tax, or any
tax imposed in substitution (partially or totally) of any tax previously
included within the definition of real property taxes, or any additional tax the
nature of which was previously included within the definition of real property
taxes. The term "Tax Expenses" shall not include any franchise, estate,
inheritance, net income, or excess profits tax imposed upon Landlord, or a
penalty fee imposed as a result of Landlord's failure to pay Tax Expenses when
due, or any item included in Operating Expenses.
6.3 Payment of Expenses: Landlord shall estimate Tenant's Share of the
Operating Expenses and Tax Expenses for the calendar year in which the Lease
commences. Commencing on the Commencement Date, one-twelfth (1/12th) of this
estimated amount shall be paid by Tenant to Landlord, as Additional Rent, and
thereafter on the first (1st) day of each month throughout the remaining months
of such calendar year. Thereafter, Landlord may estimate such expenses for each
calendar year during the Term of this Lease and Tenant shall pay one-twelfth
(1/12th) of such estimated amount as Additional Rent hereunder on the first
(1st) day of each month during such calendar year and for each ensuing calendar
year throughout the Term of this Lease. Tenant's obligation to pay Tenant's
Share of Operating Expenses and Tax Expenses shall survive the expiration or
earlier termination of this Lease.
6.4 Annual Reconciliation: By May 1st of each calendar year, or as soon
thereafter as reasonably possible, Landlord shall furnish Tenant with an
accounting of actual and accrued Operating Expenses and Tax Expenses. Within
thirty (30) days of Landlord's delivery of such accounting, Tenant shall pay to
Landlord the amount of any underpayment. Notwithstanding the foregoing, failure
by Landlord to give such accounting by such date shall not constitute a waiver
by Landlord of its right to collect any underpayment by Tenant at any time.
Landlord shall credit the amount of any overpayment by Tenant toward the next
estimated monthly installment(s) falling due, or where the Term of the Lease has
expired, refund the amount of overpayment to Tenant as soon as possible
thereafter. If the Term of the Lease expires prior to the annual reconciliation
of expenses Landlord shall have the right to reasonably estimate Tenant's Share
of such expenses, and if Landlord determines that there has been an
underpayment, Landlord may deduct such underpayment from Tenant's Security
Deposit. Failure by Landlord to accurately estimate Tenant's Share of such
expenses or to otherwise perform such reconciliation of expenses shall not
constitute a waiver of Landlord's right to collect any of Tenant's underpayment
or Tenant's right to be reimbursed for any overpayment, at any time during the
Term of the Lease or at any time after the expiration or earlier termination of
this Lease.
6.5 Audit: After delivery to Landlord of at least thirty (30) days prior
written notice, Tenant, at its sole cost and expense through any accountant
designated by it, shall have the right to examine and/or audit the books and
records evidencing such costs and expenses for the previous one (1) calendar
year, during Landlord's reasonable business hours but not more frequently than
once during any calendar year. Any such accounting firm designated by Tenant may
not be compensated on a contingency fee basis. The results of any such audit
(and any negotiations between the parties related thereto) shall be maintained
strictly confidential by Tenant and its accounting firm and shall not be
disclosed, published or otherwise disseminated to any other party other than to
Landlord and its authorized agents, to Tenant and its financial and legal
advisors and consultants, and except as may be required by law. Landlord and
Tenant each shall use its best efforts to cooperate in such negotiations and to
promptly resolve any discrepancies between Landlord and Tenant in the accounting
of such costs and expenses.
7. UTILITIES AND SERVICES
Tenant shall pay to Landlord or directly, as the case may be, the cost of all
(i) water, sewer use, sewer discharge fees, gas, electricity,
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telephone, telecommunications, cabling and other utilities billed or metered
separately to the Premises and (ii) refuse pickup and janitorial service to the
Premises. Utility Expenses, Common Area Utility Costs and all other sums and
charges set forth in this Section 7 are considered part of Additional Rent.
7.1 Utility Expenses: For any such utility fees, use charges, or similar
services that are not billed or metered separately to Tenant, including without
limitation, water and sewer charges, and garbage and waste disposal
(collectively, "Utility Expenses"), Tenant shall pay to Landlord Tenant's Share
of Utility Expenses. If Landlord reasonably determines that Tenant's Share of
Utility Expenses is not commensurate with Tenant's use of such services, Tenant
shall pay to Landlord the amount which is attributable to Tenant's use of the
utilities or similar services, as reasonably estimated and determined by
Landlord, based upon factors such as size of the Premises and intensity of use
of such utilities by Tenant such that Tenant shall pay the portion of such
charges reasonably consistent with Tenant's use of such utilities and similar
services. If Tenant disputes any such estimate or determination, then Tenant
shall either pay the estimated amount or cause the Premises to be separately
metered at Tenant's sole expense. Tenant shall also pay Tenant's Share of any
assessments, charges, and fees included within any tax bill for the Lot on which
the Premises are situated, including without limitation, entitlement fees,
allocation unit fees, sewer use fees, and any other similar fees or charges.
7.2 Common Area Utility Costs: Tenant shall pay to Landlord Tenant's
Share of any Common Area utility costs, fees, charges and expenses
(collectively, "Common Area Utility Costs"). Tenant shall pay to Landlord one-
twelfth (1/12/th/) of the estimated amount of Tenant's Share of the Common Area
Utility Costs on the Commencement Date and thereafter on the first (1/st/) day
of each month throughout the balance of the Term of this Lease. Any
reconciliation thereof shall be substantially in the same manner as set forth in
Section 6.4 above.
7.3 Miscellaneous: Tenant acknowledges that the Premises may become
subject to the rationing of utility services or restrictions on utility use as
required by a public utility company, governmental agency or other similar
entity having jurisdiction thereof. Tenant agrees that its tenancy and occupancy
hereunder shall be subject to such rationing restrictions as may be imposed upon
Landlord, Tenant, the Premises, or other portions of the Project, and Tenant
shall in no event be excused or relieved from any covenant or obligation to be
kept or performed by Tenant by reason of any such rationing or restrictions. If
permitted by applicable Laws, Landlord shall have the right at any time and from
time to time during the Term of this Lease to either contract for service from a
different company or companies (each such company referred to as an "Alternate
Service Provider") other than the company or companies presently providing
electricity service for the Project (the "Electric Service Provider") or
continue to contract for service from the Electric Service Provider, at
Landlord's sole discretion. Tenant agrees to cooperate with Landlord, the
Electric Service Provider, and any Alternate Service Provider at all times and,
as reasonably necessary, shall allow Landlord, the Electric Service Provider,
and any Alternate Service Provider reasonable access to the Building's electric
lines, feeders, risers, wiring, and any other machinery within the Premises.
8. LATE CHARGES
Any and all sums or charges set forth in this Section 8 are considered part of
Additional Rent. Tenant acknowledges that late payment (the fourth day of each
month or any time thereafter) by Tenant to Landlord of Rent and all other sums
due hereunder, will cause Landlord to incur costs not contemplated by this
Lease. Such costs may include, without limitation, processing and accounting
charges, and late charges that may be imposed on Landlord by the terms of any
note secured by any encumbrance against the Premises, and late charges and
penalties due to the late payment of real property taxes on the Premises.
Therefore, if any installment of Rent or any other sum payable by Tenant is not
received by Landlord within four days of the date due, Tenant shall promptly pay
to Landlord a late charge, as liquidated damages, in an amount equal to seven
and one-half percent (7.5%) of such delinquent amount plus interest on such
delinquent amount at the rate equal to the prime rate plus three percent (3%)
for every month or portion thereof that such sums remain unpaid. Notwithstanding
the foregoing, Landlord waives the late charge for the first (1st) instance
during the Term of this Lease in which Tenant fails to timely pay Rent. If
Tenant delivers to Landlord a check for which there are not sufficient funds,
Landlord may require Tenant to replace such check with a cashier's check for the
amount of such check and all other charges payable hereunder. The parties agree
that this late charge and the other charges referenced above represent a fair
and reasonable estimate of the costs that Landlord will incur by reason of such
late payment by Tenant, excluding attorneys' fees and costs. Acceptance of any
late charge or other charges shall not constitute a waiver by Landlord of
Tenant's default with respect to the delinquent amount, nor prevent Landlord
from exercising any of the other rights and remedies available to Landlord for
any other breach of Tenant under this Lease. If a late charge becomes payable
for three (3) installments of Rent, then Landlord, at Landlord's sole option,
can either require the Rent be paid quarterly in advance or be paid monthly in
advance by cashier's check or by electronic funds transfer.
9. USE OF PREMISES
9.1 Compliance with Laws, Recorded Matters, and Rules and Regulations:
The Premises are to be used solely for the purposes and uses specified in the
Basic Lease Information and for no other uses or purposes without Landlord's
prior written consent. Landlord's consent shall not be unreasonably withheld or
delayed so long as the proposed use (i) does not involve the use of Hazardous
Materials other than as expressly permitted under the provisions of Section 29
below, (ii) does not require any additional parking spaces, and (iii) is
compatible and consistent with the other uses then being made in the Project and
in other similar types of buildings in the vicinity of the Project, as
reasonably determined by Landlord. The use of the Premises by Tenant and its
employees, representatives, agents, invitees, licensees, subtenants, customers
or contractors (collectively, "Tenant's Representatives") shall be subject to,
and at all times in compliance with, (a) any and all applicable laws, rules,
codes, ordinances, statutes, orders and regulations as same exist from time to
time throughout the Term of this Lease (collectively, the "Laws"), including
without limitation, the requirements of the Americans with Disabilities Act, a
federal law codified at 42 U.S.C. 12101 et seq., including, but not limited to
Title III thereof, all regulations and guidelines related thereto and all
requirements of Title 24 of the State of California (collectively, the "ADA"),
(b) any and all easements, covenants, conditions and restrictions, and similar
instruments, together with any and all amendments and supplements thereto made
from time to time each of which has been or hereafter is recorded in any
official or public records with respect to the Premises or any other portion of
the Project (collectively, the "Recorded Matters"), and (c) any and all rules
and regulations set forth in Exhibit C hereto, any other reasonable
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nondiscriminatory rules and regulations promulgated by Landlord now or hereafter
enacted relating to parking and the operation of the Premises and/or any other
part of the Project (collectively, the "Rules and Regulations"). Landlord shall
use commercially reasonable efforts to ensure that other tenants in the Project
comply with the Rules and Regulations. Landlord reserves to itself the right,
from time to time, to grant, without the consent of Tenant, such easements,
rights and dedications that Landlord deems reasonably necessary, and to cause
the recordation of parcel or subdivision maps and/or restrictions, so long as
such easements, rights, dedications, maps and restrictions, as applicable, do
not materially and adversely interfere with Tenant's operations in the Premises.
Tenant agrees to sign any documents reasonably requested by Landlord to
effectuate any such easements, rights, dedications, maps or restrictions. Tenant
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agrees to, and does hereby, assume full and complete responsibility to ensure
that the Premises, including without limitation, the Tenant Improvements, are in
compliance with all applicable Laws throughout the Term of this Lease.
Additionally, Tenant shall be solely responsible for the payment of all costs,
fees and expenses associated with any modifications, improvements or other
Alterations to the Premises and/or any other portion of the Project required by
the enactment of, or changes to, any Laws after the Commencement Date and
arising from Tenant's particular use of the Premises or Alterations or other
improvements made to the Premises regardless of when such Laws became effective.
Tenant shall not initiate, submit an application for, or otherwise request, any
land use approvals or entitlements with respect to the Premises or any other
portion of the Project, including without limitation, any variance, conditional
use permit or rezoning, without first obtaining Landlord's prior written consent
thereto, which consent may be given or withheld in Landlord's sole discretion.
9.2 Prohibition on Use: Tenant shall not use the Premises or permit
anything to be done in or about the Premises nor keep or bring anything therein
which will in any way increase the existing rate of or affect any policy of fire
or other insurance upon the Building or any of its contents, or cause a
cancellation of any insurance policy. No auctions may be held or otherwise
conducted in, on or about any portion of the Premises or the Project without
Landlord's prior written consent thereto. Tenant shall not do or permit anything
to be done in or about the Premises which will in any way obstruct or interfere
with the rights of Landlord or other tenants or occupants of any portion of the
Project. The Premises shall not be used for any unlawful purpose. Tenant shall
not cause, maintain or permit any private or public nuisance in, on or about any
portion of the Premises or the Project, including, but not limited to, any
offensive odors, noises, fumes or vibrations. Tenant shall not damage or deface
or otherwise commit or suffer to be committed any waste in, upon or about the
Premises or any other portion of the Project. Tenant shall not place or store,
nor permit any other person or entity to place or store, any property,
equipment, materials, supplies, personal property or any other items or goods
outside of the Premises for any extended period of time. Tenant shall not permit
any animals, including, but not limited to, any household pets, to be brought or
kept in or about the Premises. Tenant shall place no loads upon the floors,
walls, or ceilings in excess of the maximum designed load permitted by the
applicable Uniform Building Code or which may damage the Building or outside
areas within the Project. Tenant shall not place any harmful liquids in the
drainage systems or dump or store waste materials, refuse or other such
materials, or allow such materials to remain outside the Building area, except
for any non-hazardous or non-harmful materials which may be stored in refuse
dumpsters.
10. ALTERATIONS; AND SURRENDER OF PREMISES
10.1 Alterations: Tenant shall not install any signs, fixtures,
improvements, nor make or permit any other alterations or additions
(individually, an "Alteration", and collectively, the "Alterations") to the
Premises without the prior written consent of Landlord, which consent shall not
be unreasonably withheld or delayed so long as any such Alteration does not
affect the Building systems or the structural integrity of the Premises or the
Building. Notwithstanding the foregoing, Tenant shall be permitted to install
artwork, shelving and normal office furniture, and to perform non-structural
alterations on the Premises not exceeding an aggregate of $25,000 during any
calendar year in any Building without Landlord's prior consent, provided that
Tenant (i) complies with all relevant building codes and fire, safety and other
governmental regulations and (ii) does not adversely effect the structural,
mechanical, electrical, HVAC or plumbing systems of the Premises. If any such
Alteration is expressly permitted by Landlord, Tenant shall deliver at least ten
(10) days prior notice to Landlord, from the date Tenant intends to commence
construction, sufficient to enable Landlord to post a Notice of Non-
Responsibility. In all events, Tenant shall obtain all permits or other
governmental approvals prior to commencing any of such work and deliver a copy
of same to Landlord. All Alterations shall be at Tenant's sole cost and expense,
and shall be installed by a licensed contractor in compliance with all
applicable Laws (including, but not limited to, the ADA), Development Documents,
Recorded Matters, and Rules and Regulations. Tenant shall keep the Premises and
the property on which the Premises are situated free from any liens arising out
of any work performed, materials furnished or obligations incurred by or on
behalf of Tenant. Tenant shall, prior to construction of any and all
Alterations, cause its contractor(s) and/or major subcontractor(s) to provide
insurance as reasonably required by Landlord, and Tenant shall provide such
assurances to Landlord, including without limitation, waivers of lien, surety
company performance bonds as Landlord shall reasonably require to assure payment
of the costs thereof to protect Landlord and the Project from and against any
loss from any mechanic's, materialmen's or other liens.
10.2 Surrender of Premises: At the expiration of the Term or earlier
termination of this Lease, Tenant shall surrender the Premises to Landlord (a)
in good condition and repair (damage by acts of God, casualty, and normal wear
and tear excepted), but with all interior walls cleaned, any carpets cleaned,
all floors cleaned and waxed, all non-working light bulbs and ballasts replaced
and all roll-up doors and plumbing fixtures in good condition and working order,
and (b) in accordance with the provisions of Section 27 hereof. Normal wear and
tear shall not include any damage or deterioration that would have been
prevented by proper maintenance by Tenant, or Tenant otherwise performing all of
its obligations under this Lease. On or before the expiration or earlier
termination of this Lease, (i) Tenant shall remove all of Tenant's Property (as
hereinafter defined) and Tenant's signage from the Premises and the other
portions of the Project, and (ii) to the extent Landlord has advised Tenant in
writing on or about the time that the Tenant Improvements or any Alterations
were constructed and installed in the Premises that Tenant is to remove all or
portions of the items comprising the Tenant Improvements or Alterations (the
"Removable TIs"), Tenant shall remove the Removable TIs. Tenant shall repair any
damage caused by such removal of the Tenant's Property and the Removable TIs.
For purposes hereof, the term "Tenant's Property" shall mean and refer to all
equipment, trade fixtures, computer wiring and cabling, furnishings,
inventories, goods and personal property of Tenant. Any of Tenant's Property not
so removed by Tenant as required herein shall be deemed abandoned and may be
stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant
waives all claims against Landlord for any damages resulting from Landlord's
retention and disposition of such property; provided, however, Tenant shall
remain liable to Landlord for all costs incurred in storing and disposing of
such abandoned property of Tenant. All Tenant Improvements and Alterations
except those which Landlord requires Tenant to remove shall remain in the
Premises as the property of Landlord. If the Premises are not surrendered at the
expiration of the Term or earlier termination of this Lease, and in accordance
with the provisions of this Section 10 and Section 27 below, Tenant shall
continue to be responsible for the payment of Rent (as the same may be increased
pursuant to Section 20 below) until the Premises are so surrendered in
accordance with said provisions. Tenant shall indemnify, defend and hold the
Indemnitees (hereafter defined) harmless from and against any and all damages,
expenses, costs, losses or liabilities arising from any delay by Tenant in so
surrendering the Premises including, without limitation, any damages, expenses,
costs, losses or liabilities arising from any claim against Landlord made by any
succeeding tenant founded on or resulting from such delay and losses and damages
suffered by Landlord due to lost opportunities to lease any portion of the
Premises to any such succeeding tenant or prospective tenant, together with, in
each case, actual attorneys' fees and costs.
11. REPAIRS AND MAINTENANCE
11.1 Tenant's Repairs and Maintenance Obligations: Except for those
portions of the Building to be maintained by Landlord, as provided in Sections
11.2 and 11.3 below, Tenant shall, at its sole cost and expense, keep and
maintain all parts of the Premises and such portions of the Building and
improvements as are within the exclusive control of Tenant in good, clean and
safe
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condition and repair, promptly making all necessary repairs and replacements,
whether ordinary or extraordinary, with materials and workmanship of the same
character, kind and quality as the original thereof, all of the foregoing to the
reasonable satisfaction of Landlord including, but not limited to, repairing any
damage caused by Tenant or any of Tenant's Representatives and replacing any
property so damaged by Tenant or any of Tenant's Representatives. Without
limiting the generality of the foregoing, Tenant shall be solely responsible for
promptly maintaining, repairing and replacing (a) all mechanical systems,
heating, ventilation and air conditioning systems serving the Premises, unless
maintained by Landlord, (b) all plumbing systems within either Building and all
plumbing fixtures, (c) electrical wiring systems, fixtures and equipment
exclusively serving the Premises, (d) all interior lighting (including, without
limitation, light bulbs and/or ballasts) and exterior lighting exclusively
serving the Premises or adjacent to the Premises, (e) all glass, windows, window
frames, window casements, skylights, interior and exterior doors, door frames
and door closers, (f) all roll-up doors, ramps and dock equipment, including
without limitation, dock bumpers, dock plates, dock seals, dock levelers and
dock lights, (g) all tenant signage, (h) lifts for disabled persons serving the
Premises, (i) sprinkler systems, fire protection systems and security systems,
except to the extent maintained by Landlord, and (j) all partitions, fixtures,
equipment, interior painting, interior walls and floors, and floor coverings of
the Premises and every part thereof (including, without limitation, any demising
walls contiguous to any portion of the Premises). Additionally, Tenant shall be
solely responsible for performance of the regular removal of trash and debris.
Tenant shall have no right of access to or right to install any device on the
roof of the Building nor make any penetrations of the roof of the Building
without the express prior written consent of Landlord.
11.2 Maintenance by Landlord: Subject to the provisions of Section 11.1,
and further subject to Tenant's obligation under Section 6 to reimburse
Landlord, in the form of Additional Rent, for Tenant's Share of the cost and
expense of the following described items, Landlord agrees to repair and maintain
the following items: fire protection services; the roof and roof coverings
(provided that Tenant installs no additional air conditioning or other equipment
on the roof that damages the roof coverings, in which event Tenant shall pay all
costs relating to the presence of such additional equipment); the plumbing and
mechanical systems serving the Building, excluding the plumbing, mechanical and
electrical systems exclusively serving the Premises; plumbing, electrical and
sewer service up to the exterior walls of the Buildings; exterior painting of
the Building; and the parking areas, pavement, landscaping, sprinkler systems,
sidewalks, driveways, curbs, and lighting systems in the Common Areas.
Notwithstanding anything in this Section 11 to the contrary, Landlord shall have
the right to either repair or to require Tenant to repair any damage to any
portion of the Premises and any other portion of the Project caused by or
created due to any act, omission, negligence or willful misconduct of Tenant or
any of Tenant Representatives and to restore the Premises and the other affected
portions of the Project, as applicable, to the condition existing prior to the
occurrence of such damage. To the extent that insurance proceeds are available,
Landlord agrees to make such proceeds available to Tenant if Landlord elects to
have Tenant make such repairs or restoration. If Landlord elects to perform such
repair and restoration work, Tenant shall reimburse Landlord upon demand for all
costs and expenses incurred by Landlord in connection therewith, to the extent
not otherwise covered by insurance proceeds. Tenant shall promptly report, in
writing, to Landlord any defective condition known to it which Landlord is
required to repair, and failure to so report any such defect shall make Tenant
responsible to Landlord for any liability proximately caused by Tenant's failure
to report such condition.
11.3 Landlord's Repairs and Maintenance Obligations: Subject to the
provisions of Sections 11.1, 25 and 26, and except for repairs rendered
necessary by the intentional or negligent acts or omissions of Tenant or any of
Tenant's Representatives (other than those covered by insurance), Landlord
agrees, at Landlord's sole cost and expense, to (a) keep in good repair the
structural portions of the floors, foundations and exterior perimeter walls of
the Building (exclusive of glass and exterior doors), and (b) replace the
structural portions of the roof of the Building (excluding the roof membrane).
11.4 Tenant's Failure to Perform Repairs and Maintenance Obligations: If
Tenant refuses or neglects to repair and maintain the Premises and the other
areas as required herein, and to the reasonable satisfaction of Landlord,
Landlord may, but without obligation to do so, at any time make such repairs or
maintenance without Landlord having any liability to Tenant for any loss or
damage that may accrue to Tenant's Property or to Tenant's business by reason
thereof, except to the extent any damage is caused by the willful misconduct or
gross negligence of Landlord or its authorized agents and representatives. If
Landlord makes such repairs or maintenance, upon completion thereof Tenant shall
pay to Landlord, as Additional Rent, Landlord's costs and expenses incurred
therefor. The obligations of Tenant hereunder shall survive the expiration of
the Term of this Lease or the earlier termination thereof. Tenant hereby waives
any right to repair at the expense of Landlord under any applicable Laws now or
hereafter in effect with respect to the Premises.
12. INSURANCE
12.1 Types of Insurance: Tenant shall maintain in full force and effect
at all times during the Term of this Lease, at Tenant's sole cost and expense,
for the protection of Tenant and Landlord, as their interests may appear,
policies of insurance issued by a carrier or carriers reasonably acceptable to
Landlord and its lender which afford the following coverages: (i) worker's
compensation and employer's liability, as required by law; (ii) commercial
general liability insurance (occurrence form) providing coverage against any and
all claims for bodily injury and property damage occurring in, on or about the
Premises arising out of Tenant's and Tenant's Representatives' use or occupancy
of the Premises. Such insurance shall include coverage for blanket contractual
liability, fire damage, premises, personal injury, completed operations and
products liability. Such insurance shall have a combined single limit of not
less than One Million Dollars ($1,000,000) per occurrence with a Two Million
Dollar ($2,000,000) aggregate limit and excess/umbrella insurance in the amount
of Four Million Dollars ($4,000,000). If Tenant has other locations which it
owns or leases, the policy shall include an aggregate limit per location
endorsement; (iii) comprehensive automobile liability insurance with a combined
single limit of at least $1,000,000 per occurrence for claims arising out of any
company owned automobiles; (iv) "all risk" or "special form or equivalent"
property insurance, including without limitation, sprinkler leakage, covering
damage to or loss of any of Tenant's Property located in, on or about the
Premises, and in addition, coverage for business interruption of Tenant,
together with, if the property of any of Tenant's invitees, vendors or customers
is to be kept in the Premises, warehouser's legal liability or bailee customers
insurance for the full replacement cost of the property belonging to such
parties and located in the Premises. Such insurance shall be written on a
replacement cost basis (without deduction for depreciation) in an amount equal
to one hundred percent (100%) of the full replacement value of the aggregate of
the items referred to in this clause (iv); and (v) such other insurance or
higher limits of liability as is then customarily required for similar types of
buildings within the general vicinity of the Project or as may be reasonably
required by any of Landlord's lenders.
12.2 Insurance Policies: Insurance required to be maintained by Tenant
shall be written by companies (i) licensed to do business in the State of
California, (ii) domiciled in the United States of America, and (iii) having a
"General Policyholders Rating" of at least A:X (or such higher rating as may be
required by a lender having a lien on the Premises) as set forth in the most
current issue of "A.M. Best's Rating Guides." Any deductible amounts under any
of the insurance policies required hereunder shall not exceed Twenty-five
thousand dollars ($25,000). Tenant shall deliver to Landlord certificates of
insurance for all insurance required to be maintained by Tenant hereunder at the
time of execution of this Lease by Tenant. Tenant shall, prior to expiration of
each policy, furnish Landlord with certificates of renewal or "binders" thereof.
Each certificate shall expressly provide that such policies shall not be
cancelable or otherwise
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subject to reduction in coverage except after thirty (30) days prior written
notice to the parties named as additional insureds as required in this Lease
(except for cancellation for nonpayment of premium, in which event cancellation
shall not take effect until at least ten (10) days' notice has been given to
Landlord). Tenant shall have the right to provide insurance coverage which it is
obligated to carry pursuant to the terms of this Lease under a blanket insurance
policy, provided such blanket policy expressly affords coverage for the Premises
and for Landlord as required by this Lease.
12.3 Additional Insureds and Coverage: Each of Landlord, Landlord's
property management company or agent and Landlord's lender(s) having a lien
against the Premises or any other portion of the Project shall be named as
additional insureds or loss payees (as applicable) under all of the policies
required in Section 12.1(ii) and, with respect to the Tenant Improvements, in
Section 12.1(iv) hereof. Additionally, all of such policies shall provide for
severability of interest. All insurance to be maintained by Tenant shall, except
for workers' compensation and employer's liability insurance, be primary,
without right of contribution from insurance maintained by Landlord. Any
umbrella/excess liability policy (which shall be in "following form") shall
provide that if the underlying aggregate is exhausted, the excess coverage will
drop down as primary insurance. The limits of insurance maintained by Tenant
shall not limit Tenant's liability under this Lease. It is the parties'
intention that the insurance to be procured and maintained by Tenant as required
herein shall provide coverage for any and all damage or injury arising from or
related to Tenant's operations of its business and/or Tenant's or Tenant's
Representatives' use of the Premises and any of the areas within the Project.
Notwithstanding anything to the contrary contained herein, to the extent
Landlord's cost of maintaining insurance with respect to the Building and/or any
other buildings within the Project is increased as a result of Tenant's acts,
omissions, Alterations, improvements, use or occupancy of the Premises, Tenant
shall pay one hundred percent (100%) of, and for, each such increase as
Additional Rent.
12.4 Failure of Tenant to Purchase and Maintain Insurance: If Tenant
fails to obtain and maintain the insurance required herein throughout the Term
of this Lease, Landlord may, but without obligation to do so, purchase the
necessary insurance and pay the premiums therefor. If Landlord so elects to
purchase such insurance, Tenant shall promptly pay to Landlord as Additional
Rent, the amount so paid by Landlord, upon Landlord's demand therefor. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
Additional Rent, any and all losses, damages, expenses and costs which Landlord
may sustain or incur by reason of Tenant's failure to obtain and maintain such
insurance.
12.5 Waiver of Subrogation: Landlord and Tenant hereby mutually waive
their respective rights of recovery against each other for any loss of, or
damage to, either parties' property to the extent that such loss or damage is
insured by an insurance policy required to be in effect at the time of such loss
or damage. Each party shall obtain any special endorsements, if required by its
insurer, whereby the insurer waives its rights of subrogation against the other
party. This provision is intended to waive fully, and for the benefit of the
parties hereto, any rights and/or claims which might give rise to a right of
subrogation in favor of any insurance carrier.
12.6 Landlord's Insurance. Landlord shall, during the Term of this Lease,
procure and keep in force the following insurance, the cost of which shall be
deemed an Operating Expense under Section 6.1 of this Lease: property insurance
insuring the Building (and Tenant Improvements) and improvements within the Park
and rental value insurance for perils covered by the causes of loss - special
form (all risk) and in addition coverage for flood, earthquake and boiler and
machinery (if applicable). Such coverage (except for flood and earthquake) shall
be written on a replacement cost basis equal to at least eighty percent (80%) of
the full insurable replacement value of the foregoing (excluding costs for
footings and excavation) and shall not cover any Alterations, Tenant's
equipment, trade fixtures, inventory, fixtures or personal property located on
or in the Premises. Additionally, Landlord shall, during the Term of this Lease,
procure and keep in force the following insurance, the cost of which shall be
deemed an Operating Expense under Section 6.1 of this Lease: commercial general
liability insurance (occurrence form) providing coverage against claims for
bodily injury, personal injury and property damage occurring in, on or about the
Common Areas, having a combined single limit of not less than Two Million
Dollars ($2,000,000) per occurrence and in the aggregate.
13. LIMITATION OF LIABILITY AND INDEMNITY
Except to the extent of damage resulting from the gross negligence, willful
misconduct of Landlord or its authorized representatives, or Landlord's material
default of the provisions of this Lease, beyond any applicable cure period
Tenant agrees to protect, defend (with counsel reasonably acceptable to
Landlord) and hold Landlord and Landlord's lenders, partners, members, property
management company (if other than Landlord), agents, directors, officers,
employees, representatives, contractors, successors and assigns and each of
their respective partners, members, directors, heirs, employees,
representatives, agents, contractors, heirs, successors and assigns
(collectively, the "Indemnitees") harmless and indemnify the Indemnitees from
and against all liabilities, damages, demands, penalties, costs, losses,
judgments, charges and expenses (including reasonable attorneys' fees, costs of
court and expenses necessary in the prosecution or defense of any litigation
including the enforcement of this provision) (collectively, "Claims") arising
from or in any way related to, directly or indirectly, (i) Tenant's or Tenant's
Representatives' use of the Premises and other portions of the Project, (ii) the
conduct of Tenant's business at the Premises, (iii) from any activity, work or
thing done, permitted or suffered by Tenant in or about the Premises, (iv) in
any way connected with the Premises, the Alterations or with the Tenant's
Property therein, including, but not limited to, any liability for injury to
person or property of Tenant, Tenant's Representatives or third party persons,
and/or (v) Tenant's failure to perform any covenant or obligation of Tenant
under this Lease. Tenant agrees that the obligations of Tenant herein shall
survive the expiration or earlier termination of this Lease.
Except to the extent of damage resulting from the gross negligence or willful
misconduct of Landlord or its authorized representatives, or Landlord's material
default of the provisions of this Lease, beyond any applicable cure periods to
the fullest extent permitted by law, Tenant agrees that neither Landlord nor any
of the Indemnitees shall at any time or to any extent whatsoever be liable,
responsible or in any way accountable for any loss, liability, injury, death or
damage to persons or property which at any time may be suffered or sustained by
Tenant or by any person(s) whomsoever who may at any time be using, occupying or
visiting the Premises or any other portion of the Project, including, but not
limited to, any acts, errors or omissions of any other tenants or occupants of
the Project. Tenant shall not, in any event or circumstance, be permitted to
offset or otherwise credit against any payments of Rent required herein for
matters for which Landlord may be liable hereunder. Landlord and its authorized
representatives shall not be liable for any interference with light or air.
14. ASSIGNMENT AND SUBLEASING
14.1 Prohibition: Tenant shall not, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld, delayed or
conditioned, assign, mortgage, hypothecate, encumber, grant any license or
concession, pledge or otherwise transfer this Lease or any interest herein,
permit any assignment or other such transfer of this Lease or any interest
hereunder by operation of law,
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sublet the Premises or any part thereof, or permit the use of the Premises by
any persons other than Tenant and Tenant's Representatives (all of the foregoing
are sometimes referred to collectively as "Transfers" and any person to whom any
Transfer is made or sought to be made is sometimes referred to as a
"Transferee"). No consent to any Transfer shall constitute a waiver of the
provisions of this Section 14, and all subsequent Transfers may be made only
with the prior written consent of Landlord, which consent shall not be
unreasonably withheld, but which consent shall be subject to the provisions of
this Section 14.
14.2 Request for Consent: If Tenant seeks to make a Transfer, Tenant
shall notify Landlord, in writing, and deliver to Landlord at least thirty (30)
days (but not more than one hundred eighty (180) days) prior to the proposed
commencement date of the Transfer (the "Proposed Effective Date") the following
information and documents (the "Tenant's Notice"): (i) a description of the
portion of the Premises to be transferred (the "Subject Space"); (ii) all of the
terms of the proposed Transfer including without limitation, the Proposed
Effective Date, the name and address of the proposed Transferee, and a copy of
the existing or proposed assignment, sublease or other agreement governing the
proposed Transfer; (iii) current financial statements of the proposed Transferee
certified by an officer, member, partner or owner thereof, and any such other
information as Landlord may then reasonably require; including without
limitation, audited financial statements for the previous three (3) most recent
consecutive fiscal years, if available; (iv) the Plans and Specifications
(defined below), if any; and (v) such other information as Landlord may then
reasonably require. Tenant shall give Landlord the Tenant's Notice by registered
or certified mail addressed to Landlord at Landlord's Address specified in the
Basic Lease Information. Within fifteen (15) days after Landlord's receipt of
the Tenant's Notice (the "Landlord Response Period") Landlord shall notify
Tenant, in writing, of its determination with respect to such requested proposed
Transfer and the election to recapture as set forth in Section 14.5 below. If
Landlord does not elect to recapture pursuant to the provisions of Section 14.5
hereof and Landlord does consent to the requested proposed Transfer, Tenant may
thereafter assign its interests in and to this Lease or sublease all or a
portion of the Premises to the same party and on the same terms as set forth in
the Tenant's Notice. If Landlord fails to respond to Tenant's Notice within
Landlord's Response Period, then, the proposed Transfer shall then be deemed
approved by Landlord.
14.3 Criteria for Consent: Tenant acknowledges and agrees that, among
other circumstances for which Landlord could reasonably withhold consent to a
proposed Transfer, it shall be reasonable for Landlord to withhold its consent
where (a) Tenant is in default of its obligations under this Lease beyond
applicable notice and cure periods, (b) the use to be made of the Premises by
the proposed Transferee is prohibited under this Lease or differs in any
material respect from the uses permitted under this Lease, (c) the proposed
Transferee or its business is subject to compliance with additional requirements
of the ADA beyond those requirements which are applicable to Tenant, unless the
proposed Transferee shall (1) first deliver plans and specifications for
complying with such additional requirements (the "Plans and Specifications") and
obtain Landlord's written consent thereto, and (2) comply with all Landlord's
reasonable conditions contained in such consent, (d) the proposed Transferee
does not intend to occupy a substantial portion of the Premises assigned or
sublet to it, (e) Landlord reasonably disapproves of the proposed Transferee's
business operating ability or history, reputation or creditworthiness or the
character of the business to be conducted by the proposed Transferee at the
Premises, (f) the proposed Transferee is a governmental agency or unit or an
existing tenant in the Project (and no other space is available in the Project
for lease to such tenant), (g) the proposed Transfer would cause Landlord to
violate another agreement or obligation to which Landlord is a party or
otherwise subject, (h) Landlord or Landlord's agent has shown space in the
Project to the proposed Transferee or responded to any inquiries from the
proposed Transferee or the proposed Transferee's agent concerning availability
of space in the Project, at any time within the preceding six (6) months and no
other space is available in the Project for lease to such Transferee, (i)
Landlord otherwise reasonably determines that the proposed Transfer would have
the effect of decreasing the value of the Building or the Project, or materially
increasing the expenses associated with operating, maintaining and repairing the
Project, (j) either the proposed Transferee, or any person or entity which
directly or indirectly, controls, is controlled by, or is under common control
with, the proposed Transferee, (x) occupies space in the Building at the time of
the request for consent, (y) is negotiating with Landlord to lease space in the
Building at such time, or (z) has negotiated with Landlord during the 12 month
period immediately preceding the Tenant's Notice, and space is otherwise
available for lease to such Transferee or party, (k) the Transfer occurs during
the time period between the Commencement Date and the date that at least ninety-
five percent (95%) of the rentable square feet of the Building is leased, or (l)
the proposed Transferee will use, store or handle Hazardous Materials (defined
below) in or about the Premises of a type, nature or quantity not then
acceptable to Landlord.
14.4 Effectiveness of Transfer and Continuing Obligations: Prior to the
date on which any permitted Transfer becomes effective, Tenant shall deliver to
Landlord (i) a counterpart of the fully executed Transfer document, (ii) an
executed Hazardous Materials Disclosure Certificate substantially in the form of
Exhibit E hereto (the "Transferee HazMat Certificate"), and (iii) Landlord's
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standard form of Consent to Assignment or Consent to Sublease, as applicable,
executed by Tenant and the Transferee in which each of Tenant and the Transferee
confirms its obligations pursuant to this Lease. Failure or refusal of a
Transferee to execute any such consent instrument shall not release or discharge
the Transferee from its obligation to do so or from any liability as provided
herein. The voluntary, involuntary or other surrender of this Lease by Tenant,
or a mutual cancellation by Landlord and Tenant, shall not work a merger, and
any such surrender or cancellation shall, at the option of Landlord, either
terminate all or any existing subleases or operate as an assignment to Landlord
of any or all of such subleases. Each permitted Transferee shall assume and be
deemed to assume this Lease and shall be and remain liable jointly and severally
with Tenant for payment of Rent and for the due performance of, and compliance
with all the terms, covenants, conditions and agreements herein contained on
Tenant's part to be performed or complied with, for the Term of this Lease. No
Transfer shall affect the continuing primary liability of Tenant (which,
following assignment, shall be joint and several with the assignee), and Tenant
shall not be released from performing any of the terms, covenants and conditions
of this Lease. An assignee of Tenant shall become directly liable to Landlord
for all obligations of Tenant hereunder, but no Transfer by Tenant shall relieve
Tenant of any obligations or liability under this Lease whether occurring before
or after such consent, assignment, subletting or other Transfer. The acceptance
of any or all of the Rent by Landlord from any other person (whether or not such
person is an occupant of the Premises) shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any Transfer. Any
and all options, first rights of refusal, tenant improvement allowances and
other similar rights granted to Tenant in this Lease, if any, shall not be
assignable by Tenant unless expressly authorized in writing by Landlord. Any
transfer made without Landlord's prior written consent, shall, at Landlord's
option, be null, void and of no effect, and shall, at Landlord's option,
constitute a material default by Tenant of this Lease. As Additional Rent
hereunder, Tenant shall promptly reimburse Landlord for actual legal expenses
incurred by Landlord in connection with any actual or proposed Transfer, up to a
maximum of $2,000.
14.5 Recapture: If the Transfer (i) by itself or taken together with then
existing or pending Transfers covers or totals, as the case may be, more than
one hundred percent (100%) of the rentable square feet of either Building, or
(ii) is for a term which by itself or taken together with then existing or
pending Transfers is greater than fifty percent (50%) of the period then
remaining in the Term of this Lease as of the time of the Proposed Effective
Date, then Landlord shall have the right, to be exercised by giving written
notice to Tenant, to recapture the Subject Space described in the Tenant's
Notice. If such recapture notice is given, it shall serve to terminate this
Lease with respect to the proposed Subject Space, or, if the proposed Subject
Space covers all the Premises, it shall serve to terminate the entire Term of
this Lease, in either case, as of the Proposed Effective Date. However, no
termination of this Lease with respect to part or all of
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the Premises shall become effective without the prior written consent, where
necessary, of the holder of each deed of trust encumbering the Premises or any
other portion of the Project. If this Lease is terminated pursuant to the
foregoing provisions with respect to less than the entire Premises, the Rent
shall be adjusted on the basis of the proportion of rentable square feet
retained by Tenant to the rentable square feet originally demised and this Lease
as so amended shall continue thereafter in full force and effect.
14.6 Transfer Premium: If Landlord consents to a Transfer, as a condition
thereto which the Tenant hereby agrees is reasonable, Tenant shall pay to
Landlord, as Additional Rent seventy-five percent (75%) of any "Transfer
Premium" received by Tenant from such Transferee. The term "Transfer Premium"
shall mean all rent, additional rent and other consideration paid by such
Transferee which either initially or over the term of the Transfer exceeds the
Rent or pro rata portion of the Rent, as the case may be, for such space
reserved in the Lease, after deducting therefrom all of Tenant's actual
brokerage commission costs incurred in connection with such Transfer. Tenant
shall pay the Landlord monthly, as Additional Rent, at the same time as the
monthly installments of Rent are payable hereunder, its portion of the Transfer
Premium.
14.7 Waiver: Notwithstanding any Transfer, or any indulgences, waivers or
extensions of time granted by Landlord to any Transferee, or failure by Landlord
to take action against any Transferee, Tenant agrees that Landlord may, at its
option, proceed against Tenant without having taken action against or joined
such Transferee, except that Tenant shall have the benefit of any indulgences,
waivers and extensions of time granted to any such Transferee.
14.8 Affiliated Companies/Restructuring of Business Organization: The
assignment or subletting by Tenant of all or any portion of this Lease or the
Premises to (i) a parent or subsidiary of Tenant, or (ii) any person or entity
which controls, is controlled by or under the common control with Tenant, or
(iii) any entity which purchases all or substantially all of the assets of
Tenant, or (iv) any entity into which Tenant is merged or consolidated (all such
persons or entities described in clauses (i), (ii), (iii) and (iv) being
sometimes herein referred to as "Affiliates") shall not be deemed a Transfer
under the Section 14 (hence, the aforesaid events shall not be subject to
obtaining Landlord's prior consent; Landlord shall not have any right to receive
any Transfer Premium in connection therewith; and Landlord shall not have the
recapture rights described in Section 14.5 above), provided in all instances
that:
14.8.1 any such Affiliate was not formed as a subterfuge to avoid
the obligations of this Section 14;
14.8.2 Tenant give Landlord prior notice of any such assignment or
sublease to an Affiliate;
14.8.3 the successor of Tenant has as of the effective date of any
such assignment or sublease a market value of at least $500 million and a
tangible net worth and net assets, in the aggregate, computed in accordance with
generally accepted accounting principles (but excluding goodwill as an asset),
which is sufficient to meet the obligations of Tenant under this Lease, as
reasonably determined by Landlord;
14.8.4 any such assignment or sublease shall be subject to all of
the terms and provisions of this Lease, and such assignee or sublessee (i.e. any
such Affiliate), other than in the case of an Affiliate resulting from a merger
or consolidation as described in Section 14.8 (iv) above, shall assume, in a
written document reasonably satisfactory to Landlord and delivered to Landlord
upon or prior to the effective date of such assignment or sublease, all the
obligations of Tenant under this Lease; and
14.8.5 Tenant and any guarantor shall remain fully liable for all
obligations to be performed by Tenant under this Lease, except in the case of an
Affiliate resulting from the acquisition of all or substantially all of the
assets of Tenant described in Section 14.8 (iii) or from a merger or
consolidation described in Section 14.8 (iv) above.
15. SUBORDINATION
To the fullest extent permitted by law, this Lease, the rights of Tenant under
this Lease and Tenant's leasehold interest shall be subject and subordinate at
all times to: (i) all ground leases or underlying leases which may now exist or
hereafter be executed affecting the Building, the Lot, or any other portion of
the Project, and (ii) the lien of any mortgage or deed of trust which may now or
hereafter exist for which the Building, the Lot, ground leases or underlying
leases, any other portion of the Project or Landlord's interest or estate in any
of said items is specified as security. Notwithstanding the foregoing, Landlord
or any such ground lessor, mortgagee, or any beneficiary shall have the right to
require this Lease be superior to any such ground leases or underlying leases or
any such liens, mortgage or deed of trust. If any ground lease or underlying
lease terminates for any reason or any mortgage or deed of trust is foreclosed
or a conveyance in lieu of foreclosure is made for any reason, Tenant shall
attorn to and become the Tenant of the successor in interest to Landlord,
provided such successor in interest will not disturb Tenant's use, occupancy or
quiet enjoyment of the Premises if Tenant is not in material default of the
terms and provisions of this Lease. The successor in interest to Landlord
following foreclosure, sale or deed in lieu thereof shall not be: (a) liable for
any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (b) subject to any offsets or defenses which
Tenant might have against any prior lessor; (c) bound by prepayment of more than
one (1) month's Rent, except in those instances when Tenant pays Rent quarterly
in advance pursuant to Section 8 hereof, then not more than three months' Rent;
or (d) liable to Tenant for any Security Deposit not actually received by such
successor in interest to the extent any portion or all of such Security Deposit
has not already been forfeited by, or refunded to, Tenant. Landlord shall be
liable to Tenant for all or any portion of the Security Deposit not forfeited
by, or refunded to Tenant, until and unless Landlord transfers such Security
Deposit to the successor in interest. Tenant covenants and agrees to execute
(and acknowledge if required by Landlord, any lender or ground lessor) and
deliver, within five (5) days of a demand or request by Landlord and in the form
reasonably requested by Landlord, ground lessor, mortgagee or beneficiary, any
additional documents evidencing the priority or subordination of this Lease with
respect to any such ground leases or underlying leases or the lien of any such
mortgage or deed of trust. Tenant hereby acknowledges that as of the date on
which Landlord and Tenant execute this Lease there is a deed of trust
encumbering, and in force against the Premises, the Building and the Park in
favor of Bank of America, N.T. & S.A. (the "Current Lender"). Within thirty (30)
days of Tenant's execution of this Lease, Tenant shall sign, notarize and
deliver a subordination, non-disturbance and attornment agreement substantially
in the form of Exhibit I attached hereto, entitled "Subordination, Non-
Disturbance and Attornment Agreement." Landlord shall (i) execute and notarize
such agreement within thirty (30) days of Landlord's execution of this Lease and
(ii) cause Current Lender to execute and notarize such agreement promptly after
Landlord's and Tenant's execution and notarization of such non-disturbance
agreement. If Landlord at any time during the Term of the Lease causes the
Premises, the Building and the Park to be encumbered by a new deed of trust or
mortgage pursuant to which the beneficiary of such deed of trust or mortgage is
a party or entity other than the Current Lender, the parties acknowledge and
agree that the form of any non-disturbance and attornment agreement that may be
requested to be executed and delivered by Tenant in connection therewith will
not be the "Subordination, Non-Disturbance and Attornment Agreement" attached to
the Lease as Exhibit I. Tenant's agreement to subordinate this Lease to any
future ground or underlying lease or any future deed of trust or mortgage
pursuant to the foregoing provisions of this Section
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15 is conditioned upon Landlord delivering to Tenant from the lessor under such
future ground or underlying lease or the holder of any such deed of trust, a
non-disturbance agreement agreeing, among other things, that Tenant's right to
possession of the Premises pursuant to the terms and conditions of this Lease
shall not be disturbed provided Tenant is not in default under this Lease beyond
the applicable notice and cure periods hereunder.
16. RIGHT OF ENTRY
Subject to Tenant's reasonable security requirements, Landlord and its agents
shall have the right to enter the Premises at all reasonable times, upon
reasonable prior notice, for purposes of inspection, exhibition, posting of
notices, investigation, replacements, repair and maintenance. It is further
agreed that Landlord shall have the right to use any and all means Landlord
deems necessary to enter the Premises in an emergency. Landlord shall have the
right, during the final nine months of the Lease term, to place "for rent" or
"for lease" signs on the outside of the Premises, the Building and in the Common
Areas. Landlord shall also have the right to place "for sale" signs on the
outside of the Building and in the Common Areas. Tenant hereby waives any Claim
from damages or for any injury or inconvenience to or interference with Tenant's
business, or any other loss occasioned thereby except for any Claim for any of
the foregoing arising out of the gross negligence or willful misconduct of
Landlord or its authorized representatives or breach of this Section 16.
Landlord shall use its best efforts not to unreasonably interfere with or
disturb Tenant's use or occupancy of the Premises in connection with the
exercise of its rights under this Section 16.
17. ESTOPPEL CERTIFICATE
Tenant shall execute (and acknowledge if required by any lender or ground
lessor) and deliver to Landlord, within five (5) business days after Landlord
provides such to Tenant, a statement in writing certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification), the date to which the Rent and other charges are paid in
advance, if any, acknowledging that there are not, to Tenant's knowledge, any
uncured defaults on the part of Landlord hereunder or specifying such defaults
as are claimed, and such other matters as Landlord may reasonably require. Any
such statement may be conclusively relied upon by Landlord and any prospective
purchaser or encumbrancer of the Building or other portions of the Project.
Tenant's failure to deliver such statement within such time shall be conclusive
upon the Tenant that (a) this Lease is in full force and effect, without
modification except as may be represented by Landlord; (b) there are no uncured
defaults in Landlord's performance; and (c) not more than one month's Rent has
been paid in advance, except in those instances when Tenant pays Rent quarterly
in advance pursuant to Section 8 hereof, then not more than three months' Rent
has been paid in advance.
18. TENANT'S DEFAULT
The occurrence of any one or more of the following events shall, at Landlord's
option, constitute a material default by Tenant of the provisions of this Lease:
18.1 The abandonment of the Premises by Tenant without payment of Rent
for the statutorily prescribed period or the vacation of the Premises by Tenant
which would cause any insurance policy to be invalidated or otherwise lapse;
18.2 The failure by Tenant to make any payment of Rent, Additional Rent
or any other payment required hereunder within three (3) business days after
Landlord's delivery of written notice to Tenant that said payment is past due.
Tenant agrees that any such written notice delivered by Landlord shall, to the
fullest extent permitted by law, serve as the statutorily required notice under
applicable law;
18.3 The failure by Tenant to observe, perform or comply with any of the
conditions, covenants or provisions of this Lease (except failure to make any
payment of Rent and/or Additional Rent) and such failure is not cured within (i)
thirty (30) days of the date on which Landlord delivers written notice of such
failure to Tenant for all failures other than with respect to (a) Hazardous
Materials (defined in Section 27 hereof), or (b) the timely delivery by Tenant
of a subordination, non-disturbance and attornment agreement (an "SNDA"), a
counterpart of a fully executed Transfer document and a consent thereto
(collectively, the "Transfer Documents"), an estoppel certificate and insurance
certificates, (ii) ten (10) days of the date on which Landlord delivers written
notice of such failure to Tenant for all failures in any way related to
Hazardous Materials or Tenant failing to timely make the repairs, maintenance or
replacements required by Section 11.1, and (iii) the time period, if any,
specified in the applicable sections of this Lease with respect to
subordination, assignment and sublease, estoppel certificates and insurance.
However, Tenant shall not be in default of its obligations hereunder if such
failure (other than any failure of Tenant to timely deliver an SNDA, the
Transfer Documents, an estoppel certificate or insurance certificates, for which
no additional cure period shall be given to Tenant) cannot reasonably be cured
within such thirty (30) or ten (10) day period, as applicable, and Tenant
promptly commences, and thereafter diligently proceeds with same to completion;
all actions necessary to cure such failure a soon as is reasonably possible, but
in no event shall the completion of such cure be later than sixty (60) days
after the date on which Landlord delivers to Tenant written notice of such
failure, unless Landlord, acting reasonably and in good faith otherwise
expressly agrees in writing to a longer period of time based upon the
circumstances relating to such failure as well as the nature of the failure and
the nature of the actions necessary to cure such failure; or
18.4 The making of a general assignment by Tenant for the benefit of
creditors, the filing of a voluntary petition by Tenant or the filing of an
involuntary petition by any of Tenant's creditors seeking the rehabilitation,
liquidation, or reorganization of Tenant under any law relating to bankruptcy,
insolvency or other relief of debtors and, in the case of an involuntary action,
the failure to remove or discharge the same within sixty (60) days of such
filing, the appointment of a receiver or other custodian to take possession of
substantially all of Tenant's assets or this leasehold, Tenant's insolvency or
inability to pay Tenant's debts or failure generally to pay Tenant's debts when
due, any court entering a decree or order directing the winding up or
liquidation of Tenant or of substantially all of Tenant's assets, Tenant taking
any action toward the dissolution or winding up of Tenant's affairs, or the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets or this leasehold, where such attachment, execution or seizure is not
released within thirty (30) days.
19. REMEDIES FOR TENANT'S DEFAULT
19.1 Landlord's Rights: In the event of Tenant's material default under
this Lease, Landlord may terminate Tenant's right to possession of the Premises
by any lawful means in which case upon delivery of written notice by Landlord
this Lease shall terminate on the date specified by Landlord in such notice and
Tenant shall immediately surrender possession of the Premises to Landlord. In
addition, the Landlord shall have the immediate right of re-entry whether or not
this Lease is terminated, and if this right of re-entry is exercised following
abandonment of the Premises by Tenant, Landlord may consider any of Tenant's
Property left on the Premises to also have been
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abandoned. No re-entry or taking possession of the Premises by Landlord pursuant
to this Section 19 shall be construed as an election to terminate this Lease
unless a written notice of such intention is given to Tenant. If Landlord relets
the Premises or any portion thereof, Tenant shall be liable immediately to
Landlord for all reasonable costs Landlord incurs in reletting the Premises or
any part thereof, including, without limitation, broker's commissions, expenses
of cleaning, redecorating, and further improving the Premises and other similar
costs (collectively, the "Reletting Costs"). Any and all of the Reletting Costs
shall be fully chargeable to Tenant and shall not be prorated or otherwise
amortized in relation to any new lease for the Premises or any portion thereof.
Reletting may be for a period shorter or longer than the remaining term of this
Lease. In no event shall Tenant be entitled to any excess rent received by
Landlord. No act by Landlord other than giving written notice to Tenant shall
terminate this Lease. Acts of maintenance, efforts to relet the Premises or the
appointment of a receiver on Landlord's initiative to protect Landlord's
interest under this Lease shall not constitute a termination of Tenant's right
to possession. So long as this Lease is not terminated, Landlord shall have the
right to remedy any default of Tenant, to maintain or improve the Premises, to
cause a receiver to be appointed to administer the Premises and new or existing
subleases and to add to the Rent payable hereunder all of Landlord's reasonable
costs in so doing, with interest at the maximum rate permitted by law from the
date of such expenditure.
19.2 Damages Recoverable: If Tenant materially breaches this Lease and
abandons the Premises before the end of the Term, or if Tenant's right to
possession is terminated by Landlord because of a material breach or default
under this Lease, then in either such case, Landlord may recover from Tenant all
damages suffered by Landlord as a result of Tenant's failure to perform its
obligations hereunder, including without limitation, the unamortized cost of any
Tenant Improvements constructed by or on behalf of Tenant pursuant to Exhibit B
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hereto to the extent Landlord has paid for such improvements, the unamortized
portion of any broker's or leasing agent's commission incurred with respect to
the leasing of the Premises to Tenant for the balance of the Term of the Lease
remaining after the date on which Tenant is in default of its obligations
hereunder, and all Reletting Costs, and the worth at the time of the award
(computed in accordance with paragraph (3) of Subdivision (a) of Section 1951.2
of the California Civil Code) of the amount by which the Rent then unpaid
hereunder for the balance of the Lease Term exceeds the amount of such loss of
Rent for the same period which Tenant proves could be reasonably avoided by
Landlord and in such case, Landlord prior to the award, may relet the Premises
for the purpose of mitigating damages suffered by Landlord because of Tenant's
failure to perform its obligations hereunder; provided, however, that even
though Tenant has abandoned the Premises following such material breach, this
Lease shall nevertheless continue in full force and effect for as long as
Landlord does not terminate Tenant's right of possession, and until such
termination, Landlord shall have the remedy described in Section 1951.4 of the
California Civil Code (Landlord may continue this Lease in effect after Tenant's
breach and abandonment and recover Rent as it becomes due, if Tenant has the
right to sublet or assign, subject only to reasonable limitations) and may
enforce all its rights and remedies under this Lease, including the right to
recover the Rent from Tenant as it becomes due hereunder. The "worth at the time
of the award" within the meaning of Subparagraphs (a)(1) and (a)(2) of Section
1951.2 of the California Civil Code shall be computed by allowing interest at
the rate of ten percent (10%) per annum. Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179 (or
any successor or substitute statute), or under any other present or future law,
in the event Tenant is evicted or Landlord takes possession of the Premises by
reason of any default of Tenant hereunder. Tenant hereby waives for Tenant and
for all those claiming under Tenant all rights now or hereafter existing to
redeem by order or judgment of any court or by any legal process or writ,
Tenant's right of occupancy of the Premises after any termination of this Lease.
19.3 Rights and Remedies Cumulative: The foregoing rights and remedies of
Landlord are not exclusive; they are cumulative in addition to any rights and
remedies now or hereafter existing at law, in equity by statute or otherwise, or
to any equitable remedies Landlord may have, and to any remedies Landlord may
have under bankruptcy laws or laws affecting creditors' rights generally. In
addition to all remedies set forth above, if Tenant materially defaults under
this Lease, all options granted to Tenant hereunder shall automatically
terminate, unless otherwise expressly agreed to in writing by Landlord.
20. HOLDING OVER
If Tenant holds over after the expiration of the Lease Term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case Base Rent shall be payable at a monthly
rate equal to one hundred fifty percent (150%) of the Base Rent applicable
during the last rental period of the Lease Term under this Lease. Such month-to-
month tenancy shall be subject to every other term, covenant and agreement
contained herein. Landlord hereby expressly reserves the right to require Tenant
to surrender possession of the Premises to Landlord as provided in this Lease
upon the expiration or other termination of this Lease. The provisions of this
Section 20 shall not be deemed to limit or constitute a waiver of any other
rights or remedies of Landlord provided herein or at law. If Tenant fails to
surrender the Premises upon the termination or expiration of this Lease, in
addition to any other liabilities to Landlord accruing therefrom, Tenant shall
protect, defend, indemnify and hold Landlord harmless from all Claims resulting
from such failure, including but not limited to, any Claims made by any
succeeding tenant founded upon such failure to surrender, and any lost profits
to Landlord resulting therefrom.
21. LANDLORD'S DEFAULT
Landlord shall not be considered in default of this Lease unless Landlord fails
within a reasonable time to perform an obligation required to be performed by
Landlord hereunder. For purposes hereof, a reasonable time shall not be less
than thirty (30) days after receipt by Landlord of written notice specifying the
nature of the obligation Landlord has not performed, unless the nature of such
default materially and adversely effects Tenant's use of the Premises; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days, after receipt of written notice, is reasonably necessary for
its performance, then Landlord shall not be in default of this Lease if
performance of such obligation is commenced within such thirty (30) day period
and thereafter diligently pursued to completion.
22. PARKING
Tenant may use the number of non-designated and non-exclusive parking spaces
specified in the Basic Lease Information. Landlord shall exercise reasonable
efforts to ensure that such spaces are available to Tenant for its use. In no
event shall Tenant or any of Tenant's Representatives park or permit any parking
of vehicles overnight.
23. TRANSFER OF LANDLORD'S INTEREST
If there is any sale or other transfer of the Premises or any other portion of
the Project by Landlord or any of Landlord's interest therein, Landlord shall
automatically be entirely released from all liability under this Lease and
Tenant agrees to look solely to such transferee for the performance of
Landlord's obligations hereunder after the date of such transfer. A ground lease
or similar long term lease by Landlord
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of the entire Building or Lot, of which the Premises are a part, shall be deemed
a sale within the meaning of this Section 23. Tenant agrees to attorn to such
new owner provided such new owner does not disturb Tenant's use, occupancy or
quiet enjoyment of the Premises so long as Tenant is not in material default of
any of the provisions of this Lease.
24. WAIVER
No delay or omission in the exercise of any right or remedy of either party on
any default by the other party shall impair such a right or remedy or be
construed as a waiver. The subsequent acceptance of Rent by Landlord after
default by Tenant of this Lease shall not be deemed a waiver of such default,
other than a waiver of timely payment for the particular Rent payment involved,
and shall not prevent Landlord from maintaining an unlawful detainer or other
action based on such breach. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly Rent and other sums due hereunder shall be deemed
to be other than on account of the earliest Rent or other sums due, nor shall
any endorsement or statement on any check or accompanying any check or payment
be deemed an accord and satisfaction; and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
Rent or other sum or pursue any other remedy provided in this Lease. No failure,
partial exercise or delay on the part of the Landlord in exercising any right,
power or privilege hereunder shall operate as a waiver thereof.
25. CASUALTY DAMAGE
25.1 Casualty. If the Premises or any part [excluding any of Tenant's
Property, any Tenant Improvements and any Alterations installed by or for the
benefit of Tenant which Tenant is required to insure in accordance with Section
12.1 (collectively, the "Tenant's FF&E")] shall be damaged or destroyed by fire
or other casualty, Tenant shall give immediate written notice thereof to
Landlord. Within sixty (60) days after receipt by Landlord of such notice,
Landlord shall notify Tenant, in writing, whether the necessary repairs can
reasonably be made, as reasonably determined by Landlord: (a) within ninety (90)
days; (b) in more than ninety (90) days but in less than one hundred eighty
(180) days; or (c) in more than one hundred eighty (180) days, from the date of
such notice.
25.1.1 Minor Insured Damage. If the Premises (other than the
Tenant's FF&E) are damaged only to such extent that repairs, rebuilding and/or
restoration can be reasonably completed within ninety (90) days, this Lease
shall not terminate and, provided that insurance proceeds are available and paid
to Landlord to fully repair the damage (but only if Landlord has complied with
its obligation to procure and maintain insurance in accordance with Section 12.6
above) and/or Tenant otherwise voluntarily contributes any shortfall thereof to
Landlord, Landlord shall repair the Premises to substantially the same condition
that existed prior to the occurrence of such casualty, except Landlord shall not
be required to rebuild, repair, or replace any of Tenant's FF&E. The Rent
payable hereunder shall be abated proportionately from the date of such damage
until any and all repairs required herein to be made by Landlord are
substantially completed but such abatement shall only be to the extent (i) of
the portion of the Premises which is actually rendered unusable and unfit for
occupancy, and (ii) Landlord receives rental abatement insurance proceeds
therefor (but only if Landlord has complied with its obligation to procure and
maintain insurance in accordance with Section 12.6 above).
25.1.2 Insured Damage Requiring More Than 90 Days To Repair. If the
Premises (other than the Tenant's FF&E) are damaged only to such extent that
repairs, rebuilding and/or restoration can be reasonably completed, as
reasonably determined by Landlord, in more than ninety (90) days but in less
than one hundred eighty (180) days, then Landlord shall have the option of: (a)
terminating the Lease effective upon making the determination of the extent of
such damage, in which event the Rent shall be abated from the date of the
occurrence of such damage; or (b) electing to repair the Premises to
substantially the same condition that existed prior to the occurrence of such
casualty, provided insurance proceeds are available and paid to Landlord (but
only if Landlord has complied with its obligation to procure and maintain
insurance in accordance with Section 12.6 above) and Tenant otherwise
voluntarily contributes any shortfall thereof to Landlord to fully repair the
damage (except that Landlord shall not be required to rebuild, repair, or
replace any of Tenant's FF&E). The Rent payable hereunder shall be abated
proportionately from the date until any and all repairs required herein to be
made by Landlord are substantially completed but such abatement shall only be to
the extent (i) of the portion of the Premises which is actually rendered
unusable and unfit for occupancy and only during the time Tenant is not actually
using same, and (ii) Landlord receives rental abatement insurance proceeds
therefor (but only if Landlord has complied with its obligation to procure and
maintain insurance in accordance with Section 12.6 above). If Landlord fails to
substantially complete such repairs within one hundred eighty (180) days after
the date on which Landlord is notified by Tenant of the occurrence of such
casualty [such 180-day period to be extended for delays caused by Tenant or any
of Tenant's Representatives ("Tenant Delays") or any force majeure events, which
events shall include, but not be limited to, acts or events beyond Landlord's
and/or its contractors' control, acts of God, earthquakes, strikes, lockouts,
riots, boycotts, casualties not caused by Landlord or Tenant, discontinuance of
any utility or other service required for performance of the work, moratoriums,
governmental delays in issuing permits, governmental agencies and weather, and
the lack of availability or shortage of materials ("Force Majeure Delays")],
Tenant may within ten (10) business days after expiration of such one hundred
eighty (180) day period (as same may be extended), terminate this Lease by
delivering written notice to Landlord as Tenant's exclusive remedy, whereupon
all rights of Tenant hereunder shall cease and terminate ten (10) business days
after Landlord's receipt of such notice and Tenant shall immediately vacate the
Premises and surrender possession thereof to Landlord.
25.1.3 Major Insured Damage. If the Premises (other than the
Tenant's FF&E) are damaged to such extent that repairs, rebuilding and/or
restoration cannot be reasonably completed, as reasonably determined by
Landlord, within one hundred eighty (180) days, then either Landlord or Tenant
may terminate this Lease by giving written notice within twenty (20) days after
notice from Landlord regarding the time period of repair. If either party
notifies the other of its intention to so terminate the Lease, then this Lease
shall terminate and the Rent shall be abated from the date of the occurrence of
such damage. If neither party elects to terminate this Lease, Landlord shall
promptly commence and diligently prosecute to completion the repairs to the
Premises, provided insurance proceeds are available and paid to Landlord to
fully repair the damage (but only if Landlord has complied with its obligation
to procure and maintain insurance in accordance with Section 12.6 above) or
Tenant voluntarily contributes any shortfall thereof to Landlord (except that
Landlord shall not be required to rebuild, repair, or replace any of Tenant's
FF&E). During the time when Landlord is prosecuting such repairs to substantial
completion, the Rent payable hereunder shall be abated proportionately from the
date of the occurrence of such damage, until any and all repairs required herein
to be made by Landlord are substantially completed but such abatement shall only
be to the extent (i) of the portion of the Premises which is actually rendered
unusable and unfit for occupancy, and (ii) Landlord receives rental abatement
insurance proceeds therefor (but only if Landlord has complied with its
obligation to procure and maintain insurance in accordance with Section 12.6
above).
25.1.4 Damage Near End of Term. Notwithstanding anything to the
contrary contained in this Lease except for the provisions of Section 25.3
below, if the Premises are substantially damaged or destroyed during the last
year of then applicable term of this
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Lease, either Landlord or Tenant may, at their option, cancel and terminate this
Lease by giving written notice to the other party of its election to do so
within thirty (30) days after receipt by Landlord of notice from Tenant of the
occurrence of such casualty. If either party so elects to terminate this Lease,
all rights of Tenant hereunder shall cease and terminate ten (10) days after
Tenant's receipt or delivery of such notice, as applicable, and Tenant shall
immediately vacate the Premises and surrender possession thereof to Landlord.
25.2 Deductible and Uninsured Casualty. Tenant shall be responsible for
and shall pay to Landlord, as Additional Rent, the deductible amounts under the
insurance policies obtained by Landlord and Tenant under this Lease if the
proceeds of which are used to repair the Premises as contemplated in this
Section 25; provided, however, that any deductible on any earthquake coverage
shall be treated in the same manner as capital costs in accordance with the
provisions of Section 6.1.1 (iv). Notwithstanding the foregoing, if other
portions of the Building are also damaged by said casualty and insurance
proceeds are payable therefor, then Tenant shall only pay its proportionate
share of the deductible as reasonably determined by Landlord. If any portion of
the Premises is damaged and is not fully covered by the aggregate of insurance
proceeds received by Landlord and any applicable deductible, and Tenant does not
voluntarily contribute any shortfall thereof to Landlord, or if the holder of
any indebtedness secured by the Premises requires that the insurance proceeds be
applied to such indebtedness, then Landlord or Tenant shall have the right to
terminate this Lease by delivering written notice of termination to the other
party within thirty (30) days after the date of notice to Tenant of any such
event, whereupon all rights and obligations of Tenant shall cease and terminate
hereunder, except for those obligations expressly provided for in this Lease to
survive such termination of the Lease.
25.3 Tenant's Fault and Lender's Rights. Notwithstanding anything to the
contrary contained herein, if the Premises (other than Tenant's FF&E) or any
other portion of the Building be damaged by fire or other casualty resulting
from the intentional or negligent acts or omissions of Tenant or any of Tenant's
Representatives, (i) the Rent shall not be diminished during the repair of such
damage, (ii) Tenant shall not have any right to terminate this Lease due to the
occurrence of such casualty or damage, and (iii) Tenant shall be liable to
Landlord for the cost and expense of the repair and restoration of all or any
portion of the Building caused thereby (including, without limitation, any
deductible) to the extent such cost and expense is not covered by insurance
required to be carried by Landlord hereunder. Notwithstanding anything to the
contrary contained herein, if the holder of any indebtedness secured by the
Premises or any other portion of the Project requires that the insurance
proceeds be applied to such indebtedness, then Landlord shall have the right to
terminate this Lease by delivering written notice of termination to Tenant
within thirty (30) days after the date of notice to Tenant of any such event,
whereupon all rights and obligations of Tenant shall cease and terminate
hereunder, except for those obligations expressly provided for in this Lease to
survive such termination of the Lease.
25.4 Tenant's Waiver. Landlord shall not be liable for any inconvenience
or annoyance to Tenant, injury to the business of Tenant, loss of use of any
part of the Premises by Tenant or loss of Tenant's Property, resulting in any
way from such damage, destruction or the repair thereof, except that, Landlord
shall allow Tenant a fair diminution of Rent during the time and to the extent
the Premises are actually unusable and unfit for occupancy. With respect to any
damage or destruction which Landlord is obligated to repair or may elect to
repair, Tenant hereby waives all rights to terminate this Lease or offset any
amounts against Rent pursuant to rights accorded Tenant by any law currently
existing or hereafter enacted, including but not limited to, all rights pursuant
to the provisions of Sections 1932(2.), 1933(4.), 1941 and 1942 of the
California Civil Code, as the same may be amended or supplemented from time to
time.
26. CONDEMNATION
If twenty-five percent (25%) or more of the Premises is condemned by eminent
domain, inversely condemned or sold in lieu of condemnation for any public or
quasi-public use or purpose ("Condemned"), then Tenant or Landlord may terminate
this Lease as of the date when physical possession of the Premises is taken and
title vests in such condemning authority, and Rent shall be adjusted to the date
of termination. Tenant shall not because of such condemnation assert any claim
against Landlord or the condemning authority for any compensation because of
such condemnation, and Landlord shall be entitled to receive the entire amount
of any award without deduction for any estate of interest or other interest of
Tenant; provided, however, the foregoing provisions shall not preclude Tenant,
at Tenant's sole cost and expense, from obtaining any separate award to Tenant
for loss of or damage to Tenant's Property or for damages for cessation or
interruption of Tenant's business provided such award is separate from
Landlord's award and provided further such separate award does not diminish nor
otherwise impair the award otherwise payable to Landlord. In addition to the
foregoing, Tenant shall be entitled to seek compensation for the relocation
costs recoverable by Tenant pursuant to the provisions of California Government
Code Section 7262. If neither party elects to terminate this Lease, Landlord
shall, if necessary, promptly proceed to restore the Premises or the Building,
as applicable, to substantially its same condition prior to such partial
condemnation, allowing for the reasonable effects of such partial condemnation,
and a proportionate allowance shall be made to Tenant, as solely determined by
Landlord, for the Rent corresponding to the time during which, and to the part
of the Premises of which, Tenant is deprived on account of such partial
condemnation and restoration. Landlord shall not be required to spend funds for
restoration in excess of the amount received by Landlord as compensation
awarded.
27. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS
27.1 Hazardous Materials Disclosure Certificate: Prior to executing this
Lease, Tenant has delivered to Landlord Tenant's executed initial Hazardous
Materials Disclosure Certificate (the "Initial HazMat Certificate"), a copy of
which is attached hereto as Exhibit E. Tenant covenants, represents and
---------
warrants to Landlord that the information in the Initial HazMat Certificate is
true and correct and accurately describes the use(s) of Hazardous Materials
which will be made and/or used on the Premises by Tenant. Tenant shall,
commencing with the date which is one year from the Commencement Date and
continuing every year thereafter, deliver to Landlord, an executed Hazardous
Materials Disclosure Certificate ("the "HazMat Certificate") describing Tenant's
then present use of Hazardous Materials on the Premises, and any other
reasonably necessary documents as requested by Landlord. The HazMat Certificates
required hereunder shall be in substantially the form attached hereto as
Exhibit E.
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27.2 Definition of Hazardous Materials: As used in this Lease, the term
Hazardous Materials shall mean and include (a) any hazardous or toxic wastes,
materials or substances, and other pollutants or contaminants, which are or
become regulated by any Environmental Laws; (b) petroleum, petroleum by
products, gasoline, diesel fuel, crude oil or any fraction thereof; (c) asbestos
and asbestos containing material, in any form, whether friable or non-friable;
(d) polychlorinated biphenyls; (e) radioactive materials; (f) lead and lead-
containing materials; (g) any other material, waste or substance displaying
toxic, reactive, ignitable or corrosive characteristics, as all such terms are
used in their broadest sense, and are defined or become defined by any
Environmental Law (defined below); or (h) any materials which cause or threatens
to cause a nuisance upon or waste to any portion of the Project or any
surrounding property; or poses or threatens to pose a hazard to the health and
safety of persons on the Premises, any other portion of the Project or any
surrounding property. For purposes of this Lease, the term "Hazardous Materials"
shall not include nominal amounts of ordinary household cleaners, office
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supplies and janitorial supplies which are not actionable under any
Environmental Laws.
27.3 Prohibition; Environmental Laws: Tenant shall not be entitled to use
or store any Hazardous Materials on, in, or about any portion of the Premises
and the Project without, in each instance, obtaining Landlord's prior written
consent thereto. If Landlord, in its sole discretion, consents to any such usage
or storage, then Tenant shall be permitted to use and/or store only those
Hazardous Materials that are necessary for Tenant's business and to the extent
disclosed in the HazMat Certificate and as expressly approved by Landlord in
writing. Any such usage and storage may only be to the extent of the quantities
of Hazardous Materials as specified in the then applicable HazMat Certificate as
expressly approved by Landlord. In all events such usage and storage must at all
times be in full compliance with any and all local, state and federal
environmental, health and/or safety-related laws, statutes, orders, standards,
courts' decisions, ordinances, rules and regulations (as interpreted by judicial
and administrative decisions), decrees, directives, guidelines, permits or
permit conditions, currently existing and as amended, enacted, issued or adopted
in the future which are or become applicable to Tenant or all or any portion of
the Premises (collectively, the "Environmental Laws"). Tenant agrees that any
changes to the type and/or quantities of Hazardous Materials specified in the
most recent HazMat Certificate may be implemented only with the prior written
consent of Landlord, which consent may be given or withheld in Landlord's sole
discretion. Tenant shall not be entitled nor permitted to install any tanks
under, on or about the Premises for the storage of Hazardous Materials without
the express written consent of Landlord, which may be given or withheld in
Landlord's sole discretion. Landlord shall have the right at all times during
the Term of this Lease to (i) inspect the Premises, (ii) conduct tests and
investigations to determine whether Tenant is in compliance with the provisions
of this Section 27 or to determine if Hazardous Materials are present in, on or
about the Project, and (iii) request lists of all Hazardous Materials used,
stored or otherwise located on, under or about any portion of the Premises
and/or the Common Areas. The cost of all such inspections, tests and
investigations shall be borne by Tenant, if Tenant or any of Tenant's
Representatives are directly or indirectly responsible in any manner for any
contamination revealed by such inspections, tests and investigations. The
aforementioned rights granted herein to Landlord and its representatives shall
not create (a) a duty on Landlord's part to inspect, test, investigate, monitor
or otherwise observe the Premises or the activities of Tenant and Tenant's
Representatives with respect to Hazardous Materials, including without
limitation, Tenant's operation, use and any remediation related thereto, or (b)
liability on the part of Landlord and its representatives for Tenant's use,
storage, disposal or remediation of Hazardous Materials, it being understood
that Tenant shall be solely responsible for all liability in connection
therewith.
27.4 Tenant's Environmental Obligations: Tenant shall give to Landlord
immediate verbal and follow-up written notice of any spills, releases,
discharges, disposals, emissions, migrations, removals or transportation of
Hazardous Materials on, under or about any portion of the Premises or in any
Common Areas by Tenant; provided that Tenant has actual, implied or constructive
knowledge of such event(s). Tenant, at its sole cost and expense, covenants and
warrants to promptly investigate, clean up, remove, restore and otherwise
remediate (including, without limitation, preparation of any feasibility studies
or reports and the performance of any and all closures) any spill, release,
discharge, disposal, emission, migration or transportation of Hazardous
Materials arising from or related to the intentional or negligent acts or
omissions of Tenant or Tenant's Representatives such that the affected portions
of the Project and any adjacent property are returned to the condition existing
prior to the appearance of such Hazardous Materials. Any such investigation,
clean up, removal, restoration and other remediation shall only be performed
after Tenant has obtained Landlord's prior written consent, which consent shall
not be unreasonably withheld so long as such actions would not potentially have
a material adverse long-term or short-term effect on any portion of the Project.
Notwithstanding the foregoing, Tenant shall be entitled to respond immediately
to an emergency without first obtaining Landlord's prior written consent.
Tenant, at its sole cost and expense, shall conduct and perform, or cause to be
conducted and performed, all closures as required by any Environmental Laws or
any agencies or other governmental authorities having jurisdiction thereof. If
Tenant fails to so promptly investigate, clean up, remove, restore, provide
closure or otherwise so remediate, Landlord may, but without obligation to do
so, take any and all steps necessary to rectify the same and Tenant shall
promptly reimburse Landlord, upon demand, for all costs and expenses to Landlord
of performing investigation, clean up, removal, restoration, closure and
remediation work. All such work undertaken by Tenant, as required herein, shall
be performed in such a manner so as to enable Landlord to make full economic use
of the Premises and the other portions of the Project after the satisfactory
completion of such work.
27.5 Environmental Indemnity: In addition to Tenant's obligations as set
forth hereinabove, Tenant agrees to, and shall, protect, indemnify, defend (with
counsel acceptable to Landlord) and hold Landlord and the other Indemnitees
harmless from and against any and all Claims (including, without limitation,
diminution in value of any portion of the Premises or the Project, damages for
the loss of or restriction on the use of rentable or usable space, and from any
adverse impact of Landlord's marketing of any space within the Project) arising
at any time during or after the Term of this Lease in connection with or related
to, directly or indirectly, the use, presence, transportation, storage,
disposal, migration, removal, spill, release or discharge of Hazardous Materials
on, in or about any portion of the Project as a result (directly or indirectly)
of the intentional or negligent acts or omissions of Tenant or any of Tenant's
Representatives. Neither the written consent of Landlord to the presence, use or
storage of Hazardous Materials in, on, under or about any portion of the Project
nor the strict compliance by Tenant with all Environmental Laws shall excuse
Tenant from its obligations of indemnification pursuant hereto. Tenant shall not
be relieved of its indemnification obligations under the provisions of this
Section 27.5 due to Landlord's status as either an "owner" or "operator" under
any Environmental Laws.
27.6 Survival: Tenant's and Landlord's obligations and liabilities
pursuant to the provisions of this Section 27 shall survive the expiration or
earlier termination of this Lease. If it is determined by Landlord that the
condition of all or any portion of the Project is not in compliance with the
provisions of this Lease with respect to Hazardous Materials as the result of a
breach by Tenant of its obligations hereunder, then Landlord may require Tenant
to hold over possession of the Premises until Tenant can surrender the Premises
to Landlord in the condition required by this Lease, including without
limitation, the conduct or performance of any closures as required by any
Environmental Laws. For purposes hereof, the term "reasonable wear and tear"
shall not include any deterioration in the condition or diminution of the value
of any portion of the Project in any manner whatsoever related to directly, or
indirectly, Hazardous Materials. Any such holdover by Tenant will be with
Landlord's consent, will not be terminable by Tenant in any event or
circumstance and will otherwise be subject to the provisions of Section 20 of
this Lease.
27.7 Exculpation of Tenant: Tenant shall not be liable to Landlord for
nor otherwise obligated to Landlord under any provision of the Lease with
respect to the following: (i) any claim, remediation, obligation, investigation,
obligation, liability, cause of action, attorney's fees, consultants' cost,
expense or damage resulting from any Hazardous Materials present in, on or about
the Premises or, the Building or Park to the extent not caused or otherwise
permitted, directly or indirectly, by Tenant or Tenant's Representatives; or
(ii) the removal, investigation, monitoring or remediation of any Hazardous
Material present in, on or about the Premises or, the Building or Park caused by
any source, including third parties, other than Tenant or Tenant's
Representatives, including but not limited to the conditions described in the
Environmental Report; provided, however, Tenant shall be fully liable for and
otherwise obligated to Landlord under the provisions of this Lease for all
liabilities, costs, damages, penalties, claims, judgments, expenses (including
without limitation, attorneys' and experts' fees and costs) and losses to the
extent (a) Tenant or any of Tenant's Representatives contributes to the presence
of such Hazardous Materials, or Tenant and/or any of Tenant's Representatives
exacerbates the conditions caused by such Hazardous
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Materials, or (b) Tenant and/or Tenant's Representatives allows or permits
persons over which Tenant or any of Tenant's Representatives has control, and/or
for which Tenant or any of Tenant's Representatives are legally responsible for,
to cause such Hazardous Materials to be present in, on, under, through or about
any portion of the Premises, the Common Areas, the Building or the Park, or (c)
Tenant and/or any of Tenant's Representatives does not take all reasonably
appropriate actions to prevent such persons over which Tenant or any of Tenant's
Representatives has control and/or for which Tenant or any of Tenant's
Representatives are legally responsible from causing the presence of Hazardous
Materials in, on, under, through or about any portion of the Premises, the
Common Areas, the Building or the Park.
27.8 Disclosure: Pursuant to the provisions of California Health & Safety
Code (S)25359.7, Landlord hereby discloses to Tenant that as of the Lease Date
the Lot contains certain Hazardous Materials as such Hazardous Materials are
more particularly described and set forth in that certain report prepared by CET
Environmental Services, entitled Soil Management Plan for Development and
Ongoing Activities Route 237 Assemblage, dated August 27, 1997 (the
"Environmental Report"). Landlord acknowledges and agrees that none of the
environmental conditions or presence of Hazardous Materials on, in or under the
Lot as described in the Environmental Report have been in any way caused by
Tenant or any of Tenant's Representatives. Tenant hereby acknowledges and agrees
that Landlord has delivered to Tenant a copy of the Environmental Report prior
to Tenant entering into this Lease.
27.9 Landlord's Environmental Indemnity: Landlord agrees to, and shall
protect, indemnify, defend and hold Tenant harmless from and against any and all
claims, judgments, damages, penalties, fines, liabilities, losses, suits,
administrative proceedings, and costs arising at any time during or after the
Term of this Lease in connection with or related to the presence of the
Hazardous Materials disclosed in Section 27.8 above.
28. FINANCIAL STATEMENTS
Tenant and any permitted Transferee, for the reliance of Landlord, any lender
holding or anticipated to acquire a lien upon any portion of the Project or any
prospective purchaser of any portion of the Project within ten (10) days after
Landlord's request therefor, but not more often than once annually so long as
Tenant is not in material default of this Lease, shall deliver to Landlord the
then current audited financial statements of Tenant (including interim periods
following the end of the last fiscal year for which annual statements are
available). If audited financial statements have not been prepared, Tenant and
any permitted Transferee shall provide Landlord with unaudited financial
statements and such other information, the type and form of which are acceptable
to Landlord in Landlord's reasonable discretion, which reflects the financial
condition of Tenant and any permitted Transferee. Notwithstanding the foregoing,
under no circumstances shall Tenant be required to disclose to Landlord any
material nonpublic information. Further, Landlord agrees that it will maintain
any financial information delivered by Tenant pursuant hereto that is not public
information in strict confidence, and will not disclose such financial
information to any other party other than Landlord's lenders or partners or a
prospective purchaser of the Premises on a need-to-know basis, or as may be
required by any laws, regulations, orders, decrees, court orders or subpoenas.
29. GENERAL PROVISIONS:
29.1 Time. Time is of the essence in this Lease and with respect to each
and all of its provisions in which performance is a factor.
29.2 Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
29.3 Recordation. Tenant shall not record this Lease or a short form
memorandum hereof.
29.4 Landlord Exculpation. The liability of Landlord to Tenant for any
default by Landlord under the terms of this Lease shall be limited to the actual
interest of Landlord and its present or future partners or members in the
Building, and Tenant agrees to look solely to Landlord's interest in the
Building for satisfaction of any liability and shall not look to other assets of
Landlord nor seek any recourse against the assets of the individual partners,
members, directors, officers, shareholders, agents or employees of Landlord,
including without limitation, any property management company of Landlord
(collectively, the "Landlord Parties"). It is the parties' intention that
Landlord and the Landlord Parties shall not in any event or circumstance be
personally liable, in any manner whatsoever, for any judgment or deficiency
hereunder or with respect to this Lease. The liability of Landlord under this
Lease is limited to its actual period of ownership of title to the Building.
29.5 Severability and Governing Law. Any provisions of this Lease which
shall prove to be invalid, void or illegal shall in no way affect, impair or
invalidate any other provisions hereof and such other provision shall remain in
full force and effect. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
29.6 Attorneys' Fees. In the event any dispute between the parties
results in litigation or other proceeding, the prevailing party shall be
reimbursed by the party not prevailing for all reasonable costs and expenses,
including, without limitation, reasonable attorneys' and experts' fees and costs
incurred by the prevailing party in connection with such litigation or other
proceeding, and any appeal thereof. Such costs, expenses and fees shall be
included in and made a part of the judgment recovered by the prevailing party,
if any.
29.7 Entire Agreement. It is understood and acknowledged that there are
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease and
any side letter or separate agreement executed by Landlord and Tenant in
connection with this Lease and dated of even date herewith contain all of the
terms, covenants, conditions, warranties and agreements of the parties relating
in any manner to the rental, use and occupancy of the Premises, shall be
considered to be the only agreement between the parties hereto and their
representatives and agents, and none of the terms, covenants, conditions or
provisions of this Lease can be modified, deleted or added to except in writing
signed by the parties hereto. All negotiations and oral agreements acceptable to
both parties have been merged into and are included herein. There are no other
representations or warranties between the parties, and all reliance with respect
to representations is based totally upon the representations and agreements
contained in this Lease. The parties acknowledge that (i) each party and/or its
counsel have reviewed and revised this Lease, and (ii) no rule of construction
to the effect that any ambiguities are to be resolved against the drafting party
shall be employed in the interpretation or enforcement of this Lease or any
amendments or exhibits to this Lease or any document executed and delivered by
either party in connection with this Lease.
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29.8 Warranty of Authority. On the date that Tenant executes this Lease,
Tenant shall deliver to Landlord an original certificate of status for Tenant
issued by the California Secretary of State or statement of partnership for
Tenant recorded in the county in which the Premises are located, as applicable,
and such other documents as Landlord may reasonably request with regard to the
lawful existence of Tenant. Each person executing this Lease on behalf of a
party represents and warrants that (1) such person is duly and validly
authorized to do so on behalf of the entity it purports to so bind, and (2) if
such party is a partnership, corporation or trustee, that such partnership,
corporation or trustee has full right and authority to enter into this Lease and
perform all of its obligations hereunder.
29.9 Notices. All notices, demands, statements or communications
(collectively, "Notices") given or required to be given by either party to the
other hereunder shall be in writing, shall be sent by United States certified or
registered mail, postage prepaid, return receipt requested, or delivered
personally (i) to Tenant at the Tenant's Address set forth in the Basic Lease
Information, or to such other place as Tenant may from time to time designate in
a Notice to Landlord; or (ii) to Landlord at Landlord's Address set forth in the
Basic Lease Information, or to such other firm or to such other place as
Landlord may from time to time designate in a Notice to Tenant. Any Notice will
be deemed given on the date it is mailed as provided in this Section 29.9 or
upon the date personal delivery is made.
29.10 Joint and Several; Covenants and Conditions. If Tenant consists of
more than one person or entity, the obligations of all such persons or entities
shall be joint and several. Each provision to be performed by Tenant hereunder
shall be deemed to be both a covenant and a condition.
29.11 [Intentionally Omitted]
29.12 Landlord Renovations. Tenant acknowledges that Landlord may from
time to time, at Landlord's sole option, renovate, improve, develop, alter, or
modify (collectively, the "Renovations") portions of the Building, Premises,
Common Areas and the Project, including without limitation, systems and
equipment, roof, and structural portions of the same. In connection with such
Renovations, Landlord may, among other things, erect scaffolding or other
necessary structures in the Building, limit or eliminate access to portions of
the Project, including portions of the Common Areas, or perform work in the
Building, which work may create noise, dust or leave debris in the Building.
Landlord agrees to provide Tenant with adequate advance notice of its intention
to make Renovations and to use its best efforts not to interfere with Tenant's
use and enjoyment of the Premises in connection with such Renovations. Tenant
hereby agrees that such Renovations and Landlord's actions in connection with
such Renovations shall in no way constitute a constructive eviction of Tenant
nor entitle Tenant to any abatement of Rent. Landlord shall have no
responsibility, or for any reason be liable to Tenant, for any direct or
indirect injury to or interference with Tenant's business arising from the
Renovations, nor shall Tenant be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises or of
Tenant's Property, Alterations or improvements resulting from the Renovations or
Landlord's actions in connection with such Renovations, or for any inconvenience
or annoyance occasioned by such Renovations or Landlord's actions in connection
with such Renovations.
29.13 Submission of Lease. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
30. SIGNS
All signs and graphics of every kind visible in or from public view or corridors
or the exterior of the Premises shall be subject to Landlord's prior written
approval, which shall not be unreasonably withheld or delayed, and shall be
subject to and in compliance with all applicable Laws, Development Documents,
Recorded Matters, Rules and Regulations, and Landlord's sign criteria as same
may exist from time to time or as set forth in Exhibit G hereto. Tenant shall
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remove all such signs and graphics prior to the expiration or earlier
termination of this Lease. Such installations and removals shall be made in a
manner as to avoid damage or defacement of the Premises. Tenant shall repair any
damage or defacement, including without limitation, discoloration caused by such
installation or removal. Landlord shall have the right, at its option, to deduct
from the Security Deposit such sums as are reasonably necessary to remove such
signs and make any repairs necessitated by such removal. Notwithstanding the
foregoing, in no event shall any: (a) neon, flashing or moving sign(s) or (b)
sign(s) which are likely to interfere with the visibility of any sign, canopy,
advertising matter, or decoration of any kind of any other business or occupant
of the Building or the other portions of the Project be permitted hereunder.
Tenant further agrees to maintain each such sign and graphics, as may be
approved, in good condition and repair at all times.
31. MORTGAGEE PROTECTION
Upon any default on the part of Landlord, Tenant will give written Notice by
registered or certified mail to any beneficiary of a deed of trust or mortgagee
of a mortgage covering the Premises who has provided Tenant with notice of their
interest together with an address for receiving Notice, and shall offer such
beneficiary or mortgagee a reasonable opportunity to cure the default, including
time to obtain possession of the Premises by power of sale or a judicial
foreclosure, if such should prove necessary to effect a cure. If such default
cannot be cured within such time period, then such additional time as may be
necessary will be given to such beneficiary or mortgagee to effect such cure so
long as such beneficiary or mortgagee has commenced the cure within the original
time period and thereafter diligently pursues such cure to completion, in which
event this Lease shall not be terminated while such cure is being diligently
pursued. Tenant agrees that each lender to whom this Lease has been assigned by
Landlord is an express third party beneficiary hereof. Tenant shall not make any
prepayment of Rent more than one (1) month in advance without the prior written
consent of each such lender, except if Tenant is required to make quarterly
payments of Rent in advance pursuant to the provisions of Section 8 above.
Tenant waives the collection of any deposit from such lender(s) or any purchaser
at a foreclosure sale of such lender(s)' deed of trust unless the lender(s) or
such purchaser shall have actually received and not refunded the deposit. Tenant
agrees to make all payments under this Lease to the lender with the most senior
encumbrance upon receiving a direction from Landlord, in writing, to pay said
amounts to such lender. Tenant shall comply with such written direction to pay
without determining whether an event of default exists under such lender's loan
to Landlord. If, in connection with obtaining financing for the Premises or any
other portion of the Project, Landlord's lender shall request reasonable
modification(s) to this Lease as a condition to such financing, Tenant shall not
unreasonably withhold, delay or defer its consent thereto, provided such
modifications do not materially and adversely affect Tenant's rights or increase
its obligations hereunder or effect the use, occupancy or quiet enjoyment of
Tenant hereunder.
32. WARRANTIES OF TENANT
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Tenant hereby warrants and represents to Landlord, for the express benefit of
Landlord, that Tenant has undertaken a complete and independent evaluation of
the risks inherent in the execution of this Lease and the operation of the
Premises for the use permitted hereby, and that, based upon said independent
evaluation, Tenant has elected to enter into this Lease and hereby assumes all
risks with respect thereto. Tenant hereby further warrants and represents to
Landlord, for the express benefit of Landlord, that in entering into this Lease,
Tenant has not relied upon any statement, fact, promise or representation
(whether express or implied, written or oral) not specifically set forth herein
in writing and that any statement, fact, promise or representation (whether
express or implied, written or oral) made at any time to Tenant, which is not
expressly incorporated herein in writing, is hereby waived by Tenant.
33. BROKERAGE COMMISSION
Landlord and Tenant each represents and warrants for the benefit of the other
that it has had no dealings with any real estate broker, agent or finder in
connection with the Premises and/or the negotiation of this Lease, except for
the Broker(s) specified in the Basic Lease Information, and that it knows of no
other real estate broker, agent or finder who is or might be entitled to a real
estate brokerage commission or finder's fee in connection with this Lease or
otherwise based upon contacts between the claimant and Tenant. Each party shall
indemnify and hold harmless the other from and against any and all liabilities
or expenses arising out of claims made for a fee or commission by any real
estate broker, agent or finder in connection with the Premises and this Lease
other than Broker(s), if any, resulting from the actions of the indemnifying
party. Landlord agrees that it will be responsible for all brokerage fees and
commissions payable to the Broker(s). Unless expressly agreed to in writing by
Landlord and Broker(s), no real estate brokerage commission or finder's fee
shall be owed to, or otherwise payable to, the Broker(s) for any renewals or
other extensions of the initial Term of this Lease or for any additional space
leased by Tenant other than the Premises as same exists as of the Lease Date.
Tenant further represents and warrants to Landlord that Tenant will not receive
(i) any portion of any brokerage commission or finder's fee payable to the
Broker(s) in connection with this Lease or (ii) any other form of compensation
or incentive from the Broker(s) with respect to this Lease.
34. QUIET ENJOYMENT
Landlord covenants with Tenant, upon the paying of Rent and observing and
keeping the covenants, agreements and conditions of this Lease on its part to be
kept, (i) that Tenant shall and may peaceably and quietly have, hold, occupy and
enjoy the Premises and the Common Areas during the Term of this Lease, and (ii)
neither Landlord, nor any successor or assign of Landlord, shall disturb
Tenant's occupancy or enjoyment of the Premises and the Common Areas. The
foregoing covenant is in lieu of any other covenant express or implied.
35. SATELLITE DISH(ES) AND ANTENNAE
Tenant shall have the right (but only to the extent permitted by the City of San
Jose and all agencies and governmental authorities having jurisdiction thereof),
at Tenant's sole cost and expense to install and operate a satellite or
microwave dish or dishes, television antennae along with any necessary cables
(hereinafter referred to as "Equipment") on the roof of the Premises (the "Roof
Space") during the term of the Lease. The location and size of the Equipment
shall be subject to Landlord's approval, not to be unreasonably withheld and
which best promotes the safety, aesthetics and efficiency of the Equipment;
provided, all of the Equipment and any modifications thereto or placement
thereof shall be (I) at Tenant's sole cost and expense, (ii) contained visually
within the roof screen, (iii) installed to Landlord's reasonable specifications,
and (iv) installed, maintained, operated and removed in accordance with all
Recorded Matters and applicable Laws. Landlord shall cooperate reasonably with
Tenant to modify the roof screen placement (subject to all applicable Laws and
Recorded Matters) if required for signal quality, reconfiguration due to the
installation of any HVAC systems and other reasonable considerations; provided,
the cost of all such modifications shall be the responsibility of Tenant. All
modifications to the Building, including the Roof Space, if any, shall be
reasonably approved by Landlord prior to commencement of any work with respect
to the Equipment. No additional Rent shall be paid by Tenant for use of the Roof
Space and operation of the Equipment. The Equipment shall remain the property of
Tenant and Tenant shall remove the Equipment upon the expiration or earlier
termination of the Lease. Tenant shall restore the Roof Space and any other
portion of the Buildings affected by the Equipment, to its original condition,
excepting ordinary wear and tear and/or damage or destruction due to fire or
other insured casualty. Tenant may not assign, lease, rent sublet or otherwise
transfer any of its interest in the Roof Space of the Equipment except together
with a transfer of all the Premises in accordance with the provisions of Section
14. Each of the other provisions of this Lease shall be applicable to the
Equipment and the use of the Roof Space by Tenant, including without limitation,
Sections 12 and 13 of this Lease. In addition, Tenant shall be responsible for
insuring, in its discretion, the Equipment; and in any event, Landlord shall
have no responsibility therefor. Tenant shall indemnify, defend (by counsel
reasonably acceptable to Landlord) and hold harmless Landlord from any and all
liabilities, damages, judgments, costs and expenses (including reasonable
attorneys' fees) Landlord may suffer or incur arising out of or related to the
installation, use, operation, maintenance, replacement and/or removal of the
Equipment or any portion thereof. Landlord covenants and agrees that it will not
install any equipment on the Roof Space or take or permit any other action which
interferes with the normal and efficient reception of broadcast signals by the
Equipment.
36. COLLATERAL FOR PERFORMANCE OF LEASE OBLIGATIONS
Simultaneously with the delivery to Landlord of this Lease and the first month's
Base Rent in accordance with the provisions of Section 3 above, Tenant shall
deliver to Landlord, as collateral for the full and faithful performance by
Tenant of all its obligations under this Lease and for all losses and damages
Landlord may suffer as a result of any default by Tenant under this Lease, an
irrevocable negotiable letter of credit, in the form and containing the terms
required herein, payable in the County of San Mateo or Santa Clara, or the City
and County of San Francisco, California running in favor of Landlord issued by a
solvent bank under the supervision of the Superintendent of Banks of the State
of California, or a National Banking Association in the amount of Four Hundred
Thirty-Five Thousand Nine Hundred Forty-Six and 00/100 Dollars ($476,683.00)(the
"Letter of Credit"). The Letter of Credit shall be (a) at sight and irrevocable,
(b) maintained in effect, whether through replacement, renewal or extension, for
the entire Lease Term (the "Letter of Credit Expiration Date") and Tenant shall
deliver a new Letter of Credit or certificate of renewal or extension to
Landlord at least thirty (30) days prior to the expiration of the Letter of
Credit, without any action whatsoever on the part of Landlord, (c) subject to
the Uniform Customs and Practices for Documentary Credits (1993-Rev)
International Chamber of Commerce Publication #400, and (d) fully assignable by
Landlord and permit partial draws. In addition to the foregoing, the form and
terms of the Letter of Credit (and the bank issuing the same) shall be
acceptable to Landlord, in Landlord's reasonable discretion, and shall provide,
among other things, in effect that: (1) Landlord, or its then managing agent,
shall have the right to draw down an amount up to the face amount of the Letter
of Credit upon the presentation to the issuing bank of Landlord's (or Landlord's
then managing agent's) statement that Tenant is in material default and such
amount is due to Landlord under the terms and conditions of this Lease, it being
understood that if Landlord or its managing agent be a corporation, partnership
or other entity, then such
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statement shall be signed by an officer (if a corporation), a general partner
(if a partnership), or any authorized party (if another entity); (2) the Letter
of Credit will be honored by the issuing bank without inquiry as to the accuracy
thereof and regardless of whether the Tenant disputes the content of such
statement; and (3) in the event of a transfer of Landlord's interest in the
Premises, Landlord shall transfer the Letter of Credit, in whole or in part (or
cause a substitute letter of credit to be delivered, as applicable), to the
transferee and thereupon the Landlord shall, without any further agreement
between the parties, be released by Tenant from all liability therefor, and it
is agreed that the provisions hereof shall apply to every transfer or assignment
of the whole or may portion of said Letter of Credit in a new landlord. If, as a
result of any such application of all or any part of the Letter of Credit, the
amount of the Letter of Credit shall be less than Four Hundred Thirty-Five
Thousand Nine Hundred Forty-Six and 00/100 Dollars ($435,946.00), Tenant shall
within five (5) days thereafter provide Landlord with additional letter(s) of
credit in an amount equal to the deficiency (or a replacement letter of credit
in the amount of Four Hundred Thirty-Five Thousand Nine Hundred Forty-Six and
00/100 Dollars ($435,946.00) and each such additional (or replacement) letter of
credit shall comply with all of the provisions of this Section 36, and if Tenant
fails to do so, the same shall constitute an incurable default by Tenant. Tenant
further covenants and warrants that it will neither assign nor encumber the
Letter of Credit or any part thereof and that neither Landlord nor its
successors or assigns will he bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance. Without limiting the generality
of the foregoing, if the Letter of Credit expires earlier than the Letter of
Credit Expiration Date, Landlord will accept a renewal thereof or substitute
letter of credit (such renewal or substitute letter of credit to be in effect
not later than thirty (30) days prior to the expiration thereof), which shall be
irrevocable and automatically renewable as above provided through the Letter of
Credit Expiration Date upon the same terms as the expiring letter of credit or
such other terms as may be acceptable to Landlord in its sole discretion.
However, if the Letter of Credit is not timely renewed or a substitute letter of
credit is not timely received, or if Tenant fails to maintain the Letter of
Credit in the amount and terms set forth in this Section 36, Landlord shall have
the right to present such Letter of Credit to the bank in accordance with the
terms of this Section 36 and the entire sum evidenced thereby shall be paid to
and held by Landlord as collateral for performance of all of Tenant's
obligations under this Lease and for all losses and damages Landlord may suffer
as a result of any default by Tenant under this Lease. If there shall occur a
material default under this Lease as described in Section 18 of this Lease,
Landlord may, but without obligation to do so, draw upon the Letter of Credit,
in part or in whole, to cure any default of Tenant and/or to compensate Landlord
for any and all damages of any kind or nature sustained or which may be
sustained by Landlord resulting from Tenant's default. Tenant agrees not to
interfere in any way with payment to Landlord of the proceeds of the Letter of
Credit, either prior to or following a "draw" by Landlord of any portion of the
Letter of Credit, regardless of whether any dispute exists between Tenant and
Landlord as to Landlord's right to draw from the letter of Credit. No condition
or term of this Lease shall be deemed to render the letter of Credit conditional
to justify the issuer of the Letter of Credit in failing to honor a drawing upon
such Letter of Credit in a timely manner. Notwithstanding the foregoing, if
Tenant has a market value of at least $500,000,000 as of the first day of the
13th and/or the 25th months of the Term, the Letter of Credit may be reduced by
$228,823.00 as of the first day of the 13th month and further reduced by an
additional $235,688.00 as of the first day of the 25th month, so that no Letter
of Credit is required. However, in the event Tenant's market value is below
$500,000 as if the first day of the 13th month or 25th month, the Letter of
Credit shall remain. Tenant shall be required to provide written documentation
outlining Tenant's market value for Landlord's review and acceptance prior to
the decrease of any portion of the Letter of Credit.
IN WITNESS WHEREOF, this Lease is executed by the parties as of the Lease
Date referenced on Page 1 of this Lease.
TENANT:
TiVo, Inc.,
a Delaware corporation
By: /s/ Michael Ramsay
------------------------------
Its: ______________________________
Date: ______________________________
By: /s/ David H. Courtney
------------------------------
Its: ______________________________
Date: ______________________________
LANDLORD:
WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
By: LEGACY PARTNERS COMMERCIAL, INC.,
as manager and agent for WIX/NSJ Real Estate Limited Partnership
By: /s/ Mack Laney
--------------------------
Senior Vice President
Date: 10/13/99
------------------------------
If Tenant is a CORPORATION, the authorized officers must sign on behalf of the
-----------
corporation and indicate the capacity in which they are signing. The Lease must
be executed by the president or vice-president and the secretary or assistant
---
secretary, unless the bylaws or a resolution of the board of directors shall
------
otherwise provide, in which event, the bylaws or a certified copy of the
resolution, as the case may be, must be attached to this Lease.
18
<PAGE>
EXHIBIT A
PREMISES
This exhibit, entitled "Premises", is and shall constitute EXHIBIT A to that
certain Lease Agreement dated October 6, 1999 (the "Lease"), by and between
WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership,
("Landlord") and TiVo, Inc., a Delaware corporation ("Tenant") for the leasing
of certain premises located at 2160 and 2190 Gold Street, San Jose, California,
(the "Premises").
The Premises consist of the rentable square footage of space specified in the
Basic Lease Information and has the address specified in the Basic Lease
Information. The Premises are a part of and are contained in the Building
specified in the Basic Lease Information. The cross-hatched area depicts the
Premises within the Park:
<PAGE>
EXHIBIT B TO LEASE AGREEMENT
TENANT IMPROVEMENTS
This exhibit, entitled "Tenant Improvements", is and shall constitute EXHIBIT B
---------
to that certain Lease Agreement dated October 6, 1999 (the "Lease"), by and
between WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord"), and TiVo, Inc., a Delaware corporation ("Tenant"), for the leasing
of certain premises located at 2160 and 2190 Gold Street, San Jose, California
(the "Premises"). The terms, conditions and provisions of this EXHIBIT B are
---------
hereby incorporated into and are made a part of the Lease. Any capitalized terms
used herein and not otherwise defined herein shall have the meaning ascribed to
such terms as set forth in the Lease:
1. Tenant To Construct Tenant Improvements. Subject to the provisions below,
---------------------------------------
Tenant shall be solely responsible for the planning, construction and completion
of the interior tenant improvements ("Tenant Improvements") to the Premises in
accordance with the terms and conditions of this Exhibit B. The Tenant
----------
Improvements shall not include any of Tenant's personal property, trade
fixtures, furnishings, equipment or similar items.
2. Tenant Improvement Plans.
-------------------------
A. Preliminary Plans and Specifications. Promptly after execution of the
------------------------------------
Lease, Tenant shall retain a licensed and insured architect ("Architect") to
prepare preliminary working architectural and engineering plans and
specifications ("Preliminary Plans and Specifications") for the Tenant
Improvements. Promptly after execution of the Lease, landlord shall provide
Architect with accurate as-built building plans for the Premises in both
electronic format and hard copy. Tenant shall deliver the Preliminary Plans and
Specifications to Landlord. The Preliminary Plans and Specifications shall be in
sufficient schematic detail to show locations, types and conceptual requirements
for all significant heat loads, people loads, floor loads, power and plumbing,
regular and special HVAC needs, telephone communications, telephone and
electrical outlets, lighting, lighting fixtures and related power, and
electrical and telephone switches. Landlord shall reasonably approve or
disapprove the Preliminary Plans and Specifications within five (5) days after
Landlord receives the Preliminary Plans and Specifications and, if disapproved,
Landlord shall return the Preliminary Plans and Specifications to Tenant, who
shall make all necessary revisions within ten (10) days after Tenant's receipt
thereof. This procedure shall be repeated until Landlord approves the
Preliminary Plans and Specifications. The approved Preliminary Plans and
Specifications, as modified, shall be deemed the "Final Preliminary Plans and
Specifications".
B. Final Plans and Specifications. After the Final Preliminary Plans and
-------------------------------
Specifications are approved by Landlord and are deemed to be the Final
Preliminary Plans and Specifications, Tenant shall cause the Architect to
prepare in twenty (20) days following Landlord's approval of the Final
Preliminary Plans and Specifications the final working architectural and
engineering plans, specifications and drawings ("Final Plans and
Specifications") for the Tenant Improvements. Tenant shall then deliver the
Final Plans and Specifications to Landlord. Landlord shall reasonably approve or
disapprove the Final Plans and Specifications within five (5) days after
Landlord receives the Final Plans and Specifications and, if disapproved,
Landlord shall return the Final Plans and Specifications to Tenant who shall
make all necessary revisions within ten (10) days after Tenant's receipt
thereof. This procedure shall be repeated until Landlord approves, in writing,
the Final Plans and Specifications. The approved Final Plans and Specifications,
as modified, shall be deemed the "Construction Documents".
C. Miscellaneous. All deliveries of the Preliminary Plans and
--------------
Specifications, the Final Preliminary Plans and Specifications, the Final Plans
and Specifications, and the Construction Documents shall be delivered by
messenger service, by personal hand delivery or by overnight parcel service.
While Landlord has the right to approve the Preliminary Plans and
Specifications, the Final Preliminary Plans and Specifications, the Final Plans
and Specifications, and the Construction Documents, Landlord's interest in doing
so is to protect the Premises, the Building and Landlord's interest.
Accordingly, Tenant shall not rely upon Landlord's approvals and Landlord shall
not be the guarantor of, nor responsible for, the adequacy and correctness or
accuracy of the Preliminary Plans and Specifications, the Final Preliminary
Plans and Specifications, the Final Plans and Specifications, and the
Construction Documents, or the compliance thereof with applicable laws, and
Landlord shall incur no liability of any kind by reason of granting such
approvals. Landlord and Tenant shall use their respective best efforts and shall
work cooperatively to create and finalize the Preliminary and Final Plans and
Specifications and Landlord agrees that Tenant can utilize design-build/design-
assist techniques to expedite construction of the Tenant Improvements; however,
Tenant must submit a detailed criteria specification for the electrical,
mechanical and plumbing aspects of the Tenant Improvements for Landlord's prior
review and approval.
D. Building Standard Work. The Construction Documents shall provide
-----------------------
that the Tenant Improvements to be constructed in accordance therewith must be
at least equal, in quality, to Landlord's building standard materials,
quantities and procedures then in use by Landlord ("Building Standards")
attached hereto as Exhibit B-2, and shall consist of improvements which are
generic in nature.
E. Construction Agreements. Tenant hereby covenants and agrees that a
------------------------
provision shall be included in each and every agreement made with the Architect
and the Contractor with respect to the Tenant Improvements specifying that
Landlord shall be a third party beneficiary thereof, including without
limitation, a third party beneficiary of all covenants, representations,
indemnities and warranties made by the Architect and/or Contractor.
3. Permits. Tenant at its sole cost and expense (subject to the provisions of
-------
Paragraph 5 below) shall obtain all governmental approvals of the Construction
Documents to the full extent necessary for the issuance of a building permit for
the Tenant Improvements based upon such Construction Documents. Tenant at its
sole cost and expense shall also cause to be obtained all other necessary
approvals and permits from all governmental agencies having jurisdiction or
authority for the construction and installation of the Tenant Improvements in
accordance with the approved Construction Documents. Tenant at its sole cost and
expense (subject to the provisions of Paragraph 5 below) shall undertake all
steps necessary to insure that the construction of the Tenant Improvements is
accomplished in strict compliance with all statutes, laws, ordinances, codes,
rules, and regulations applicable to the construction of the Tenant Improvements
and the requirements and standards of any insurance underwriting board,
inspection bureau or insurance carrier insuring the Premises and/or the
Building.
4. Construction.
------------
A. Tenant shall be solely responsible for the construction, installation
and completion of the Tenant Improvements in accordance with the Construction
Documents approved by Landlord and is solely responsible for the payment of all
amounts when payable in connection therewith without any cost or expense to
Landlord, except for Landlord's obligation to contribute the Tenant Improvement
Allowance in accordance with the provisions of Paragraph 5 below. Tenant shall
diligently proceed with the construction, installation and
<PAGE>
completion of the Tenant Improvements in accordance with the Construction
Documents and the completion schedule reasonably approved by Landlord. No
material changes shall be made to the Construction Documents and the completion
schedule approved by Landlord without Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed.
The Tenant Improvements shall be deemed substantially complete on the date
that the building officials of the applicable governmental agency(s) issues its
final approval of the construction of the Tenant Improvements whether in the
form of the issuance of a final permit, temporary certificate of occupancy,
certificate of occupancy or the written approval evidencing its final inspection
on the building permits, or the date on which Tenant first takes occupancy of
the Premises for purposes other than to perform the Tenant's Work (defined in
Section 2.3 herein), or the date that the Contractor and Architect issues a
certificate stating that the Tenant Improvements have been substantially
completed in accordance with the Construction Drawings, whichever first occurs
("Substantial Completion", or "Substantially Completed", or "Substantially
Complete").
B. Tenant at its sole cost and expense (subject to the provisions of
Paragraph 5 below) shall employ a licensed, insured and bonded general
contractor ("Contractor") to construct the Tenant Improvements in accordance
with the Construction Documents. The construction contracts between Tenant and
the Contractor and between the Contractor and subcontractors shall be subject to
Landlord's prior written approval, which approval shall not be unreasonably
withheld or delayed. Proof that the Contractor is licensed in California, is
bonded as required under California law, and has the insurance specified in
Exhibit B-1, attached hereto and incorporated herein by this reference, shall be
- -----------
provided to Landlord at the time that Tenant requests approval of the Contractor
from Landlord. Tenant shall comply with or cause the Contractor to comply with
all other terms and provisions of Exhibit B-1.
------------
C. Prior to the commencement of the construction and installation of the
Tenant Improvements, Tenant shall provide the following to Landlord, all of
which shall be to Landlord's reasonable satisfaction:
(i) An estimated budget and cost breakdown for the Tenant
Improvements.
(ii) Estimated completion schedule for the Tenant Improvements.
(iii) Copies of all required approvals and permits from governmental
agencies having jurisdiction or authority for the construction and installation
of the Tenant Improvements; provided, however, if prior to commencement of the
construction and installation of Tenant Improvements Tenant has not received the
electrical, plumbing or mechanical permits, Tenant shall only be required to
provide Landlord with evidence that Tenant has made application therefor, and,
upon receipt by Tenant of such permits, Tenant shall promptly provide Landlord
with copies thereof.
(iv) Evidence of Tenant's procurement of insurance required to be
obtained pursuant to the provisions of Paragraphs 4.B and 4.G.
D. Landlord shall at all reasonable times have a right to inspect the
Tenant Improvements (provided Landlord does not materially interfere with the
work being performed by the Contractor or its subcontractors) and Tenant shall
immediately cease work upon written notice from Landlord if the Tenant
Improvements are not in compliance with the Construction Documents approved by
Landlord. If Landlord shall give notice of faulty construction or any other
deviation from the Construction Documents, Tenant shall cause the Contractor to
make corrections promptly. However, neither the privilege herein granted to
Landlord to make such inspections, nor the making of such inspections by
Landlord, shall operate as a waiver of any rights of Landlord to require good
and workmanlike construction and improvements constructed in accordance with the
Construction Documents.
E. Subject to Landlord complying with its obligations in Paragraph 5
below, Tenant shall pay and discharge promptly and fully all claims for labor
done and materials and services furnished in connection with the Tenant
Improvements. The Tenant Improvements shall not be commenced until five (5)
business days after Landlord has received notice from Tenant stating the date
the construction of the Tenant Improvements is to commence so that Landlord can
post and record any appropriate Notice of Non-responsibility.
F. Tenant acknowledges and agrees that the agreements and covenants of
Tenant in Sections 10 and 9 of the Lease shall be fully applicable to Tenant's
construction of the Tenant Improvements.
G. Tenant shall maintain, and cause to be maintained, during the
construction of the Tenant Improvements, at its sole cost and expense, insurance
of the types and in the amounts specified in Exhibit B-1 and in Section 12 of
-----------
the Lease, together with builders' risk insurance for the amount of the
completed value of the Tenant Improvements on an all-risk non-reporting form
covering all improvements under construction, including building materials, and
other insurance in amounts and against such risks as the Landlord shall
reasonably require in connection with the Tenant Improvements.
H. No materials, equipment or fixtures shall be delivered to or installed
upon the Premises pursuant to any agreement by which another party has a
security interest or rights to remove or repossess such items, without the prior
written consent of Landlord, which consent shall not be unreasonably withheld.
I. Landlord reserves the right to establish reasonable rules and
regulations for the use of the Building during the course of construction of the
Tenant Improvements, including, but not limited to, construction parking,
storage of materials, hours of work, use of elevators, and clean-up of
construction related debris.
J. Upon completion of the Tenant Improvements, Tenant shall deliver to
Landlord the following, all of which shall be to Landlord's reasonable
satisfaction:
(i) Any certificates required for occupancy, including a permanent
and complete Certificate of Occupancy issued by the City of San Jose.
(ii) A Certificate of Completion signed by the Architect who
prepared the Construction Documents, reasonably approved by Landlord.
(iii) A cost breakdown itemizing all expenses for the Tenant
Improvements, together with invoices and receipts for the same or other evidence
of payment.
(iv) Final and unconditional mechanic's lien waivers for all the
Tenant Improvements.
<PAGE>
(v) A Notice of Completion for execution by Landlord, which
certificate once executed by Landlord shall be recorded by Tenant in the
official records of the county of Santa Clara, and Tenant shall then deliver to
Landlord a true and correct copy of the recorded Notice of Completion.
(vi) A true and complete copy of all as-built plans and drawings for
the Tenant Improvements.
5. Tenant Improvement Allowance.
-----------------------------
A. Subject to Tenant's compliance with the provisions of this EXHIBIT B,
---------
Landlord shall provide to Tenant an allowance in the amount of Four Million Five
Hundred Seventy-Six Thousand Four Hundred Sixty-Four and 00/100 Dollars
($4,576,464.00) (the "Tenant Improvement Allowance") to construct and install
only the Tenant Improvements. The Tenant Improvement Allowance shall be used to
design, prepare, plan, obtain the approval of, construct and install the Tenant
Improvements and for no other purpose. Except as otherwise expressly provided
herein, Landlord shall have no obligation to contribute the Tenant Improvement
Allowance unless and until the Construction Documents have been approved by
Landlord and Tenant has complied with all requirements set forth in Paragraph
4.C. of this EXHIBIT B. The costs to be paid out of the Tenant Improvement
----------
Allowance shall include all reasonable costs and expenses associated with the
design, preparation, approval, planning, construction and installation of the
Tenant Improvements (the "Tenant Improvement Costs"), including all of the
following:
(i) All costs of the Preliminary Plans and Specifications, the
Final Plans and Specifications, and the Construction Documents, and engineering
costs associated with completion of the State of California energy utilization
calculations under Title 24 legislation;
(ii) All costs of the Preliminary and Final Plans and Specifications
and the Construction Documents and engineering costs associated with the lobby
design for the Buildings;
(iii) All costs of obtaining building permits and other necessary
authorizations from local governmental authorities;
(iv) All costs of interior design and finish schedule plans and
specifications including as-built drawings, if applicable;
(v) All direct and indirect costs of procuring, constructing and
installing the Tenant Improvements in the Premises, including, but not limited
to, the construction fee for overhead and profit and the cost of all on-site
supervisory and administrative staff, office, equipment and temporary services
rendered by the Contractor in connection with the construction of the Tenant
Improvements; provided, however, that the construction fee for overhead and
profit, the cost of all on-site supervisory and administrative staff, office,
equipment and temporary services shall not exceed amounts which are reasonable
and customary for such items in the local construction industry;
(vi) All fees payable to the Architect and any engineer if they are
required to redesign any portion of the Tenant Improvements following Tenant's
and Landlord's approval of the Construction Documents;
(vii) Utility connection fees;
(viii) Inspection fees and filing fees payable to local governmental
authorities, if any;
(ix) All costs of all permanently affixed equipment and non-trade
fixtures provided for in the Construction Documents, including the cost of
installation; and,
(x) A construction management fee payable to Landlord in the amount
of two and one half percent (2 1/2%) of the aggregate of the principal amount of
the Amortized Excess TI Costs (defined below) and the Tenant Improvement
Allowance (the "CM Fee").
The Tenant Improvement Allowance shall be the maximum contribution by Landlord
for the Tenant Improvement Costs, and the disbursement of the Tenant Improvement
Allowance is subject to the terms contained hereinbelow.
Except for payment of the CM Fee, Landlord will make payments to Tenant from the
Tenant Improvement Allowance to reimburse Tenant for Tenant Improvement Costs
paid or incurred by Tenant. Payment of the CM Fee shall be the first payment
from the Tenant Improvement Allowance and shall be made by means of a deduction
or credit against the Tenant Improvement Allowance. All other payments of the
Tenant Improvement Allowance shall be by progress payments not more frequently
than once per month and only after satisfaction of the following conditions
precedent: (a) receipt by Landlord of conditional mechanics' lien releases for
the work completed and to be paid by said progress payment, conditioned only on
the payment of the sums set forth in the mechanics' lien release, executed by
the Contractor and all subcontractors, labor suppliers and materialmen; (b)
receipt by Landlord of unconditional mechanics' lien releases from the
Contractor and all subcontractors, labor suppliers and materialmen for all work
other than that being paid by the current progress payment previously completed
by the Contractor, subcontractors, labor suppliers and materialmen and for which
Tenant has received funds from the Tenant Improvement Allowance to pay for such
work; (c) receipt by Landlord of any and all documentation reasonably required
by Landlord detailing the work that has been completed and the materials and
supplies used as of the date of Tenant's request for the progress payment,
including, without limitation, invoices, bills, or statements for the work
completed and the materials and supplies used; and (d) completion by Landlord or
Landlord's agents of any inspections of the work completed and materials and
supplies used as deemed reasonably necessary by Landlord. Except for the CM Fee
payment (credit), Tenant Improvement Allowance progress payments shall be paid
to Tenant within fourteen (14) days from the satisfaction of the conditions set
forth in the immediately preceding sentence. The preceding notwithstanding, all
Tenant Improvement Costs paid or incurred by Tenant prior to Landlord's approval
of the Construction Documents in connection with the design and planning of the
Tenant Improvements by Architect shall be paid from the Tenant Improvement
Allowance, without any retention, within fourteen (14) days following Landlord's
receipt of invoices, bills or statements from Architect evidencing such costs.
Notwithstanding the foregoing to the contrary, Landlord shall be entitled to
withhold and retain five percent (5%) of the Tenant Improvement Allowance or of
any Tenant Improvement Allowance progress payment until the lien-free expiration
of the time for filing of any mechanics' liens claimed or which might be filed
on account of any work ordered by Tenant or the Contractor or any subcontractor
in connection with the construction and installation of the Tenant Improvements.
<PAGE>
B. Landlord shall not be obligated to pay any Tenant Improvement
Allowance progress payment or the Tenant Improvement Allowance retention if on
the date Tenant is entitled to receive the Tenant Improvement Allowance progress
payment or the Tenant Improvement Allowance retention Tenant is in default of
this Lease. Such payments shall resume upon Tenant curing any such default
within the time periods which may be provided for in the Lease.
C. Should the total cost of constructing the Tenant Improvements be less
than the Tenant Improvement Allowance, the Tenant Improvement Allowance shall be
automatically reduced to the amount equal to said actual cost.
D. The term "Excess Tenant Improvement Costs" as used herein shall mean
and refer to the aggregate of the amount by which the actual Tenant Improvement
Costs exceed the Tenant Improvement Allowance. A portion of the Excess Tenant
Improvement Costs up to a maximum amount of Three Hundred Seventeen Thousand
Eight Hundred Ten and 00/100 Dollars ($317,810.00) shall be paid by Landlord in
the same manner as the Tenant Improvement Allowance and such Excess Tenant
Improvement Costs will then be amortized over the initial term of the Lease at
the rate of ten percent (10%) per annum and such amortized amount (including
interest charges) shall be paid by Tenant to Landlord with, and as part of, the
Base Rent for the Premises in accordance with the provisions and requirements of
Section 3 of the Lease (the "Amortized Excess TI Costs"). Within two (2) weeks
after the Tenant Improvements have been substantially completed and the actual
Tenant Improvement Costs are known, the parties shall execute and deliver a
written amendment to the Lease, in the form acceptable to the parties, wherein
there shall be specified, inter alia, the amount of the Base Rent payable by
----------
Tenant during the initial term of the Lease after taking into account the amount
of the Amortized Excess TI Costs. Tenant shall promptly pay any and all Excess
Tenant Improvement Costs in excess of the principal amount of the Amortized
Excess TI Costs.
6. Shell Improvements: Landlord shall provide the Premises with the following
------------------
improvements substantially complete on or before November 15, 1999:
(i) The site work and building structure, including foundations, slab on
grade (including vapor barrier), roof framing, roofing, exterior walls of the
building including doors (per original shell design) and concrete wall panels;
(ii) Utilities brought to an exterior location within the building,
including electrical power, water, gas and sewer; and conduit for electrical
stubbed into the Buildings; and
(iii) Fire Sprinkler mains and branch lines (per original shell design)
with sprinkler heads (excluding modification required for Tenant Improvements)
(collectively "Shell Improvements").
Building Shell Improvements specifically excludes all Tenant Improvements
and other improvements including, without limitation, the following: (a)
additional underslab plumbing, (b) finish carpentry, (c) roof screen, (d)
interior doors, windows and hardware, (e) interior finishes, (f) drywall
partitions (including demising walls separating the Premises from the contiguous
space), (g) acoustic ceiling, (h) floor and window coverings, (i) casework, (j)
dock equipment, (k) plumbing, (l) electrical wiring and distribution, and
electrical panels, (m) heating, ventilation and air conditioning, and any
additional structural improvements or engineering costs related thereto, (n)
fire sprinkler finish, (o) in-rack fire sprinklers, draft curtains, smoke vents,
hose racks, and pallet racking, (p) security systems, (q) phone and data lines,
(r) insulation, (s) slab treatment, and (t) additional doors required for
Tenant's use or occupancy.
7. Termination. If the Lease is terminated prior to the date on which the
-----------
Tenant Improvements are completed, for any reason due to the default of Tenant
hereunder, in addition to any other remedies available to Landlord under the
Lease, Tenant shall pay to Landlord as Additional Rent under the Lease, within
five (5) days of receipt of a statement therefor, any and all costs incurred by
Landlord and not reimbursed or otherwise paid by Tenant through the date of
termination in connection with the Tenant Improvements to the extent planned,
installed and/or constructed as of such date of termination, including, but not
limited to, any costs related to the removal of all or any portion of the Tenant
Improvements and restoration costs related thereto. Subject to the provisions of
Section 10.2 of the Lease, upon the expiration or earlier termination of the
Lease, Tenant shall not be required to remove the Tenant Improvements it being
the intention of the parties that the Tenant Improvements are to be considered
incorporated into the Building.
8. Lease Provisions; Conflict. The terms and provisions of the Lease, insofar
--------------------------
as they are applicable, in whole or in part, to this EXHIBIT B, are hereby
---------
incorporated herein by reference, and specifically including all of the
provisions of Section 29 of the Lease. In the event of any conflict between the
terms of the Lease and this EXHIBIT B, the terms of this EXHIBIT B shall
--------- ---------
prevail. Any amounts payable by Tenant to Landlord hereunder shall be deemed to
be Additional Rent under the Lease and, upon any default in the payment of same,
Landlord shall have all rights and remedies available to it as provided for in
the Lease.
<PAGE>
EXHIBIT B-1
CONSTRUCTION INSURANCE REQUIREMENTS
Before commencing work, the contractor shall procure and maintain at its sole
cost and expense until completion and final acceptance of the work, at least the
following minimum levels of insurance.
A. Workers' Compensation in statutory amounts and Employers Liability
Insurance in the minimum amounts of $100,000 each accident for bodily injury by
accident and $100,000 each employee for bodily injury by disease with a $500,000
policy limit, covering each and every worker used in connection with the
contract work.
B. Comprehensive General Liability Insurance on an occurrence basis including,
but not limited to, protection for Premises/Operations Liability, Broad Form
Contractual Liability, Owner's and Contractor's Protective, and
Products/Completed Operations Liability*, in the following minimum limits of
liability.
Bodily Injury, Property Damage, and
Personal Injury Liability $2,000,000/each occurrence
$3,000,000/aggregate
* Products/Completed Operations Liability Insurance is to be provided
for a period of at least one (1) year after completion of work.
Coverage should include protection for Explosion, Collapse and Underground
Damage.
C. Comprehensive Automobile Liability Insurance with the following minimum
limits of liability.
Bodily Injury and Property $1,000,000/each occurrence
Damage Liability $2,000,000/aggregate
This insurance will apply to all owned, non-owned or hired automobiles to
be used by the Contractor in the completion of the work.
D. Umbrella Liability Insurance in a minimum amount of five million dollars
($5,000,000), providing excess coverage on a following-form basis over the
Employer's Liability limit in Paragraph A and the liability coverages outlined
in Paragraphs B and C.
E. Equipment and Installation coverages in the broadest form available
covering Contractor's tools and equipment and material not accepted by Tenant.
Tenant will provide Builders Risk Insurance on all accepted and installed
materials.
All policies of insurance, duplicates thereof or certificates evidencing
coverage shall be delivered to Landlord prior to commencement of any work and
shall name Landlord, and its partners and lenders as additional insureds as
their interests may appear. All insurance policies shall (1) be issued by a
company or companies licensed to be business in the state of California, (2)
provide that no cancellation, non-renewal or material reduction in coverage
shall be effective without thirty (30) days prior written notice provided to
Landlord, (3) provide no deductible greater than $15,000 per occurrence, (4)
except for the Workers' Compensation coverage, contain a waiver to subrogation
clause in favor of Landlord, and its partners and lenders, and (5) comply with
the requirements of Sections 12.2, 12.3 and 12.4 of the Lease to the extent such
requirements are applicable.
<PAGE>
Exhibit B-2
Building Standards
Outline Specification For
New Office Build-out In R&D Buildings
OFFICE AREA
- -----------
Demising Partition and Corridor Walls:
Note: One hr. rated walls where required based on occupancy group.
A. 6" 20-gage metal studs at 24" O.C. (or as required by code based on roof
height) framed full height from finish floor to surface above.
B. One (1) layer 5/8" drywall Type "X" both sides of wall, fire taped only.
Interior Partitions:
A. 3-5/8" 25-gage metal studs at 24" O.C. to bottom of T-Bar ceiling grid
approximately 9' 0" high.
B. One (1) layer 5/8" drywall both sides of wall, smooth ready for paint.
C. 3-5/8" metal studs including all lateral bracing as required by code.
Perimeter Drywall (At Office Areas):
A. 3-5/8" metal studs @ 24" O.C. to 12' 0" above finished floor. (or as
required by Title-24 for full height envelope then use demising wall spec.)
B. One (1) layer 5/8" Type "X" drywall taped smooth and ready for paint.
Column Furring:
A. Furring channel all sides of 2-1/2" metal studs per details.
B. One (1) layer 5/8" drywall taped smooth and ready for paint.
C. Columns within walls shall be furred-out.
Acoustical Ceilings:
Note: Gyp. Bd. ceiling at all restrooms Typ.
A. 2' x 4' standard white T-Bar grid system as manufactured by Chicago
Metallic of equal.
B. 2' x 4' x 5/8" white, no-directional acoustical tile to be regular second
look as manufactured by Armstrong or equal.
Painting:
A. Sheetrock walls within office to receive two (2) coats of interior latex
paint as manufactured by Kelly Moore or equal. Some portions of second coat to
be single accent color.
B. Semi-gloss paint all restrooms and lunch rooms.
Window Covering:
A. 1" aluminum mini-blinds as manufactured by Levelor, Bali or equal, color
to be selected by Legacy Partners Commercial, Inc. (brushed aluminum or white).
B. Blinds to be sized to fit window module.
VCT
- ---
A. VCT to be 1/8" x 12" x 12" as manufactured by Armstrong -Excelon Series
or equal.
B. Slabs shall be water proofed per manufacturer recommendations, at sheet
vinyl or VCT areas.
Light Fixtures:
A. 2" x 4" T-bar lay in 3-tube energy efficient fixture with cool white
fluorescent tubes with parabolic lens as manufactured by Lithonia or equal.
(Approximately 50 F.C.)
Light Switches:
A. Switching as required by Title 24.
B. Switch assembly to be Levinton or equal, color - White
<PAGE>
Electrical Outlet:
A. 110V duplex outlet in demising or interior partitions only, as manufactured
by Leviton or equal, color to be White.
B. Maximum eight (8) outlets per circuit, spacing to meet code or minimum 2 per
office, conference room, reception and 2 dedicated over cabinet at lunch room
junction boxes above ceiling for large open area with furniture partitions.
C. Transformers to be a minimum of 20% or over required capacity.
D. Contractors to inspect electric room and to include all necessary metering
cost.
E. No aluminum wiring is acceptable.
Telephone/Data Outlet:
A. One (1) single outlet box in wall with pullwire from outlet box to area
above T-bar ceiling per office.
B. Cover plate for phone outlets by telephone/data vendors.
Fire Sprinklers:
As required by fire codes.
Topset Base:
A. 4" rubber base as manufactured by Burke or equal, standard colors only.
B. 4" rubber base at VCT areas.
Toilet Areas:
Wet walls to receive Duraboard or Wonder Board and ceramic tile up to 48".
Floors to receive ceramic tile with self coved base as required by code.
Carpet:
Note any of the following carpets are acceptable
Designweave: Alumni 28 oz., Windswept Classic 30 oz. or Stratton Design Series
III 30 oz, Structure II 28 oz.
Wood Doors:
Shall be 3' 0" x 9' 0" x 1-3/4" (unless otherwise specified) solid core,
prefinished harmony (rotary N. birch).
Door Frames:
Shall be ACI or equal, 3-3/4" or 4-7/8" throat, brushed, standard aluminum,
snap-on trim.
Hardware:
1-1/2 pr. butts F179 Stanley, Latchset D10S Rhodes Schlage, Lockset D53PD
Rhodes Schlage, Dome Type floor stop Gylnn Johnson FB13, Closer 4110LCN (where
required) brushed chrome.
Insulation:
By Title 24 insulation.
Plumbing:
A. Shall comply with all local codes and handicapped code requirements.
Fixtures shall be either "American Standard", "Kohler" or "Norris". All toilet
accessories and grab bars shall be "Bobrick" or equal and approved by owner.
B. Plumbing bid shall include 5 gallon minimum hot water heater, or insta hot
with mixer valve including all connections.
Toilet Partitions:
Shall be as manufactured by Fiat, global or equal if approved by owner. Color
to be white or gray.
HVAC:
HVAC units per specifications.
Five (5) year warranty provided on all HVAC compressor units. All penetrations
including curbs and sleepers to be hot moped to Legacy Partners Commercial, Inc.
standard.
<PAGE>
Warehouse Areas:
Floor - seal concrete with water base clear acrylic sealer.
Fire Extinguishers - 2A 10 BC surface mount by code x by S.F.
400 W metal halide lighting at warehouse minimum 5-7 foot candles.
Note: All high pile storage requirements are excluded for standard building
T.I.
<PAGE>
Exhibit B-2
Building Standards
Outline Specification For
New Office Build-out In Industrial Buildings
OFFICE AREA
- -----------
Demising Partition and Corridor Walls:
Note: One hr. rated walls where required based on occupancy group.
A. 6" 20-gage metal studs at 24" O.C. (or as required by code based on roof
height) framed full height from finish floor to surface above.
B. One (1) layer 5/8" drywall Type "X" both sides of wall, fire taped only.
Interior Partitions:
A. 3-5/8" 25-gage metal studs at 24" O.C. to bottom of T-Bar ceiling grid
approximately 9' 0" high.
B. One (1) layer 5/8" drywall both sides of wall, smooth ready for paint.
C. 3-5/8" metal studs including all lateral bracing as required by code.
Perimeter Drywall (At Office Areas):
A. 3-5/8" metal studs @ 24" O.C. to 12' 0" above finished floor. (or as
required by Title-24 for full height envelope then use demising wall spec.)
B. One (1) layer 5/8" Type "X" drywall taped smooth and ready for paint.
Column Furring:
A. Furring channel all sides of 2-1/2" metal studs per details.
B. One (1) layer 5/8" drywall taped smooth and ready for paint.
C. Columns within walls shall be furred-out.
Acoustical Ceilings:
Note: Gyp. Bd. ceiling at all restrooms Typ.
A. 2' x 4' standard white T-Bar grid system as manufactured by Chicago
Metallic of equal.
B. 2' x 4' x 5/8" white, fissured, no-directional acoustical tile to be
Cortega as manufactured by Armstrong or equal.
Painting:
A. Sheetrock walls within office to receive two (2) coats of interior latex
paint as manufactured by Kelly Moore or equal. Some portions of second coat to
be single accent color.
B. Semigloss paint all restrooms and lunch rooms.
Window Covering:
A. 1" aluminum mini-blinds as manufactured by Levelor, Bali or equal, color
to be selected by Legacy Partners Commercial, Inc.
B. Blinds to be sized to fit window module.
Vct:
A. VCT to be 1/8" x 12" x 12" as manufactured by Armstrong-Excelon Series or
equal.
B. Slabs shall be water proofed per manufacturer recommendations, at sheet
vinyl or VCT areas.
Light Fixtures:
A. 2" x 4" T-bar lay in 3-tube energy efficient fixture with cool white
fluorescent tubes with prismatic acrylic lens as manufactured by Lithonia or
equal. (Approximately 50 F.C.)
Light Switches:
A. Switching as required by Title 24.
<PAGE>
B. Switch assembly to be Levinton or equal, color - White
Electrical Outlet:
A. 110V duplex outlet in demising or interior partitions only, as manufactured
by Leviton or equal color to be White.
B. Maximum eight (8) outlets per circuit, spacing to meet code or minimum 2 per
office, conference room, reception and 2 dedicated over cabinet at lunch room
junction boxes above ceiling for large open area with furniture partitions.
C. Transformers to be a minimum of 20% or over required capacity.
D. Contractors to inspect electric room and to include all necessary metering
cost.
E. No aluminum wiring is acceptable.
Telephone/Data Outlet:
A. One (1) single outlet box in wall with pullwire from outlet box to area
above T-bar ceiling per office.
B. Cover plate for phone outlets by telephone/data vendors.
Fire Sprinklers:
As required by fire codes.
Topset Base:
A. 4" rubber base as manufactured by Burke or equal, standard colors only.
B. 4" rubber base at VCT areas.
Toilet Areas:
Wet walls to receive duraboard or wondslboard and marlite up to 48". Floors to
receive sheetvinyl and self coved base as required by code.
Carpet:
Note any of the following carpets are acceptable
Designweave: Alumni 28 oz., Windswept Classic 30 oz. or Stratton Design Series
III 30 oz, Structure II
28 oz.
Wood Doors:
Shall be 3'0" x 7' 0" x 1-3/4" (unless otherwise specified) solid core,
prefinished harmony (rotary N. birch).
Door Frames:
Shall be ACI or equal, 3-3/4" or 4-7/8" throat, aluminum, standard black, snap-
on trim.
Hardware:
1-1/2 pr. butts F179 Stanley, Latchset D10S Rhodes Schlage, Lockset D53PD Rhodes
Schlage, Dome Type floor stop Gylnn Johnson FB13, Closer 4110LCN (where
required)
Insulation:
By Title 24 insulation.
Plumbing:
A. Shall comply with all local codes and handicapped code requirements.
Fixtures shall be either "American Standard", "Kohler" or "Norris". All toilet
accessories and grab bars shall be "Bobrick" or equal and approved by owner.
B. Plumbing bid shall include 5 gallon minimum hot water heater, or insta hot
with mixer valve including all connections.
Toilet Partitions:
Shall be as manufactured by Fiat, global or equal if approved by owner. Color
shall be chosen by tenant.
HVAC:
HVAC units per specifications.
Five (5) year warranty provided on all HVAC compressor units. All penetrations
including curbs and sleepers to be hot moped to Legacy Partners Commercial, Inc.
standard.
<PAGE>
Warehouse Areas:
Floor - seal concrete with water base clear acrylic sealer.
Fire Extinguishers - 2A 10 BC surface mount by code x by S.F.
400 W metal halide lighting at warehouse minimum 5 to 7 foot candles.
Note: All high pile storage requirements are excluded for standard building
T.I.
Note: When remodeling, all materials and finishes within remodeled or expansion
areas to match existing. If code upgrades are required for hardware, fixtures,
etc. use new specifications.
<PAGE>
Exhibit C To Lease Agreement
Rules & Regulations
This exhibit, entitled "Rules & Regulations", is and shall constitute EXHIBIT C
---------
to that certain Lease Agreement dated October 6, 1999 (the "Lease"), by and
between WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and TiVo, Inc., a Delaware corporation ("Tenant") for the leasing
of certain premises located at 2160 and 2190 Gold Street, San Jose, California
(the "Premises"). The terms, conditions and provisions of this EXHIBIT C are
---------
hereby incorporated into and are made a part of the Lease. In the event of any
conflict between the terms of these Rules and Regulations and the Lease, the
terms of the Lease shall control. Any capitalized terms used herein and not
otherwise defined herein shall have the meaning ascribed to such terms as set
forth in the Lease:
1. No advertisement, picture or sign of any sort shall be displayed on or
outside the Premises or the Building without the prior written consent of
Landlord. Landlord shall have the right to remove any such unapproved item
without notice and at Tenant's expense.
2. Tenant shall not regularly park motor vehicles in designated parking areas
overnight.
3. Tenant shall not use any method of heating or air conditioning other than
that supplied by Landlord without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed.
4. All window coverings installed by Tenant and visible from the outside of the
Building require the prior written approval of Landlord.
5. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance or any flammable or combustible materials on or around the
Premises, the Building or the Park.
6. Tenant shall not alter any lock or install any new locks or bolts on any
door at the Premises without the prior consent of Landlord.
7. [intentionally omitted].
8. Tenant shall park motor vehicles in those general parking areas as
designated by Landlord except for loading and unloading. During those periods
of loading and unloading, Tenant shall not unreasonably interfere with traffic
flow within the Park and loading and unloading areas of other Tenants.
9. Tenant shall not disturb, solicit or canvas any occupant of the Building or
Park and shall cooperate to prevent same.
10. No person other than the HVAC contractor specified in a service agreement
for maintenance of the HVAC shall go on the roof without Landlord's permission.
11. Business machines and mechanical equipment belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the Building, to
such a degree as to be objectionable to Landlord or other Tenants, shall be
placed and maintained by Tenant, at Tenant's expense, on vibration eliminators
or other devices sufficient to eliminate noise or vibration.
12. All goods, including material used to store goods, delivered to the
Premises of Tenant shall be immediately moved into the Premises and shall not be
left in parking or receiving areas overnight.
13. Tractor trailers which must be unhooked or parked with dolly wheels beyond
the concrete loading areas must use steel plates or wood blocks under the dolly
wheels to prevent damage to the asphalt paving surfaces. No parking or storing
of such trailers will be permitted in the auto parking areas of the Park or on
streets adjacent thereto.
14. Forklifts which operate on asphalt paving areas shall not have solid rubber
tires and shall only use tires that do not damage the asphalt.
15. Tenant is responsible for the storage and removal of all trash and refuse.
All such trash and refuse shall be contained in suitable receptacles stored
behind screened enclosures at locations approved by Landlord.
16. Tenant shall not store or permit the storage or placement of goods, or
merchandise or pallets or equipment of any sort in or around the Premises, the
Building, the Park or any of the Common Areas of the foregoing. No displays or
sales of merchandise shall be allowed in the parking lots or other Common Areas.
17. Tenant shall not permit any animals, including, but not limited to, any
household pets, to be brought or kept in or about the Premises, the Building,
the Park or any of the Common Areas of the foregoing.
18. Tenant shall not permit any motor vehicles to be washed on any portion of
the Premises or in the Common Areas of the Park, nor shall Tenant permit
mechanical work or maintenance of motor vehicles to be performed on any portion
of the Premises or in the Common Areas of the Park.
<PAGE>
Exhibit E
Hazardous Materials Disclosure Certificate
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as Tenant. After a lease agreement is signed by you and the Landlord
(the "Lease Agreement"), on an annual basis in accordance with the provisions of
Section 29 of the signed Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. The information
contained in the initial Hazardous Materials Disclosure Certificate and each
annual certificate provided by you thereafter will be maintained in
confidentiality by Landlord subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchaser(s) of all or any portion of the property on which the
Premises are located, (iii) Landlord to defend itself or its lenders, partners
or representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders, decrees, or ordinances, including, without limitation,
court orders or subpoenas. Any and all capitalized terms used herein, which are
not otherwise defined herein, shall have the same meaning ascribed to such term
in the signed Lease Agreement. Any questions regarding this certificate should
be directed to, and when completed, the certificate should be delivered to:
Landlord: WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership
c/o Legacy Partners Commercial, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404
Attn: Portfolio Vice President
Phone: (650) 571-2200
Name of (Prospective) Tenant: TiVo, Inc.
Mailing Address:________________________________________________________________
________________________________________________________________________________
______
Contact Person, Title and Telephone Number(s):__________________________________
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):____________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Address of (Prospective) Premises:______________________________________________
________________________________________________________________________________
Length of (Prospective) Initial Term:___________________________________________
________________________________________________________________________________
1. General Information:
Describe the initial proposed operations to take place in, on, or about the
Premises, including, without limitation, principal products processed,
manufactured or assembled services and activities to be provided or otherwise
conducted. Existing Tenants should describe any proposed changes to on-going
operations.
____________________________________________________________________________
____________________________________________________________________________
2. Use, Storage and Disposal of Hazardous Materials
2.1 Will any Hazardous Materials be used, generated, stored or disposed of
in, on or about the Premises? Existing Tenants should describe any Hazardous
Materials which continue to be used, generated, stored or disposed of in, on or
about the Premises.
Wastes Yes [ ] No [ ]
Chemical Products Yes [ ] No [ ]
Other Yes [ ] No [ ]
If Yes is marked, please explain:______________________________________
_______________________________________________________________________
_______________________________________________________________________
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, stored or disposed of in, on or about the
Premises, including the applicable hazard class and an estimate of the
quantities of such Hazardous Materials at any given time; estimated annual
throughput; the proposed location(s) and method of storage (excluding nominal
amounts of ordinary household cleaners and janitorial supplies which are not
regulated by any Environmental Laws); and the proposed location(s) and method of
disposal for each Hazardous Material, including, the estimated frequency, and
the proposed contractors or subcontractors. Existing Tenants should attach a
list setting forth the information requested above and such list should include
actual data from on-going operations and the identification of any variations in
such information from the prior year's certificate.
3. Storage Tanks and Sumps
3.1 Is any above or below ground storage of gasoline, diesel, petroleum, or
other Hazardous Materials in tanks or sumps proposed in, on or about the
Premises? Existing Tenants should describe any such actual or proposed
activities.
Yes [ ] No [ ]
<PAGE>
If yes, please explain:________________________________________
_______________________________________________________________
_______________________________________________________________
4. Waste Management
4.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number? Existing Tenants should describe any additional identification numbers
issued since the previous certificate.
Yes [ ] No [ ]
4.2 Has your company filed a biennial or quarterly reports as a hazardous
waste generator? Existing Tenants should describe any new reports filed.
Yes [ ] No [ ]
If yes, attach a copy of the most recent report filed.
5. Wastewater Treatment and Discharge
5.1 Will your company discharge wastewater or other wastes to:
<TABLE>
<S> <C>
_______ storm drain? _______ sewer?
_______ surface water? _______ no wastewater or other wastes discharged.
</TABLE>
Existing Tenants should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).____________
_______________________________________________________________________
_______________________________________________________________________
5.2 Will any such wastewater or waste be treated before discharge?
Yes [ ] No [ ]
If yes, describe the type of treatment proposed to be conducted.
Existing Tenants should describe the actual treatment conducted.
_______________________________________________________________________
_______________________________________________________________________
6. Air Discharges
6.1 Do you plan for any air filtration systems or stacks to be used in your
company's operations in, on or about the Premises that will discharge into the
air; and will such air emissions be monitored? Existing Tenants should indicate
whether or not there are any such air filtration systems or stacks in use in, on
or about the Premises which discharge into the air and whether such air
emissions are being monitored.
Yes [ ] No [ ]
If yes, please describe:_______________________________________________
_______________________________________________________________________
_______________________________________________________________________
6.2 Do you propose to operate any of the following types of equipment, or
any other equipment requiring an air emissions permit? Existing Tenants should
specify any such equipment being operated in, on or about the Premises.
________ Spray booth(s) _______ Incinerator(s)
________ Dip tank(s) _______ Other (Please describe)
________ Drying oven(s) _______ No Equipment Requiring Air Permit
If yes, please describe:_______________________________________________
_______________________________________________________________________
_______________________________________________________________________
7. Hazardous Materials Disclosures
7.1 Has your company prepared or will it be required to prepare a Hazardous
Materials management plan ("Management Plan") pursuant to Fire Department or
other governmental or regulatory agencies' requirements? Existing Tenants should
indicate whether or not a Management Plan is required and has been prepared.
Yes [ ] No [ ]
If yes, attach a copy of the Management Plan. Existing Tenants should
attach a copy of any required updates to the Management Plan.
7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the Premises regulated
under Proposition 65? Existing Tenants should indicate whether or not there are
any new Hazardous Materials
<PAGE>
being so used which are regulated under Proposition 65.
Yes [ ] No [ ]
If yes, please explain:_______________________________________________
______________________________________________________________________
______________________________________________________________________
8. Enforcement Actions and Complaints
8.1 With respect to Hazardous Materials or Environmental Laws, has
your company ever been subject to any agency enforcement actions, administrative
orders, or consent decrees or has your company received requests for
information, notice or demand letters, or any other inquiries regarding its
operations? Existing Tenants should indicate whether or not any such actions,
orders or decrees have been, or are in the process of being, undertaken or if
any such requests have been received.
Yes [ ] No [ ]
If yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result of these actions, orders or decrees
and also describe any requests, notices or demands, and attach a copy of all
such documents. Existing Tenants should describe and attach a copy of any new
actions, orders, decrees, requests, notices or demands not already delivered to
Landlord pursuant to the provisions of Section 29 of the signed Lease Agreement.
_______________________________________________________________________
_______________________________________________________________________
8.2 Have there ever been, or are there now pending, any lawsuits against
your company regarding any environmental or health and safety concerns?
Yes [ ] No [ ]
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other documents related
thereto as requested by Landlord. Existing Tenants should describe and attach a
copy of any new complaint(s), cross-complaint(s), pleadings and other related
documents not already delivered to Landlord pursuant to the provisions of
Section 29 of the signed Lease Agreement.
_______________________________________________________________________
_______________________________________________________________________
8.3 Have there been any problems or complaints from adjacent Tenants,
owners or other neighbors at your company's current facility with regard to
environmental or health and safety concerns? Existing Tenants should indicate
whether or not there have been any such problems or complaints from adjacent
Tenants, owners or other neighbors at, about or near the Premises.
Yes [ ] No [ ]
If yes, please describe. Existing Tenants should describe any such
problems or complaints not already disclosed to Landlord under the provisions of
the signed Lease Agreement.
_______________________________________________________________________
_______________________________________________________________________
9. Permits and Licenses
9.1 Attach copies of all Hazardous Materials permits and licenses
including a Transporter Permit number issued to your company with respect to its
proposed operations in, on or about the Premises, including, without limitation,
any wastewater discharge permits, air emissions permits, and use permits or
approvals. Existing Tenants should attach copies of any new permits and
licenses as well as any renewals of permits or licenses previously issued.
The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit; (B) that this Hazardous
Materials Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 29 of the Lease Agreement; and (C) that
Tenant shall have and retain full and complete responsibility and liability with
respect to any of the Hazardous Materials disclosed in the HazMat Certificate
notwithstanding Landlord's/Tenant's receipt and/or approval of such certificate.
Tenant further agrees that none of the following described acts or events shall
be construed or otherwise interpreted as either (a) excusing, diminishing or
otherwise limiting Tenant from the requirement to fully and faithfully perform
its obligations under the Lease with respect to Hazardous Materials, including,
without limitation, Tenant's indemnification of the Indemnitees and compliance
with all Environmental Laws, or (b) imposing upon Landlord, directly or
indirectly, any duty or liability with respect to any such Hazardous Materials,
including, without limitation, any duty on Landlord to investigate or otherwise
verify the accuracy of the representations and statements made therein or to
ensure that Tenant is in compliance with all Environmental Laws; (i) the
delivery of such certificate to Landlord and/or Landlord's acceptance of such
certificate, (ii) Landlord's review and approval of such certificate, (iii)
Landlord's failure to obtain such certificate from Tenant at any time, or (iv)
Landlord's actual or constructive knowledge of the types and quantities of
Hazardous Materials being used, stored, generated, disposed of or transported on
or about the Premises by Tenant or Tenant's Representatives. Notwithstanding
the foregoing or anything to the contrary contained herein, the undersigned
acknowledges and agrees that Landlord and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness thereof in
entering into the Lease Agreement and the continuance thereof throughout the
term, and any renewals thereof, of the Lease Agreement.
I (print name)_____________, acting with full authority to bind the (proposed)
Tenant and on behalf of the (proposed) Tenant, certify, represent and warrant
that the information contained in this certificate is true and correct.
<PAGE>
(Prospective) Tenant:
By: ______________________________
Title:____________________________
Date:_____________________________
<PAGE>
Exhibit F
First Amendment To Lease Agreement
Change Of Commencement Date
This First Amendment to Lease Agreement (the "Amendment") is made and entered
into to be effective as of _________________________, by and between
_____________________________ ("Landlord"), and ________________________
("Tenant"), with reference to the following facts:
RECITALS
A. Landlord and Tenant have entered into that certain Lease Agreement dated
___________ (the "Lease"), for the leasing of certain premises containing
approximately __________ rentable square feet of space located at
____________________________, California (the "Premises") as such Premises are
more fully described in the Lease.
B. Landlord and Tenant wish to amend the Commencement Date of the Lease.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. Recitals: Landlord and Tenant agree that the above recitals are true and
--------
correct.
2. The Commencement Date of the Lease shall be ________________________.
3. The last day of the Term of the Lease (the "Expiration Date") shall be
______________.
4. The dates on which the Base Rent will be adjusted are:
for the period ________ to _______ the monthly Base Rent shall be
$___________;
for the period ________ to _______ the monthly Base Rent shall be
$__________;and
for the period ________ to _______ the monthly Base Rent shall be
$___________.
5. Effect of Amendment: Except as modified herein, the terms and conditions
-------------------
of the Lease shall remain unmodified and continue in full force and effect. In
the event of any conflict between the terms and conditions of the Lease and this
Amendment, the terms and conditions of this Amendment shall prevail.
6. Definitions: Unless otherwise defined in this Amendment, all terms not
-----------
defined in this Amendment shall have the meaning set forth in the Lease.
7. Authority: Subject to the provisions of the Lease, this Amendment shall
---------
be binding upon and inure to the benefit of the parties hereto, their respective
heirs, legal representatives, successors and assigns. Each party hereto and the
persons signing below warrant that the person signing below on such party's
behalf is authorized to do so and to bind such party to the terms of this
Amendment.
8. The terms and provisions of the Lease are hereby incorporated in this
Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date and
year first above written.
[PROPERTY MANAGER: Please provide Tenant information and Word Processing will
complete the signature block]
<PAGE>
Exhibit G
Sign Criteria
To be attached
<PAGE>
ADDENDUM 1
Option To Extend The Lease
This Addendum 1 ("Addendum") is incorporated as a part of that certain Lease
Agreement dated October 6, 1999 (the "Lease"), by and between TiVo, Inc., a
Delaware corporation ("Tenant"), and WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a
Delaware limited partnership ("Landlord"), for the leasing of those certain
premises located at 2160 and 2190 Gold Street, San Jose, California as more
particularly described in Exhibit A to the Lease (the "Premises"). Any
---------
capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed to such terms as set forth in the Lease.
1. Grant of Extension Option. Subject to the provisions, limitations and
-------------------------
conditions set forth in Paragraph 5 below, Tenant shall have an Option
("Option") to extend the term of the Lease for five (5) years (the "Extended
Term").
2. Tenant's Option Notice. If Landlord does not receive written notice from
----------------------
Tenant of its exercise of this Option on a date which is not more than two
hundred seventy (270) days nor less than one hundred eighty (180) days prior to
the end of the initial term of the Lease (the "Option Notice"), all rights under
this Option shall automatically terminate and shall be of no further force or
effect.
3. Establishing the Initial Monthly Base Rent for the Extended Term. The
----------------------------------------------------------------
initial monthly Base Rent for the Extended Term shall be the then current market
rent for similar space within the competitive market area of the Premises (the
"Fair Rental Value"). "Fair Rental Value" of the Premises means the fair market
rental value of the Premises as of the commencement of the Extended Term, taking
into consideration all relevant factors, including length of term, the uses
permitted under the Lease, the quality, size, design and location of the
Premises, including the condition and value of existing tenant improvements, and
the monthly base rent paid by tenants for premises comparable to the Premises,
and located within the competitive market area of the Premises as reasonably
determined by Landlord.
If Landlord and Tenant are unable to agree on the Fair Rental Value for the
Extended Term, within ten (10) days of receipt by Landlord of the Option Notice
for the Extended Term, Landlord and Tenant each, at its cost and by giving
notice to the other party, shall appoint a competent and disinterested
commercial real estate broker (hereinafter "broker") with at least five (5)
years' full-time commercial real estate brokerage experience in the geographical
area of the Premises to set the Fair Rental Value for the Extended Term. If
either Landlord or Tenant does not appoint a broker within ten (10) days after
the other party has given notice of the name of its broker, the single broker
appointed shall be the sole broker and shall set the Fair Rental Value for the
Extended Term. If two (2) brokers are appointed by Landlord and Tenant as stated
in this paragraph, they shall meet promptly and attempt to set the Fair Rental
Value. If the two (2) brokers are unable to agree within ten (10) days after the
second broker has been appointed, they shall attempt to select a third broker,
meeting the qualifications stated in this paragraph within ten (10) days after
the last day the two (2) brokers are given to set the Fair Rental Value. If they
are unable to agree on the third broker, either Landlord or Tenant by giving ten
(10) days' notice to the other party, can apply to the Presiding Judge of the
Superior Court of the county in which the Premises is located for the selection
of a third broker who meets the qualifications stated in this paragraph.
Landlord and Tenant each shall bear one-half (1/2) of the cost of appointing the
third broker and of paying the third broker's fee. The third broker, however
selected, shall be a person who has not previously acted in any capacity for
either Landlord or Tenant. Within fifteen (15) days after the selection of the
third broker, the third broker shall select one of the two Fair Rental Values
submitted by the first two brokers as the Fair Rental Value for the Extended
Term. Such third broker determination shall be binding on Landlord and Tenant.
If either of the first two brokers fails to submit their opinion of the Fair
Rental Value, then the single Fair Rental Value submitted shall automatically be
the monthly Base Rent for the Extended Term.
Upon determination of the initial monthly Base Rent for the Extended Term in
accordance with the terms outlined above, Landlord and Tenant shall immediately
execute an amendment to this Lease. Such amendment shall set forth among other
things, the initial monthly Base Rent for the Extended Term and the actual
commencement date and expiration date of the Extended Term. Tenant shall have
no other right to extend the term of the Lease under this Addendum unless
Landlord and Tenant otherwise agree in writing.
4. Condition of Premises. If Tenant timely and properly exercises this Option,
---------------------
in strict accordance with the terms contained herein Tenant shall accept the
Premises in its then "As-Is" condition and, accordingly, Landlord shall not be
required to perform any additional improvements to the Premises.
5. Limitations On, and Conditions To, Extension Option. This Option is
---------------------------------------------------
personal to Tenant and may not be assigned, voluntarily or involuntarily,
separate from or as part of the Lease. At Landlord's option, all rights of
Tenant under this Option shall terminate and be of no force or effect if any of
the following individual events occur or any combination thereof occur: (1)
Tenant has been in material default at any time during the initial term of the
Lease, or is in material default of any provision of the Lease on the date of
the Option Notice; and/or (2) Between the Lease Date and the time the Option
Notice is delivered there has occurred a material and adverse change in Tenant's
financial condition; and/or (3) Tenant has failed to properly exercise this
Option in a timely manner in strict accordance with the provisions of this
Addendum. Notwithstanding the foregoing, this provision shall not apply and the
Option shall not terminate, in the event of any Transfer permitted without
Landlord's consent to an Affiliate or in connection with a merger, consolidation
or sale of substantially all of the assets of Tenant in accordance with Section
14.8.
6. Time is of the Essence. Time is of the essence with respect to each and
----------------------
every time period described in this Addendum.
<PAGE>
ADDENDUM II
Right Of First Offer
This Addendum II is incorporated as a part of that certain Lease Agreement
("Lease") dated October 6, 1999, by and between TiVo, Inc., a Delaware
corporation ("Tenant"), and WIX/NSJ REAL ESTATE LIMITED PARTNERSHIP, a Delaware
limited partnership ("Landlord"), for the Premises located at 2160 and 2190 Gold
Street, San Jose, California (the "Premises").
During the initial term of the Lease only, Tenant shall have a one time First
Offer to Lease ("Right of First Offer") any space that becomes vacant after the
initial lease-up of the building commonly known as 2150 Gold Street, San Jose,
California (Building C"), and containing approximately 52,165 rentable square
feet, as outlined on Exhibit A attached hereto and made a part hereof (the
"Expansion Space"). Tenant's Right of First Offer, as granted herein, is
subject to the following conditions:
i. Tenant's Right of First Offer shall be subject to the rights and
options of the existing tenants (together with their successors and assigns)
then occupying any of said Expansion Space pursuant to the terms and provisions
of such tenant's leases as such leases may be later modified, amended or
extended; and
ii. Tenant's Right of First Offer shall be void if, at any time, Tenant is
currently in default in the performance of any of its obligations under the
Lease; and
iii. Tenant's Right of First Offer shall be subject to Landlord's review
and approval of Tenant's then current financial condition.
Provided the above conditions are satisfied, if the Expansion Space is vacant,
and Landlord desires to lease the Expansion Space, Landlord shall give Tenant
written notice, by facsimile and by mail, of the estimated date upon which
Landlord can deliver such space to Tenant, and the terms and conditions upon
which Landlord is willing to lease the Expansion Space ("Landlord's Availability
Notice"). Tenant shall notify Landlord within three (3) business days following
receipt of Landlord's Availability Notice of Tenant's election to lease all the
Expansion Space upon those terms by written acceptance delivered to Landlord
("Election Notice"). If Tenant fails to notify Landlord of Tenant's election to
lease the Expansion Space within the time specified herein, it shall be deemed
that (i) Tenant has elected not to lease said Expansion Space; (ii) Landlord may
thereafter enter into a Lease Agreement with a third party; and (iii) all rights
under this Right of First Offer shall terminate and be of no further force and
effect. Time is of the essence herein.
In the event Tenant exercises this Right of First Offer as herein provided,
Tenant shall provide Landlord a non-refundable deposit, equivalent to the last
month's rent for the Expansion Space and the parties shall have ten (10) working
days after Landlord receives the Election Notice and deposit from Tenant in
which to execute an amendment to the Lease setting forth the agreed-upon terms.
Upon full execution of an amendment for the Expansion Space, the non-refundable
deposit shall be credited toward Base Rent or the security deposit for the
Expansion Space, as agreed between the parties.
This Right of First Offer shall terminate and be of no force and effect if, at
any time, Tenant is or has been in default of the performance of any of the
covenants, conditions or agreements to be performed under this Lease; or the
Premises are being subleased at the time of this Right of First Offer is
offered.
This Right of First Offer is personal to Tenant and may not be assigned,
voluntarily or involuntarily, separate from or as a part of the Lease, except to
an Affiliate as defined herein.
Should Tenant exercise this Right of First Offer, Landlord and Tenant shall
execute an amendment to this Lease, adding the Expansion Space to the Premises
and adjusting the Base Rent and Tenant's proportionate share of the items set
forth in Sections 6, 7, and 8 of this Lease. If Tenant does not elect to
exercise the Right of First Offer granted herein, based upon the material terms
proposed by Landlord, all rights under this Right of First Offer shall terminate
and be of no further force and effect.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 59,960
<SECURITIES> 8,240
<RECEIVABLES> 8,844
<ALLOWANCES> 143
<INVENTORY> 1,066
<CURRENT-ASSETS> 80,127
<PP&E> 2,255
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102,814
0
<COMMON> 8
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<TOTAL-LIABILITY-AND-EQUITY> 82,382
<SALES> 41
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<CGS> 0
<TOTAL-COSTS> 1,769
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<INCOME-PRETAX> (31,672)
<INCOME-TAX> 0
<INCOME-CONTINUING> (31,672)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,672)
<EPS-BASIC> (6.53)
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