<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 12, 2000
REGISTRATION NO. 333-31382
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STANFORD MICRODEVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3674 77-0073042
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
726 PALOMAR AVENUE
SUNNYVALE, CA 94086
(408) 616-5400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT VAN BUSKIRK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
STANFORD MICRODEVICES, INC.
726 PALOMAR AVENUE
SUNNYVALE, CA 94086
(408) 616-5400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEVEN E. BOCHNER ROBERT M. MATTSON, JR.
STEVEN V. BERNARD CRAIG S. MORDOCK
SUSAN P. KRAUSE BRANDON C. PARRIS
WILSON SONSINI GOODRICH & ROSATI MORRISON & FOERSTER LLP
PROFESSIONAL CORPORATION 19900 MACARTHUR BOULEVARD
650 PAGE MILL ROAD 12TH FLOOR
PALO ALTO, CA 94304 IRVINE, CA 92612
(650) 493-9300 (949) 251-7500
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE OFFERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(2)
- ----------------------------------------------------------------------------------------------------------------------------
Common stock, $0.001 par value.......... 4,600,000 $14.00 $64,400,000 $17,002
- ----------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 600,000 shares to cover underwriter over allotments.
(2) $13,200 previously paid. Estimated solely for the purpose of calculating the
amount of the registration fee pursuant to Rule 457(a).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
The information in this preliminary prospectus is not complete and may
be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is declared
effective. This preliminary prospectus is not an offer to sell these
securities and we are not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 12, 2000
LOGO
- --------------------------------------------------------------------------------
4,000,000 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
This is the initial public offering of Stanford Microdevices, Inc. and we are
offering 4,000,000 shares of our common stock. We anticipate the initial public
offering price will be between $12.00 and $14.00 per share. We have applied to
list our common stock on the Nasdaq National Market under the symbol "SMDI."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO AND STANFORD
PUBLIC COMMISSIONS MICRODEVICES
---------------- -------------- ------------
<S> <C> <C> <C>
Per share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to 600,000 additional
shares to cover over-allotments.
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
ROBERTSON STEPHENS
The date of this prospectus is , 2000
<PAGE> 3
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that investors
should consider before investing in our common stock. Investors should carefully
read the entire prospectus, including "Risk Factors" and the financial
statements, before making an investment decision.
OUR BUSINESS
We are a leading designer and supplier of high performance radio frequency,
or RF, components for communications equipment. Our products are used primarily
in wireless communications equipment to enable and enhance the transmission and
reception of voice and data signals. Our customers include communications
equipment manufacturers and a private label reseller of our RF components. We
design our products to meet the rapidly evolving performance requirements for
mobile wireless applications, such as cellular and mobile data networks,
broadband wireline applications, such as coaxial cable and fiber optic networks,
and fixed wireless applications, such as local and wide area site-to-site data
networks.
We offer a broad line of products that range in complexity from discrete
components to integrated circuits and multi-component modules. We believe our
products are well suited for existing and future communications networks which
are expected to be increasingly centered on data transmission in addition to
voice. We have adopted a fabless operating strategy, which we believe is unique
in the RF components industry. We outsource the manufacturing of our
semiconductor wafers to several wafer fabrication facilities, or third-party
wafer fabs, that use leading-edge process technologies. We focus internally on
our RF design and development expertise and select what we believe to be the
optimal process technology for any given application without the constraint of a
captive wafer fab facility. Our fabless operating strategy, combined with our RF
design and test expertise, gives us the flexibility necessary to deliver a
comprehensive line of high quality products at compelling prices to our
customers.
Our objective is to become the leading supplier of RF components for
wireless and broadband wireline communications infrastructure equipment. We
intend to achieve this objective by providing a comprehensive portfolio of high
performance and high value standard and customized RF components optimized for
their target applications. We recently established a separate business unit
focused on developing customized products for our customers' specific RF
applications. We plan to focus on expanding our product development initiatives
in wireless and broadband wireline infrastructure markets. We will also continue
to invest in research and development in the areas of semiconductor materials,
device modeling, RF circuit design, packaging technology, and test and
measurement.
We sell our products worldwide through U.S.-based distributors, through a
private label reseller who sells our products under its brand and through our
direct sales force. Our products are also sold through a worldwide network of
independent sales representatives whose orders are fulfilled either by us or our
distributors. We are expanding our marketing efforts to create awareness for our
products within our target markets and to support our direct and indirect sales
efforts.
We were incorporated in California on May 20, 1985 as Matrix Microassembly
Corporation. We began doing business as Stanford Microdevices in 1992. On
November 21, 1997 we reincorporated in Delaware as Stanford Microdevices, Inc.
Our principal executive offices are located at 726 Palomar Avenue, Sunnyvale,
California 94086. Our telephone number at that location is (408) 616-5400. Our
web site is located at www.stanfordmicro.com. The information contained on, or
linked to, our web site does not constitute part of this prospectus.
1
<PAGE> 4
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Stanford Microdevices........ 4,000,000 shares
Common stock to be outstanding after this offering... 25,627,412 shares
Use of proceeds...................................... For working capital and general corporate
purposes. See "Use of Proceeds" on page 15 for
more detailed information.
Proposed Nasdaq National Market symbol............... SMDI
</TABLE>
The number of shares of common stock to be outstanding upon completion of
this offering is based on the number of shares outstanding as of March 31, 2000.
This number assumes the conversion into common stock of all of our mandatorily
redeemable convertible preferred stock outstanding on that date and the net
exercise of outstanding warrants to purchase approximately 719,230 shares of our
common stock (assuming an initial public offering price of $13.00 per share),
and excludes:
- 5,266,530 shares subject to outstanding options under our Amended and
Restated 1998 Stock Plan;
- 1,667,818 shares plus annual increases available for future option grants
under our Amended and Restated 1998 Stock Plan; and
- 300,000 shares plus annual increases that will be available for issuance
under our 2000 Employee Stock Purchase Plan upon completion of this
offering.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
----------- ------ ------ ------ -------- ------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues.................................... $3,185 $4,712 $6,898 $8,231 $ 18,065 $2,877 $ 7,264
Gross profit.................................... 828 1,484 2,928 3,377 8,069 1,222 4,379
Income (loss) from operations................... 149 125 1,165 373 (2,523) 159 176
Net income (loss)............................... 137 101 1,105 279 (2,554) 114 206
Net income (loss) applicable to common
stockholders.................................. 137 101 1,105 279 (24,411) 114 (25,718)
Pro forma net income (loss) (unaudited)......... $ (2,666) $ 90 $ 206
Pro forma basic net income (loss) per share
(unaudited)................................... $ (0.16) $ 0.01
Pro forma diluted net income (loss) per share
(unaudited)................................... $ (0.16) $ 0.01
Shares used to compute pro forma basic net
income (loss) per share (unaudited)........... 16,825 21,675
Shares used to compute pro forma diluted net
income (loss) per share (unaudited)........... 16,825 26,314
</TABLE>
See note 1 of the notes to consolidated financial statements for an
explanation of the determination of the number of shares used to compute the pro
forma basic and diluted per share amount.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... 3,777 3,777 50,537
Working capital............................................. 7,240 7,240 54,000
Total assets................................................ 23,625 23,625 70,385
Long term obligations, less current portion................. 1,608 1,608 1,608
Mandatorily redeemable convertible preferred stock.......... 64,781 -- --
Total stockholders' equity (net capital deficiency)......... (53,021) 11,760 58,520
</TABLE>
2
<PAGE> 5
The pro forma balance sheet data summarized above assumes the conversion of
all outstanding shares of mandatorily redeemable convertible preferred stock
into common stock upon completion of this offering on a one-to-one basis. The
pro forma as adjusted data above adjusts the pro forma amounts to reflect the
application of the net proceeds from the sale of 4,000,000 shares of common
stock offered by us at an assumed initial public offering price of $13.00 per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses.
Stanford Microdevices is our trademark. All other brand names or trademarks
appearing in this prospectus are the property of their respective holders.
-------------------------
Unless otherwise indicated, all information in this prospectus assumes:
- that the underwriters have not exercised their option to purchase
additional shares;
- conversion of all shares of mandatorily redeemable convertible preferred
stock into shares of common stock upon completion of this offering;
- the net exercise of outstanding warrants to purchase approximately
719,230 shares of common stock (assuming an initial public offering price
of $13.00 per share);
- the filing of an amended and restated certificate of incorporation upon
completion of this offering, to increase our authorized common stock and
authorize a class of 5,000,000 shares of undesignated preferred stock;
and
- that our first fiscal quarter ends on March 31, 2000 for convenience of
presentation. The actual ending date of the first quarter of fiscal 2000
was April 2, 2000.
3
<PAGE> 6
RISK FACTORS
This offering involves a high degree of risk. Investors should carefully
consider the risks and uncertainties and the other information in this
prospectus before deciding whether to invest in shares of our common stock. Any
of the following risks could cause the trading price of our common stock to
decline.
RISKS RELATED TO OUR BUSINESS
WE MAY NOT MEET QUARTERLY FINANCIAL EXPECTATIONS, WHICH COULD CAUSE OUR STOCK
PRICE TO DECLINE.
Our quarterly operating results are likely to vary significantly in the
future based upon a number of factors related to our industry and the markets
for our products, over many of which we have little or no control. We operate in
a highly dynamic industry and future results could be subject to significant
fluctuations, particularly on a quarterly basis. These fluctuations could cause
us to fail to meet quarterly financial expectations, which could cause our stock
price to decline rapidly and significantly. Factors contributing to the
volatility of our stock price include:
- the timing and success of new product and technology introductions by us
or our competitors;
- availability of raw materials, semiconductor wafers and manufacturing
capacity or fluctuations in our manufacturing yields;
- changes in selling prices for our integrated circuits due to competitive
or currency exchange rate pressures;
- changes in our product mix;
- changes in the relative percentage of products sold through distributors
as compared to direct sales;
- market acceptance of our products; and
- changes in customer purchasing cycles.
Due to the factors discussed above, investors should not rely on
quarter-to-quarter comparisons of our results of operations as indicators of
future performance.
OUR RELIANCE ON THIRD-PARTY WAFER FABS TO MANUFACTURE OUR SEMICONDUCTOR WAFERS
MAY CAUSE A SIGNIFICANT DELAY IN OUR ABILITY TO FILL ORDERS AND LIMITS OUR
ABILITY TO ASSURE PRODUCT QUALITY AND TO CONTROL COSTS.
We do not own or operate a semiconductor fabrication facility. We currently
rely on four third-party wafer fabs to manufacture substantially all of our
semiconductor wafers. Each of these third-party wafer fabs is our sole source
for wafers manufactured using a particular process technology. Substantially all
of our products sold in 1999 and a majority of our products during the first
three months of 2000 were manufactured in gallium arsenide by TRW. The supply
agreement with TRW provides us with a guaranteed supply of wafers through
December 31, 2000. We may not be able to negotiate an extension to this
agreement on favorable terms, if at all. We also may not be successful in
forming an alternative supply arrangement that provides us with a sufficient
supply of gallium arsenide wafers. In addition, we have only recently begun
working with two of our four principal third-party wafer fabs. The loss of one
of our third-party wafer fabs, in particular TRW, or any delay or reduction in
wafer
4
<PAGE> 7
supply will impact our ability to fulfill customer orders, perhaps materially,
and could damage our relationships with our customers, either of which would
significantly harm our business and operating results. Because there are limited
numbers of third-party wafer fabs that use the particular process technologies
we select for our products and that have sufficient capacity to meet our needs,
using alternative or additional third-party wafer fabs would require an
extensive qualification process that could prevent or delay product shipments.
Our reliance on these third-party wafer fabs involves several additional
risks, including reduced control over the manufacturing costs, delivery times,
reliability and quality of our components produced from these wafers. The
fabrication of semiconductor wafers is a highly complex and precise process.
Minute impurities, difficulties in the fabrication process, defects in the masks
used to print circuits on a wafer, wafer breakage or other factors can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer to
be nonfunctional. We expect that our customers will continue to establish
demanding specifications for quality, performance and reliability that must be
met by our products. Our third-party wafer fabs may not be able to achieve and
maintain acceptable production yields in the future. These risks are heightened
with respect to our two newest third-party wafer fabs which have not yet
produced wafers in volume for us. To the extent our third-party wafer fabs
suffer failures or defects, we could experience lost revenues, increased costs,
and delays in, cancellations or rescheduling of orders or shipments, any of
which would harm our business.
In the past, we have experienced delays in product shipments from our
third-party wafer fabs, which in turn delayed product shipments to our
customers. We may in the future experience similar delays or other problems,
such as inferior wafer quality, reduced manufacturing yields and inadequate
wafer supply.
OUR RELIANCE ON SUBCONTRACTORS TO PACKAGE OUR PRODUCTS COULD CAUSE A DELAY IN
OUR ABILITY TO FULFILL ORDERS OR COULD INCREASE OUR COST OF REVENUES.
We do not package the RF components that we sell but rather rely on
subcontractors to package our products. Packaging is the procedure of
electrically bonding and encapsulating the integrated circuit into its final
protective plastic or ceramic casing. We provide the wafers containing the
integrated circuits and, in some cases, packaging materials to third-party
packagers. Although we currently work with five packagers, substantially all of
our net revenues in 1999 and the first three months of 2000 were attributable to
products packaged by one subcontractor, MPI Corporation of Manila, Philippines.
A relative of one of our principal stockholders controls MPI. We do not have
long-term contracts with our third-party packagers stipulating fixed prices or
packaging volumes. Therefore, in the future we may be unable to obtain
sufficient high quality or timely packaging of our products. The loss or
reduction in packaging capacity of any of our current packagers, particularly
MPI, would significantly damage our business. In addition, increased packaging
costs will adversely affect our profitability.
The fragile nature of the semiconductor wafers that we use in our
components requires sophisticated packaging techniques and can result in low
packaging yields. If our packaging subcontractors fail to achieve and maintain
acceptable production yields in the future, we could experience increased costs,
including warranty expense and costs associated with customer support, delays in
or cancellations or rescheduling of orders or shipments, product returns or
discounts and lost revenues, any of which would harm our business.
WE DEPEND ON TWO DISTRIBUTORS FOR A SIGNIFICANT PORTION OF OUR SALES, THE LOSS
OF ANY ONE OF WHICH WOULD LIMIT OUR ABILITY TO SUSTAIN AND GROW OUR REVENUES.
Historically, two distributors, Avnet Electronics Marketing and Richardson
Electronics, have accounted for a significant portion of our sales. In 1999,
sales through Richardson Electronics
5
<PAGE> 8
represented 38% of our net revenues and sales through Avnet Electronics
Marketing represented 13% of our net revenues. In the three months ended March
31, 2000, sales through Richardson Electronics represented 39% of our net
revenues and sales through Avnet Electronics Marketing represented 24% of our
net revenues. These distributors principally purchase our standard components
for resale to their customers. Our contracts with these distributors do not
require them to purchase our products and may be terminated by them at any time
without penalty. If our distributors fail to successfully market and sell our
products, our revenues could be materially adversely affected. The loss of
either of our current distributors and our failure to develop new and viable
distribution relationships would limit our ability to sustain and grow our
revenues.
WE DEPEND ON MINICIRCUITS LABORATORIES FOR A SUBSTANTIAL PORTION OF OUR REVENUES
AND THE LOSS OF MINICIRCUITS AS A CUSTOMER OR A DECREASE IN PURCHASES BY
MINICIRCUITS WOULD ADVERSELY AFFECT OUR REVENUES.
Sales to Minicircuits Laboratories, a private label reseller of our
products, account for a significant portion of our revenues. For example, 36% of
our net revenues in 1998, 41% of our net revenues in 1999 and 31% of our net
revenues in the three months ended March 31, 2000 were attributable to sales to
Minicircuits. We expect that we will continue to rely on sales to Minicircuits
for a significant portion of our future revenues. In addition to reselling
products of Stanford Microdevices and other RF component suppliers, Minicircuits
also designs and supplies their own RF components. Our current contract with
Minicircuits does not require Minicircuits to purchase our products in the
future. If we were to lose Minicircuits as a customer, or if Minicircuits
substantially reduced its purchases, our business and operating results would be
adversely affected.
STANFORD UNIVERSITY HAS FILED A LAWSUIT AGAINST US ALLEGING TRADEMARK
INFRINGEMENT. IF THIS LAWSUIT IS DECIDED AGAINST US, WE COULD BE FORCED TO
CHANGE OUR CORPORATE NAME, LOSE BRAND RECOGNITION, PAY DAMAGES AND INCUR
SIGNIFICANT LITIGATION COSTS.
On March 17, 2000, Stanford University filed a complaint against us
alleging, among other things, infringement by us of its trademark using the name
"Stanford" and from use of any logo containing the letter "S" on a red
background. Stanford University has requested preliminary and permanent
injunctions prohibiting us from infringing its trademark, and seeks compensatory
damages, exemplary and punitive damages, costs and attorneys' fees. A hearing on
the request for preliminary injunction is currently scheduled for May 8, 2000.
If Stanford University is granted the preliminary injunction, we would be
compelled to immediately cease using our logo and/or our corporate name.
Similarly, if we successfully defend the preliminary injunction request and
ultimately lose the lawsuit, we may be prohibited from using our logo and/or
corporate name. If we are prohibited from using our name or logo, our brand
recognition that we have built over several years could be significantly
impaired, which could severely damage our business and operating results. We
would also need to invest significant capital in rebranding our products and, in
general, our company. In addition, we may be liable for monetary damages and
other costs of litigation. Even if we are successful in defending the lawsuit
and the preliminary injunction request, we may incur significant legal expenses
and our management may expend significant time in the defense. See
"Business -- Legal Proceedings" for a description of this litigation.
6
<PAGE> 9
INTENSE COMPETITION IN OUR INDUSTRY COULD PREVENT US FROM INCREASING REVENUES
AND SUSTAINING PROFITABILITY.
The RF semiconductor industry is intensely competitive and is characterized
by the following:
- rapid technological change;
- rapid product obsolescence;
- shortages in wafer fabrication capacity;
- price erosion; and
- unforeseen manufacturing yield problems.
We compete primarily with other suppliers of high-performance RF components
used in the infrastructure of communications networks such as Agilent, Alpha
Industries, Anadigics, Conexant, Infineon, M/A-COM, Minicircuits Laboratories,
NEC, RF Micro Devices, TriQuint Semiconductor and Watkins-Johnson. We also
compete with communications equipment manufacturers who manufacture RF
components internally such as Ericsson, Lucent, Motorola and Nortel Networks. We
expect increased competition both from existing competitors and from a number of
companies that may enter the RF component market, as well as future competition
from companies that may offer new or emerging technologies. In addition, many of
our current and potential competitors have significantly greater financial,
technical, manufacturing and marketing resources than we have. As a result,
communications equipment manufacturers may decide not to buy from us due to
their concerns about our size, financial stability or ability to interact with
their logistics systems. Our failure to successfully compete in our markets
would have a material adverse effect on our business, financial condition and
results of operations.
OUR BUSINESS STRATEGY IS DEPENDENT ON SUCCESSFUL MARKETING AND SALES OF RF
COMPONENTS PRODUCED USING THREE PROCESS TECHNOLOGIES WITH WHICH WE HAVE LIMITED
EXPERIENCE.
We shipped our first products using silicon germanium and indium gallium
phosphide in the fourth quarter of 1999. In addition, although we plan to act as
a reseller of products manufactured using the laterally diffused metal oxide
semiconductor process, we have not yet generated any revenues from resale of
these products. As a result, investors have a very limited basis upon which to
evaluate the demand for, and market acceptance of, our products manufactured
using these technologies. If our products using these technologies do not meet
customer expectations or if the market for these products fails to develop or
develops more slowly than we expect, our business would be harmed.
IF WE FAIL TO INTRODUCE NEW PRODUCTS IN A TIMELY AND COST-EFFECTIVE MANNER, OUR
ABILITY TO SUSTAIN AND INCREASE OUR REVENUES COULD SUFFER.
The markets for our products are characterized by frequent new product
introductions, evolving industry standards and changes in product and process
technologies. Because of this, our future success will in large part depend on:
- our ability to continue to introduce new products in a timely fashion;
- our ability to improve our products and to adapt to new process
technologies in a timely manner;
- our ability to adapt our products to support emerging and established
industry standards; and
- market acceptance of our products.
7
<PAGE> 10
We estimate that the development cycles of our products from concept to
production could last up to 12 months. We have in the past experienced delays in
the release of new products. We may not be able to introduce new products in a
timely and cost-effective manner which would impair our ability to sustain and
increase our revenues.
PRODUCT QUALITY, PERFORMANCE AND RELIABILITY PROBLEMS COULD DISRUPT OUR BUSINESS
AND HARM OUR FINANCIAL CONDITION.
Our customers demand that our products meet stringent quality, performance
and reliability standards. RF components such as those we produce may contain
undetected defects or flaws when first introduced or after commencement of
commercial shipments. We have from time to time experienced product quality,
performance or reliability problems. In addition, some of our products are
manufactured using process technologies that are relatively new and for which
long-term field performance data are not available. As a result, defects or
failures may occur in the future relating to our product quality, performance
and reliability. If these failures or defects occur, we could experience lost
revenues, increased costs, including warranty expense and costs associated with
customer support, delays in or cancellations or rescheduling of orders or
shipments and product returns or discounts, any of which would harm our
business.
SOURCES FOR CERTAIN COMPONENTS AND MATERIALS ARE LIMITED, WHICH COULD RESULT IN
DELAYS OR REDUCTIONS IN PRODUCT SHIPMENTS.
The semiconductor industry from time to time is affected by limited
supplies of certain key components and materials. For example, we rely on
limited sources for certain packaging materials. If we, or our packaging
subcontractors, are unable to obtain these or other materials in the required
quantity and quality, we could experience delays or reductions in product
shipments, which would materially and adversely affect our profitability.
Although we have not experienced any significant difficulty to date in obtaining
these materials, these shortages may arise in the future. We cannot guarantee
that we would not lose potential sales if key components or materials are
unavailable, and as a result, we are unable to maintain or increase our
production levels.
IF COMMUNICATIONS EQUIPMENT MANUFACTURERS INCREASE THEIR INTERNAL PRODUCTION OF
RF COMPONENTS, OUR REVENUES WOULD DECREASE AND OUR BUSINESS WOULD BE HARMED.
Currently, communications equipment manufacturers obtain their RF
components by either developing them internally or by buying widely available
standard RF components from third-party distributors. We have historically
generated substantially all of our revenues through sales of standard components
to these manufacturers through our distributors. If communications equipment
manufacturers increase their internal production of RF components and reduce
purchases of RF components from third parties, our revenues would decrease and
our business would be harmed.
WE HAVE RECENTLY ESTABLISHED A BUSINESS UNIT FOCUSED ON DESIGNING RF COMPONENTS
FOR SPECIFIC EQUIPMENT MANUFACTURERS. OUR FAILURE TO GROW THIS BUSINESS UNIT
WOULD IMPAIR OUR ABILITY TO SUSTAIN AND INCREASE OUR REVENUES.
Communications equipment manufacturers have begun to work directly with
component suppliers such as us to design and build customized products for
specific needs. We have recently established a business unit focused on
designing RF components to meet these needs. Our business strategy is dependent
in part on this business unit to sustain and increase our revenues. This
business unit has not yet completed development of or shipped any products and
we cannot guarantee that we will be successful in developing this business unit.
8
<PAGE> 11
Development of this business unit will require us to expand our internal sales
force and successfully install logistic and supply chain software and processes
to manage this business unit. Each of these tasks will require significant
management attention and expenditure of resources. Even with this attention and
these expenditures, we may be unsuccessful in operating this business unit and
this business unit may not generate any revenues.
We may spend considerable sums developing components for a particular
application or a potential customer. We do not expect that these customers will
have any contractual obligation to purchase these products and we many never
realize any revenues from sales of these products. In addition, if the recent
trend of outsourcing the design and manufacture of customized components to
third parties is reversed, we would not be able to execute this element of our
business strategy.
THIRD-PARTY WAFER FABS WHO MANUFACTURE THE SEMICONDUCTOR WAFERS FOR OUR PRODUCTS
MAY COMPETE WITH US IN THE FUTURE.
Several third-party wafer fabs independently produce and sell RF components
directly to communications equipment manufacturers. We currently rely on certain
of these third-party wafer fabs to produce the semiconductor wafers for our
products and, in the case of UltraRF, for the production of the RF components
which we plan to resell to communications equipment manufacturers. These
third-party wafer fabs possess confidential information concerning our products
and product release schedules. We cannot guarantee that they would not use our
confidential information to compete with us. Competition from these third-party
wafer fabs may result in reduced demand for our products and could damage our
relationships with these third-party wafer fabs, thereby harming our business.
PERCEIVED RISKS RELATING TO PROCESS TECHNOLOGIES WE MAY ADOPT IN THE FUTURE TO
MANUFACTURE OUR PRODUCTS COULD CAUSE RELUCTANCE AMONG POTENTIAL CUSTOMERS TO
PURCHASE OUR PRODUCTS.
We may adopt new process technologies in the future to manufacture our
products. Prospective customers of these products may be reluctant to purchase
these products based on perceived risks of these new technologies. These risks
could include concerns related to manufacturing costs and yields and
uncertainties about the relative cost-effectiveness of products produced using
these new technologies. If our products fail to achieve market acceptance, our
business, financial condition and results of operations would be materially
adversely affected.
WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR GROWTH.
We are experiencing a period of rapid growth and expansion that will
continue to place a significant strain on our management and other resources.
The number of our employees has increased from 24 at December 31, 1998 to 77 at
December 31, 1999 and 91 at March 31, 2000. To accommodate this growth, we must
implement a variety of new and upgraded operational and financial systems,
procedures and controls, including the improvement of the accounting and other
internal management systems. This may require substantial managerial and
financial effort, and our efforts in this regard may not be successful. Our
current systems, procedures and controls may not be adequate to support our
operations. If we fail to improve our operational, financial and management
information systems, or fail to effectively motivate or manage our new and
future employees, our business could be harmed.
Several members of our senior management joined us in 1999, including
Robert Van Buskirk, our President and Chief Executive Officer, and Thomas
Scannell, our Vice President,
9
<PAGE> 12
Finance and Administration and Chief Financial Officer. We cannot guarantee that
our management team will be able to continue to work together effectively or
manage our growth successfully.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL,
WE MAY BE UNABLE TO PURSUE BUSINESS OPPORTUNITIES OR DEVELOP OUR PRODUCTS.
We believe that our future success will depend in large part upon our
continued ability to recruit, hire, retain and motivate highly skilled
technical, marketing and managerial personnel, who are in great demand.
Competition for these employees, particularly RF integrated circuit design
engineers, is intense. Our failure to hire additional qualified personnel in a
timely manner and on reasonable terms could adversely affect our business and
profitability. In addition, from time to time we may recruit and hire employees
from our customers, suppliers and distributors, which could damage our business
relationship with these parties. Our success also depends on the continuing
contributions of our senior management and technical personnel, all of whom
would be difficult to replace. The loss of key personnel could adversely affect
our ability to execute our business strategy, which could cause our results of
operations and financial condition to suffer. We may not be successful in
retaining these key personnel.
OUR LIMITED ABILITY TO PROTECT OUR PROPRIETARY INFORMATION AND TECHNOLOGY MAY
ADVERSELY AFFECT OUR ABILITY TO COMPETE.
Our future success and ability to compete is dependent in part upon our
proprietary information and technology. None of our technology is currently
patented. Instead, we rely on a combination of contractual rights and copyright,
trademark and trade secret laws and practices to establish and protect our
proprietary technology. We generally enter into confidentiality agreements with
our employees, consultants, resellers, wafer suppliers, customers and potential
customers, and strictly limit the disclosure and use of other proprietary
information. The steps taken by us in this regard may not be adequate to prevent
misappropriation of our technology. Additionally, our competitors may
independently develop technologies that are substantially equivalent or superior
to our technology. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain or use our products
or technology. In addition, the laws of some foreign countries do not protect
our proprietary rights to the same extent as do the laws of the United States.
OUR PRODUCTS COULD INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, AND
RESULTING CLAIMS AGAINST US COULD BE COSTLY AND REQUIRE US TO ENTER INTO
DISADVANTAGEOUS LICENSE OR ROYALTY ARRANGEMENTS.
The semiconductor industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement and the violation of intellectual property rights. Although we
attempt to avoid infringing known proprietary rights of third parties in our
product development efforts, we expect that we may be subject to legal
proceedings and claims for alleged infringement by us or our licensees of
third-party proprietary rights, such as patents, trade secrets, trademarks or
copyrights, from time to time in the ordinary course of business. Any claims
relating to the infringement of third-party proprietary rights, even if not
meritorious, could result in costly litigation, divert management's attention
and resources, or require us to enter into royalty or license agreements which
are not advantageous to us. In addition, parties making these claims may be able
to obtain an injunction, which could prevent us from selling our products in the
United States or abroad. We may increasingly be subject to infringement claims
as the number of our products grows.
10
<PAGE> 13
OUR RELIANCE ON FOREIGN SUPPLIERS AND MANUFACTURERS EXPOSES US TO THE ECONOMIC
AND POLITICAL RISKS OF THE COUNTRIES IN WHICH THEY ARE LOCATED.
Independent third parties in other countries package all of our products
and supply some of our wafers and substantially all of the packaging materials
used in the production of our components. Due to our reliance on foreign
suppliers and packagers, we are subject to the risks of conducting business
outside the United States. These risks include:
- unexpected changes in, or impositions of, legislative or regulatory
requirements;
- shipment delays, including delays resulting from difficulty in obtaining
export licenses;
- tariffs and other trade barriers and restrictions;
- political, social and economic instability; and
- potential hostilities and changes in diplomatic and trade relationships.
In addition, we currently transact business with our foreign suppliers and
packagers in U.S. dollars. Consequently, if the currencies of our suppliers'
countries were to increase in value against the U.S. dollar, our suppliers may
attempt to raise the cost of our wafers, packaging materials, and packaging
services, which could have an adverse effect on our profitability.
A SIGNIFICANT PORTION OF OUR PRODUCTS ARE SOLD TO INTERNATIONAL CUSTOMERS EITHER
THROUGH OUR DISTRIBUTORS OR DIRECTLY BY US, WHICH EXPOSES US TO RISKS THAT MAY
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
A significant portion of our direct sales and sales through our
distributors were to foreign purchasers, particularly in countries located in
Asia. International direct sales approximated 2% of our total direct sales for
the year ended December 31, 1999. Based on information available from our
distributors, products representing approximately 43% of our total distribution
revenues, representing approximately 22% of our net revenues, were sold by our
distributors to international customers in 1999. Demand for our products in
foreign markets could decrease, which could have a materially adverse effect on
our results of operations. Therefore, our future operating results may depend on
several economic conditions in foreign markets, including:
- changes in trade policy and regulatory requirements;
- fluctuations in currency;
- duties, tariffs and other trade barriers and restrictions;
- trade disputes; and
- political instability.
ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS.
We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time, we may engage in discussions and negotiations with companies regarding
our acquiring or investing in their businesses, products, services or
technologies. We may not be able to identify suitable acquisition or investment
candidates in the future, or if we do identify suitable candidates, we may not
be able to make such acquisitions or investments on commercially acceptable
terms or at all. If we acquire or invest in another company, we could have
difficulty assimilating that company's personnel, operations, technology or
products and service offerings. In addition, the key
11
<PAGE> 14
personnel of the acquired company may decide not to work for us. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations.
Furthermore, we may incur indebtedness or issue equity securities to pay for any
future acquisitions. The issuance of equity securities could be dilutive to our
existing stockholders. In addition, the accounting treatment for any acquisition
transaction may result in significant goodwill, which, when amortized, will
negatively affect our net income. As of the date of this prospectus, we have no
agreement to enter into any investment or acquisition transaction.
RISKS RELATED TO OUR INDUSTRY
OUR GROWTH DEPENDS ON THE GROWTH OF THE INFRASTRUCTURE FOR WIRELESS AND WIRELINE
COMMUNICATIONS. IF THIS MARKET DOES NOT CONTINUE TO GROW, OR IF IT GROWS AT A
SLOW RATE, DEMAND FOR OUR PRODUCTS WILL DIMINISH.
Our success will depend in large part on the continued growth of the
telecommunications industry in general and, in particular, the market for
wireless and wireline infrastructure components. We cannot assure you that the
market for these infrastructure products will continue to grow at historical
rates or at all. Even if the demand for infrastructure grows, we will need to
complete new product designs that meet the needs of our customers at a rate
consistent with the growth of the market. Our product and process development
efforts may not be successful in this regard.
THE TIMING OF THE ADOPTION OF INDUSTRY STANDARDS MAY NEGATIVELY IMPACT
WIDESPREAD MARKET ACCEPTANCE OF OUR PRODUCTS.
The markets in which we and our customers compete are characterized by
rapidly changing technology, evolving industry standards and continuous
improvements in products and services. If technologies or standards supported by
our or our customers' products become obsolete or fail to gain widespread
commercial acceptance, our business will be significantly damaged. In addition,
the increasing demand for wireless and wireline communications has exerted
pressure on standards bodies worldwide to adopt new standards for these
products, generally following extensive investigation of, and deliberation over,
competing technologies. The delays inherent in the standards approval process
may in the future cause the cancellation, postponement or rescheduling of the
installation of communications systems by our customers. These delays may in the
future have a material adverse effect on the sale of products by us and on our
business, financial condition and results of operations.
INDUSTRY-WIDE FLUCTUATIONS IN SUPPLY AND DEMAND FOR SEMICONDUCTOR PRODUCTS COULD
ADVERSELY IMPACT OUR BUSINESS.
The semiconductor industry has historically been characterized by wide
fluctuations in supply and demand for semiconductor products. From time to time,
demand for semiconductor products has decreased, often in connection with, or in
anticipation of, major additions of wafer fabrication capacity or maturing
product cycles or due to general economic conditions. In the past, diminished
product demand, production overcapacity and subsequent accelerated price erosion
have lasted for extended periods of time. These fluctuations may occur in the
future and could materially and adversely impact our business.
12
<PAGE> 15
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE.
Our common stock has never been sold in a public market and an active
trading market for our common stock may not develop or be sustained upon the
completion of this offering. We are negotiating the initial public offering
price of the common stock with the underwriters. However, the initial public
offering price may not be indicative of the prices that will prevail in the
public market after the offering, and the market price of the common stock could
fall below the initial public offering price. Investors should read the
"Underwriting" section for a discussion of the factors considered in determining
the initial public offering price.
In addition, the market price of our common stock could fluctuate widely in
response to the following factors:
- actual or anticipated variations in operating results;
- announcements of technological innovations, new products or new services
by us or by our competitors or customers;
- changes in financial estimates or recommendations by stock market
analysts regarding us or our competitors;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- future equity or debt offerings or our announcements of these offerings;
and
- general market and economic conditions.
In addition, in recent years, the stock market in general, and the Nasdaq
National Market and the securities of technology companies in particular, have
experienced extreme price and volume fluctuations. These fluctuations have often
been unrelated or disproportionate to the operating performance of individual
companies. These broad market fluctuations may materially adversely affect our
stock price, regardless of our operating results.
WE MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH
INVESTORS MAY NOT AGREE AND IN WAYS THAT MAY NOT YIELD A FAVORABLE RETURN.
We will retain broad discretion over the use of proceeds from this
offering. Stockholders may not deem the actual uses desirable, and our use of
the proceeds may not yield a significant return or any return at all. We intend
to use the proceeds from this offering for research and development, working
capital and other general corporate purposes and to finance potential
acquisitions and investments. Because of the number and variability of factors
that determine our use of the net proceeds from this offering, we cannot
guarantee that these uses will not vary substantially from our currently planned
uses.
SOME OF OUR EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER US, AND THEY MAY NOT
MAKE DECISIONS THAT REFLECT THE INTERESTS OF STANFORD MICRODEVICES OR OTHER
STOCKHOLDERS.
After this offering, our officers, directors and principal stockholders
(greater than 5% stockholders) will together control approximately 78.4% of our
outstanding common stock and our two founding stockholders will control 54.7% of
our outstanding common stock. As a result, these stockholders, if they act
together, and our founding stockholders acting alone, will
13
<PAGE> 16
be able to exert a significant degree of influence over our management and
affairs and control matters requiring stockholder approval, including the
election of all of our directors and approval of significant corporate
transactions. In addition, this concentration of ownership may delay or prevent
a change in control of Stanford Microdevices and might affect the market price
of our common stock. In addition, the interests of these stockholders may not
always coincide with the interests of Stanford Microdevices or the interests of
other stockholders.
OUR CHARTER AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS THAT MAY DELAY OR
PREVENT A CHANGE OF CONTROL.
Provisions of our charter and bylaws may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of us. These provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock. These provisions include:
- division of the board of directors into three separate classes;
- elimination of cumulative voting in the election of directors;
- prohibitions on our stockholders from acting by written consent and
calling special meetings;
- procedures for advance notification of stockholder nominations and
proposals; and
- the ability of the board of directors to alter our bylaws without
stockholder approval.
In addition, our board of directors has the authority to issue up to
5,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The issuance of
preferred stock, while providing flexibility in connection with possible
financings or acquisitions or other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock.
We are also subject to Section 203 of the Delaware General Corporation Law
that, subject to exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that this stockholder became an interested stockholder.
The preceding provisions of our charter and bylaws, as well as Section 203 of
the Delaware General Corporation Law, could discourage potential acquisition
proposals, delay or prevent a change of control and prevent changes in our
management.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
market after this offering or the perception that such sales could occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. Please see "Shares
Eligible for Future Sale" for a description of sales that may occur in the
future.
WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK.
We currently intend to retain any future earnings for funding growth and,
therefore, do not anticipate paying any dividends in the foreseeable future.
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<PAGE> 17
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
We expect the initial public offering to be substantially higher than the
net tangible book value per share of our common stock. The net tangible book
value of a share of common stock purchased at an assumed initial public offering
price of $13.00 per share will be only $2.35. Additional dilution may be
incurred if holders of options to purchase our common stock, whether currently
outstanding or subsequently granted, exercise their options.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, forward-looking statements can be identified by
terminology such as "may," "will," "should," "expect," "anticipate," "intend,"
"plan," "believe," "estimate," "potential," or "continue," the negative of these
terms or other comparable terminology. These statements involve a number of
risks and uncertainties. Actual events or results may differ materially from any
forward-looking statement as a result of various factors, including those we
discuss in "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by law, we undertake
no obligation to update publicly any forward-looking statements for any reason
after the date of this prospectus to conform these statements to actual results
or to changes in our expectations. Before investing in our common stock,
investors should be aware that the occurrence of the events described under
"Risk Factors" and elsewhere in this prospectus could have a material adverse
effect on our business, operating results and financial condition.
15
<PAGE> 18
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 4,000,000 shares of
common stock we are offering at an assumed initial public offering price of
$13.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses will be approximately $46.8 million.
If the underwriters' over-allotment option is exercised in full, we estimate
that our net proceeds will be approximately $54.0 million. We expect to use the
net proceeds from this offering for general corporate purposes, including
working capital, research and development and capital expenditures. A portion of
the proceeds may also be used to acquire or invest in complementary businesses
or products or to obtain the right to use complementary technologies, although
there are no current plans, negotiations or discussions for any of these
transactions. Pending use of the net proceeds for the above purposes, we intend
to invest these funds in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
In the past, we have operated as an S corporation for federal tax purposes
and we have paid dividends to the holders of our common stock. We became a C
corporation in October 1999 and we currently anticipate that we will retain all
of our future earnings for use in the expansion and operation of our business
and do not anticipate paying any cash dividends in the foreseeable future.
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<PAGE> 19
CAPITALIZATION
The following table shows:
- our actual capitalization as of March 31, 2000;
- our capitalization as of March 31, 2000 on a pro forma basis to reflect
the automatic conversion of all outstanding shares of mandatorily
redeemable convertible preferred stock into shares of common stock upon
the closing of this offering; and
- our pro forma capitalization as of March 31, 2000 as adjusted to reflect
the net exercise of outstanding warrants and the receipt of the estimated
net proceeds from the sale of common stock offered by us at an assumed
initial public offering price of $13.00 per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses.
The following table does not include:
- 5,266,530 shares of common stock subject to outstanding options as of
March 31, 2000 at a weighted average exercise price of $1.59 per share;
- 1,667,818 additional shares plus annual increases available for future
grant under our Amended and Restated 1998 Stock Plan; or
- 300,000 shares plus annual increases that will be available for issuance
under our 2000 Employee Stock Purchase Plan upon completion of this
offering.
This information should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C>
Long-term debt, less current portion................... $ 1,608 $ 1,608 $ 1,608
Mandatorily redeemable convertible preferred stock,
$.001 par value, 6,000,000 shares authorized actual
and pro forma, 5,647,839 shares issued and
outstanding, actual; no shares issued or outstanding,
pro forma and pro forma as adjusted.................. 64,781 -- --
Stockholders' equity (net capital deficiency):
Preferred stock, $.001 par value, no shares
authorized, issued or outstanding actual and pro
forma; 5,000,000 shares authorized, no shares
issued and outstanding pro forma as adjusted...... -- -- --
Common stock, $.001 par value, 30,000,000 shares
authorized actual and pro forma; 15,260,343 shares
issued and outstanding actual, 20,908,182 shares
issued and outstanding pro forma; 200,000,000
shares authorized, 25,627,412 shares issued and
outstanding pro forma as adjusted................. 15 21 26
Additional paid-in capital............................. 6,326 71,101 117,856
Deferred stock compensation............................ (4,630) (4,630) (4,630)
Accumulated deficit.................................... (54,732) (54,732) (54,732)
------- -------- --------
Total stockholders' equity (net capital deficiency).... (53,021) 11,760 58,520
------- -------- --------
Total capitalization................................... $13,368 $ 13,368 $ 60,128
======= ======== ========
</TABLE>
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<PAGE> 20
DILUTION
Our pro forma net tangible book value as of March 31, 2000 was
approximately $11.8 million, or $0.56 per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets reduced by
the amount of our total liabilities divided by the total number of shares of
common stock outstanding after giving effect to the automatic conversion of our
mandatorily redeemable convertible preferred stock into shares of common stock.
After giving effect to our sale of the 4,000,000 shares of common stock offered
by this prospectus, based upon an assumed initial public offering price of
$13.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value at March 31, 2000 would have been $58.5 million, or $2.35
per share. This represents an immediate increase in pro forma net tangible book
value of $1.79 per share to existing stockholders and an immediate dilution of
$10.65 per share to new investors purchasing shares at the assumed initial
public offering price. Dilution is determined by subtracting pro forma net
tangible book value per share after this offering from the assumed initial
public offering price per share. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 13.00
Pro forma net tangible book value per share before the
offering as of March 31, 2000.......................... $ 0.56
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 1.79
-------
Pro forma net tangible book value per share after this
offering.................................................. 2.35
-------
Dilution per share to new investors......................... $ 10.65
=======
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 2000,
the difference between the number of shares of common stock purchased from us,
the total consideration paid, and the average price per share paid by existing
stockholders and by investors purchasing shares in this offering (based upon an
assumed initial public offering price of $13.00 per share before deducting
estimated underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 20,908,182 83.9% $17,239,515 24.9% $ 0.82
New investors............. 4,000,000 16.1 52,000,000 75.1 $13.00
---------- ----- ----------- ----- ------
Total................... 24,908,182 100.0% $69,239,515 100.0% $ 2.78
========== ===== =========== ===== ======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to 4,600,000, or 18.0% of the
total shares of common stock outstanding after this offering.
The above discussion and tables assume no exercise of stock options or
warrants outstanding as of March 31, 2000 and gives effect to the conversion of
all outstanding shares of mandatorily redeemable convertible preferred stock
into common stock. In the event that we issue additional shares of common stock
in the future, purchasers of common stock in this offering may experience
further dilution. As of March 31, 2000, there were options outstanding to
purchase 5,266,530 shares of common stock at a weighted average exercise price
of approximately $1.59 per share and warrants to purchase approximately 719,230
shares of common stock (assuming a net exercise of these warrants prior to the
closing of this offering and an assumed initial public offering price of
$13.00). We also had 1,667,818 shares of common stock available for issuance
under our Amended and Restated 1998 Stock Plan as of
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<PAGE> 21
March 31, 2000. To the extent these outstanding options or warrants are
exercised, or new options or rights are issued under our stock plans, new
investors will experience further dilution.
Assuming the exercise in full of all outstanding options and warrants, our
pro forma as adjusted net tangible book value at March 31, 2000 would be $2.16
per share, representing an immediate increase in net tangible book value of
$1.60 per share to our existing stockholders, and an immediate decrease in the
net tangible book value per share of $10.84 to the new investors.
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<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated selected financial data should be read in
conjunction with the consolidated financial statements and related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the years ended December 31, 1997, 1998 and 1999 and the
consolidated balance sheet data as of December 31, 1998 and 1999 have been
derived from consolidated financial statements that have been audited by Ernst &
Young LLP, independent auditors, included elsewhere in this prospectus. The
consolidated statement of operations data for the year ended December 31, 1996
and the consolidated balance sheet data as of December 31, 1996 and 1997 have
been derived from audited consolidated financial statements not included in this
prospectus. The consolidated statement of operations data for the year ended
December 31, 1995 and for the three months ended March 31, 1999 and 2000 and the
consolidated balance sheet data as of December 31, 1995 and as of March 31, 1999
and 2000 are derived from unaudited consolidated financial statements not
included in this prospectus and, in our opinion, include all adjustments,
consisting of normal recurring adjustments, which are necessary for a fair
presentation of the results of operations as of and for the relevant period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
----------- ------- ------- ------- -------- ------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues:
Product revenues.............................. $ 1,296 $ 3,676 $ 5,963 $ 7,417 $ 17,248 $ 2,595 $ 7,042
Contract manufacturing revenues............... 1,889 1,036 935 814 817 282 222
------- ------- ------- ------- -------- ------- --------
Total net revenues.......................... 3,185 4,712 6,898 8,231 18,065 2,877 7,264
Cost of revenues................................ 2,357 3,228 3,970 4,854 9,996 1,655 2,885
------- ------- ------- ------- -------- ------- --------
Gross profit.................................... 828 1,484 2,928 3,377 8,069 1,222 4,379
Operating expenses:
Research and development...................... 161 472 643 932 2,274 337 1,436
Sales and marketing........................... 169 373 461 1,107 2,951 504 1,522
General and administrative.................... 349 514 659 965 2,089 222 939
Special charges............................... -- -- -- -- 2,990 -- --
Amortization of deferred stock compensation... -- -- -- -- 288 -- 306
------- ------- ------- ------- -------- ------- --------
Total operating expenses.................... 679 1,359 1,763 3,004 10,592 1,063 4,203
------- ------- ------- ------- -------- ------- --------
Income (loss) from operations................... 149 125 1,165 373 (2,523) 159 176
Interest and other income (expense), net........ 1 (13) (10) (84) 17 (29) 118
Provision for income taxes...................... 13 11 50 10 48 16 88
------- ------- ------- ------- -------- ------- --------
Net income (loss)............................... $ 137 $ 101 $ 1,105 $ 279 $ (2,554) $ 114 $ 206
======= ======= ======= ======= ======== ======= ========
Accretion of mandatorily redeemable convertible
preferred stock............................... -- -- -- -- (21,857) -- (25,924)
------- ------- ------- ------- -------- ------- --------
Net income (loss) applicable to common
stockholders.................................. $ 137 $ 101 $ 1,105 $ 279 $(24,411) $ 114 $(25,718)
======= ======= ======= ======= ======== ======= ========
Basic and diluted net income (loss) per share
applicable to common stockholders............. $ 0.01 $ 0.01 $ 0.07 $ 0.02 $ (1.63) $ 0.01 $ (1.71)
======= ======= ======= ======= ======== ======= ========
Shares used to compute basic and diluted net
income (loss) per share applicable to common
stockholders.................................. 15,000 15,000 15,000 15,000 15,000 15,000 15,000
Pro forma net income (loss) (unaudited)......... $ (2,666) $ 90 $ 206
-------- ------- --------
Pro forma basic net income (loss) per share
(unaudited)................................... $ (0.16) $ 0.01
-------- --------
Pro forma diluted net income (loss) per share
(unaudited)................................... $ (0.16) $ 0.01
-------- --------
Shares used to compute pro forma basic net
income (loss) per share (unaudited)........... 16,825 21,675
-------- --------
Shares used to compute pro forma diluted net
income (loss) per share (unaudited)........... 16,825 26,314
-------- --------
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
---------------------------------------------------- -----------
1995 1996 1997 1998 1999 2000
----------- ------ ------ ------ ------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $114 $ 190 $ 486 $ 217 $10,965 $ 3,777
Working capital (deficit)........................... 438 199 (10) (854) 7,746 7,240
Total assets........................................ 550 1,649 3,742 3,806 19,719 23,625
Long term obligations, less current portion......... 118 63 147 813 1,299 1,608
Mandatorily redeemable convertible preferred
stock............................................. -- -- -- -- 38,857 64,781
Total stockholders' equity (net capital
deficiency)....................................... 333 267 588 10 (27,912) (53,021)
</TABLE>
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial statements
and notes included elsewhere in this prospectus. The discussion in this
prospectus contains forward-looking statements that involve risks, uncertainties
and assumptions, such as statements of our plans, objectives, expectations and
intentions. The cautionary statements made in this prospectus should be read as
being applicable to all related forward-looking statements wherever they appear
in this prospectus. Our actual results may differ materially from those
discussed here. Factors that could cause or contribute to the differences
include those discussed in "Risk Factors," as well as those discussed elsewhere
in this prospectus.
OVERVIEW
We are a leading designer and supplier of high performance RF components
for communications equipment manufacturers. Our products are used primarily in
wireless communications equipment to enable and enhance the transmission and
reception of voice and data signals.
We derive a majority of our revenues from the sale of standard RF
components, which we develop from our own specifications and sell primarily
through distributors. In early 2000, we launched a separate business unit
focused on designing customized products for specific RF applications for
communications equipment manufacturers. These products are still in development
and we do not expect to generate material revenues from this business unit until
at least 2001.
We sell our products worldwide through U.S.-based distributors, through a
private label reseller who sells our products under its brand and through our
direct sales force. Our products are also sold through a worldwide network of
independent sales representatives whose orders are fulfilled either by
distributors or us. Significant portions of our distributors' end sales are made
to their customers overseas.
From 1986 to 1995, we generated revenues primarily from design services and
contract manufacturing services for RF components. Net revenues from contract
manufacturing services as a percentage of our total net revenues declined
significantly from 1996 to 1999. Net revenues from contract manufacturing
services for Pulsar Microwave accounted for 11% of our total net revenues in
1997. Contract manufacturing customers represented less than 10% of our total
net revenues in 1998 and 1999 and for the three months ended March 31, 1999 and
March 31, 2000. In 1999, we made the strategic decision to discontinue our
contract manufacturing services although we continued to fulfill our contractual
obligations through March 31, 2000. There were no employee terminations,
facilities charges, disposals of assets or other costs associated with our
decision to discontinue our contract manufacturing services. We do not expect
this decision to have a material impact on our ongoing results of operations,
liquidity or capital resources.
For our direct sales and private label sales, we recognize revenues when
the product has been shipped, title has transferred, and no further obligations
remain. Although we have never experienced a delay in customer acceptance of our
products, should a customer delay acceptance in the future, our policy is to
delay revenue recognition until the products are accepted by a customer.
Revenues for contract manufacturing services are recognized when the completed
assemblies are shipped and no further obligations remain. Provisions for product
returns are recorded upon shipment. Revenues from our distributors are deferred
until the distributors resell the products to their customers.
22
<PAGE> 25
Two distributors, Avnet Electronics Marketing and Richardson Electronics,
and a private label reseller of our products, Minicircuits Laboratories,
accounted for a significant portion of our net revenues in 1997, 1998, 1999 and
the three months ended March 31, 2000. Sales to Minicircuits Laboratories
represented 49% of net revenues in 1997, 36% of net revenues in 1998, 41% of net
revenues in 1999 and 31% of net revenues in the three months ended March 31,
2000. Richardson Electronics represented 19% of net revenues in 1997, 40% of net
revenues in 1998, 38% of net revenues in 1999 and 39% in the three months ended
March 31, 2000. Avnet Electronics Marketing represented 7% of net revenues in
1997, 11% of net revenues in 1998, 13% of net revenues in 1999 and 24% in the
three months ended March 31, 2000. Richardson Electronics and Avnet Electronics
Marketing distribute our products to a large number of end customers. We
anticipate that sales through distributors and to one or more private label
resellers will continue to account for a substantial portion of our net
revenues.
Cost of revenues consists primarily of the costs of wafers from our
third-party wafer fabs, costs of packaging performed by third-party vendors,
costs of testing, and costs associated with procurement, production control,
quality assurance and manufacturing engineering. We subcontract our wafer
manufacturing and packaging and do only final testing and tape and reel assembly
at our facilities.
Historically, gross margins on our sales through our distributors, to
private label resellers and from our contract manufacturing services have
differed materially from each other. As a result, the relative mix of these
sales affects our gross margin. For example, in 1999 gross margin for these
three channels ranged from as low as 0% for contract manufacturing, and from 50
to 70% for our private label and distributor channel partners depending on the
mix of products sold. The low gross margin on contract manufacturing services
was a primary contributor to our decision to discontinue our contract
manufacturing services. We do not expect our decision to discontinue our
contract manufacturing services to have any material impact on our financial
operation in the future.
We do not recognize revenue from our sales to distributors until shipment
to the distributor's customer. We record the deferred margin on distributor
inventory on our balance sheet. As a result, the level of inventory at our
distributors can affect our reported gross margin for any particular period.
The gross margin on sales to our private label reseller is traditionally
lower than that on our distributor sales. We generally charge lower prices to
our private label reseller due to its commitment to higher volumes on particular
parts, its absorption of the risk of inventory obsolescence and its agreement to
incur the sales and marketing costs for the parts.
Through March 31, 2000, one packaging firm, MPI Corporation in Manila,
Philippines, packaged substantially all of our products. MPI also performed
substantially all of the manufacturing that related to our contract
manufacturing services. Relatives of our founding stockholders own MPI. Although
we added four additional packaging subcontractors in 1999, we anticipate that
MPI will continue to account for a substantial portion of our packaging in the
near future.
Research and development expenses consist primarily of salaries and related
expenses for personnel engaged in research and development, material costs for
prototype and test units and other expenses related to the design, development
and testing of our products and, to a lesser extent, fees paid to consultants
and outside service providers. We expense all of our research and development
costs as they are incurred.
Sales and marketing expenses consist primarily of salaries, commissions and
related expenses for personnel engaged in marketing, sales and customer support
functions, as well as costs associated with trade shows, promotional activities,
advertising and public relations. We
23
<PAGE> 26
pay and expense commissions to our independent sales representatives when
revenues from the associated sale are recognized.
General and administrative expenses consist primarily of salaries and
related expenses for executive, finance, accounting, information technology, and
human resources personnel and professional fees.
In recent years we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and technical support departments, and to establish an
administrative organization. Our full-time employees increased from 28 at March
31, 1999 to 91 at March 31, 2000. We expect to continue to spend significantly
in these areas as we continue to grow.
In connection with the grant of stock options to employees through March
31, 2000, we recorded deferred stock compensation within stockholders' equity of
approximately $5.2 million, representing the difference between the deemed fair
value of the common stock for accounting purposes and the exercise price of
these options at the date of grant. During the year ended December 31, 1999, we
amortized $288,000 of this deferred stock compensation. We amortized an
additional $306,000 of this deferred stock compensation during the three months
ended March 31, 2000. We will amortize the remaining deferred stock compensation
over the vesting period of the related options, generally four years. The amount
of deferred stock compensation expense to be recorded in future periods could
decrease if options for which accrued but unvested compensation has been
recorded are forfeited. The amount of deferred stock compensation expense could
increase for additional stock options granted to employees through the date of
our initial public offering. In addition, although we believe we have accurately
assessed the deemed fair value of our common stock for accounting purposes for
all relevant periods, the amount of deferred stock compensation expense
currently recorded for periods through March 31, 2000 may increase in the event
the Securities and Exchange Commission disagrees with our assessment.
In October 1999, we issued 5,647,839 shares of mandatorily redeemable
convertible preferred stock at $3.01 per share for net proceeds of approximately
$17.0 million. The holders of the mandatorily redeemable convertible preferred
stock have various rights and preferences, including, but not limited to,
redemption rights. In the fourth quarter of 1999 and the first quarter of 2000,
we recorded an increase to our accumulated deficit of $21.9 million and $25.9
million, respectively, related to the accretion of the mandatorily redeemable
convertible preferred stock to our estimate of its fair value to reflect its
redemption value. As a result, net income available to common stockholders was
reduced. Upon completion of this offering, the mandatorily redeemable
convertible preferred stock will be converted into shares of common stock and,
accordingly, we will not have similar accretion in the future, which may
increase net income available to common stockholders in future periods. An
increase or decrease in net income available to common stockholders will impact
our earnings per share in future periods.
We began operations in 1985 and began to generate revenues in 1987. Until
October 1999, we were organized as an S corporation for federal tax reporting
purposes and were wholly owned by our founders. In October 1999, we revoked our
election to be treated as an S corporation under the Internal Revenue Code.
24
<PAGE> 27
RESULTS OF OPERATIONS
The following table shows selected statement of operations data expressed
as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Product revenues................... 86.4% 90.1% 95.5% 90.2% 96.9%
Contract manufacturing revenues.... 13.6 9.9 4.5 9.8 3.1
----- ----- ----- ----- -----
Total net revenues.............. 100.0 100.0 100.0 100.0 100.0
Cost of revenues..................... 57.6 59.0 55.3 57.5 39.7
----- ----- ----- ----- -----
Gross profit......................... 42.4 41.0 44.7 42.5 60.3
Operating expenses:
Research and development........... 9.3 11.3 12.6 11.7 19.8
Sales and marketing................ 6.7 13.5 16.3 17.6 21.0
General and administrative......... 9.5 11.7 11.6 7.7 12.9
Special charges.................... -- -- 16.5 -- --
Amortization of deferred stock
compensation.................... -- -- 1.6 -- 4.2
----- ----- ----- ----- -----
Total operating expenses........ 25.5 36.5 58.6 37.0 57.9
----- ----- ----- ----- -----
Income (loss) from operations........ 16.9 4.5 (13.9) 5.5 2.4
Interest and other income (expense),
net................................ (0.2) (1.0) 0.1 (1.0) 1.6
Provision for income taxes........... 0.7 0.1 0.3 0.5 1.2
----- ----- ----- ----- -----
Net income (loss).................... 16.0% 3.4% (14.1)% 4.0% 2.8%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 AND 2000
Net Revenues
Net revenues increased from $2.9 million for the three months ended March
31, 1999 to $7.3 million for the three months ended March 31, 2000. This
increase was the result of more effective promotion of our products by us and
our distributors, increased sales of new products, increased availability of our
products due to higher inventory levels at our distributors and at our facility
and a favorable mix of products sold through both our direct and distribution
channels. Sales through our distributors were 49% of net revenues for the three
months ended March 31, 1999 and 63% of net revenues for the three months ended
March 31, 2000. Sales to our private label reseller comprised 37% of net
revenues for the three months ended March 31, 1999 and 31% of net revenues for
the three months ended March 31, 2000. Contract manufacturing comprised 10% of
net revenues for the three months ended March 31, 1999 and 3% of net revenues
for the three months ended March 31, 2000.
Cost of Revenues
Cost of revenues increased from $1.7 million for the three months ended
March 31, 1999 to $2.9 million for the three months ended March 31, 2000
primarily as a result of increased volume related material, subcontractor and
direct labor costs, which added costs of approximately $1.0 million, indirect
operations personnel expenses and depreciation charges. Operations personnel
increased from 15 at March 31, 1999 to 28 at March 31, 2000.
25
<PAGE> 28
Gross Profit
Gross profit increased from $1.2 million for the three months ended March
31, 1999 to $4.4 million for the three months ended March 31, 2000. Gross margin
increased from 42% for the three months ended March 31, 1999 to 60% for the
three months ended March 31, 2000. This increase is primarily attributable to a
decrease in wafer and packaging costs from our subcontractors due to higher
volumes, better utilization of our own testing operations, sales of higher
margin products and a decrease in lower margin contract manufacturing revenues
as a percentage of our total net revenues.
Operating Expenses
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$337,000 for the three months ended March 31, 1999 to $1.4 million for the three
months ended March 31, 2000. This increase is primarily the result of the
addition of new personnel, which added costs of approximately $440,000,
increased expenses for engineering materials, which added costs of approximately
$185,000, software and equipment depreciation charges and the opening of
additional research and development design centers. We opened a design center in
Long Beach, California in August of 1999 and in Ottawa, Canada in December of
1999. We anticipate that we will open additional design centers in other
locations in future periods. Research and development personnel increased from
five at March 31, 1999 to 27 at March 31, 2000. We expect that the absolute
dollar amount of research and development expenses will continue to increase as
we make additional investments in our technology and products.
SALES AND MARKETING. Sales and marketing expenses increased from $504,000
for the three months ended March 31, 1999 to $1.5 million for the three months
ended March 31, 2000. This increase is primarily attributable to increased
personnel, which added costs of approximately $406,000, advertising expenses,
which added costs of approximately $146,000, commissions to outside sales
representatives, which added costs of approximately $207,000, the opening of
additional facilities and compensation expense of $63,000 resulting from stock
options granted to non-employees. We opened our Long Beach facility in August of
1999 and a second Sunnyvale, California facility in March of 2000. Sales and
marketing personnel increased from five at March 31, 1999 to 22 at March 31,
2000. We expect increases in sales and marketing expenses to continue in future
periods as we continue to hire additional marketing and sales employees.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $222,000 for the three months ended March 31, 1999 to $939,000 for the
three months ended March 31, 2000. This increase is primarily attributable to
increased personnel, which added costs of approximately $334,000, professional
fees, which added costs of approximately $98,000 and the opening of our second
Sunnyvale facility. General and administrative personnel increased from three at
March 31, 1999 to 14 at March 31, 2000. We expect general and administrative
expenses to increase in absolute dollars in future periods as we expand our
administrative staff to support the growth of our operations.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. In connection with the grant
of stock options to employees through March 31, 2000, we recorded deferred stock
compensation within stockholders' equity of approximately $5.2 million,
representing the difference between the deemed fair value of the common stock
for financial statement reporting purposes and the exercise price of these
options at the date of grant. We recorded amortization of deferred stock
compensation of $306,000 for the three months ended March 31, 2000.
26
<PAGE> 29
Interest and Other Income (Expense), Net
Interest and other income (expense), net includes income from our cash
investments and interest expense from capital lease financing obligations and
borrowings under our bank line of credit. We had net interest and other expense
of $29,000 for the three months ended March 31, 1999 and net interest and other
income of $118,000 for the three months ended March 31, 2000.
Provision for Income Taxes
We elected to be taxed as an S corporation under the Internal Revenue Code
through October 4, 1999. Consequently, our stockholders were taxed on their
proportionate share of our taxable income and no provision for federal income
taxes has been provided in the statement of operations for the years ended
December 31, 1997, 1998 and for the period from January 1, 1999 through October
4, 1999.
The provision for income taxes for the first quarter of fiscal 2000 is
based on our estimated tax rate for the year.
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Net Revenues
Net revenues increased from $6.9 million in 1997 to $8.2 million in 1998.
This increase was primarily due to the impact of hiring a professional sales
person in the fourth quarter of 1997 and the addition of a second distributor in
1997. These actions resulted in increased shipments by distributors to their
customers in 1998. Net revenues increased from $8.2 million in 1998 to $18.1
million in 1999. This increase was the result of more effective promotion of our
products by us and our distributors, increased demand from our private label
reseller and increased availability of our products due to higher inventory
levels at our distributors and at our facility. Sales through our distributors
were 25% of net revenues in 1997, 51% of net revenues in 1998 and 51% of net
revenues in 1999. Sales to our private label reseller comprised 49% of net
revenues in 1997, 36% of net revenues in 1998 and 41% of net revenues in 1999.
Contract manufacturing comprised 14% of net revenues in 1997, 10% of net
revenues in 1998 and 5% of net revenues in 1999.
Cost of Revenues
Cost of revenues increased from $4.0 million in 1997 to $4.9 million in
1998, primarily as a result of added costs relating to increased sales volume
and costs incurred to expand our internal testing operations in the second half
of 1998. In addition, we recorded compensation expense of $150,000 in 1998
resulting from stock options granted to non-employees. Cost of revenues
increased from $4.9 million in 1998 to $10.0 million in 1999. This increase was
the result of volume-related added costs for more material, which added costs of
approximately $3.4 million, personnel, which added costs of approximately
$850,000, and the depreciation expense for additional manufacturing equipment.
Operations personnel increased from 13 in 1998 to 26 in 1999.
Gross Profit
Gross profit increased from $2.9 million in 1997 to $3.4 million in 1998.
Gross margin decreased from 42% in 1997 to 41% in 1998. This decrease is
primarily attributable to the increase in manufacturing related expenses
incurred in 1998, partially offset by an increase in sales of higher margin
products. Gross profit increased from $3.4 million in 1998 to
27
<PAGE> 30
$8.1 million in 1999. Gross margin increased from 41% in 1998 to 45% in 1999.
This increase is primarily attributable to a decrease in wafer and packaging
costs from our subcontractors due to our higher volumes, better utilization of
our own testing operations, and a decrease in contract manufacturing revenues as
a percentage of our total revenues.
Operating Expenses
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$643,000 in 1997 to $932,000 in 1998. This increase is primarily the result of
the addition of new personnel and increased expenses for engineering materials
related to new product development. Research and development personnel increased
from two employees in 1997 to four employees in 1998. Research and development
expenses increased from $932,000 in 1998 to $2.3 million in 1999. This increase
is primarily attributable to the addition of new personnel, which added costs of
approximately $621,000, increased expenses for engineering materials related to
new product development, which added costs of approximately $429,000 and the
opening of additional design centers. We opened a design center in Richardson,
Texas in the second half of 1998 and a design center in Long Beach, California
in August of 1999. We opened a design center in Ottawa, Canada in December of
1999. Research and development personnel increased from four in 1998 to 18 in
1999.
SALES AND MARKETING. Sales and marketing expenses increased from $461,000
in 1997 to $1.1 million in 1998. This increase is primarily attributable to
increased personnel, which added costs of approximately $209,000; advertising
expenses, which added costs of approximately $74,000 and commissions to outside
sales representatives, which added costs of approximately $131,000. Sales and
marketing personnel increased from two in 1997 to four in 1998. Sales and
marketing expenses increased from $1.1 million in 1998 to $3.0 million in 1999.
This increase is primarily attributable to increased personnel, which added
costs of approximately $652,000, commissions to outside sales representatives,
which added costs of approximately $293,000 and expenses related to the opening
of our Long Beach facility. Sales and marketing personnel increased from four in
1998 to 19 in 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $659,000 in 1997 to $965,000 in 1998. This increase is primarily
attributable to increased personnel and consulting fees and compensation expense
of $60,000 resulting from stock options granted to non-employees. General and
administrative expenses increased from $965,000 in 1998 to $2.1 million in 1999.
This increase is primarily attributable to increased personnel, which added
costs of approximately $589,000, professional fees and compensation expense of
$474,000 resulting from stock options granted to non-employees. General and
administrative personnel increased from three in 1998 to 14 in 1999.
SPECIAL CHARGES. In the fourth quarter of 1999, we paid a cash dividend of
$4.0 million to our common stockholders in connection with our Series A
preferred financing. This amount has been recorded in stockholders' equity as a
distribution to stockholders. We paid a total of $3.0 million to a common
stockholder and officer of Stanford Microdevices in December 1999 as a special
bonus to assist this officer with respect to the federal or state taxes
associated with the payment of the dividend and certain other items. We recorded
the $3.0 million as a special charge in the consolidated statement of operations
as this amount represents a non-recurring transaction that we do not consider to
be reflective of our ongoing operations.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. In connection with the grant
of stock options to employees through December 31, 1999, we recorded deferred
stock compensation within stockholders' equity of approximately $4.3 million,
representing the difference between the deemed fair value of the common stock
for financial statement reporting purposes and the
28
<PAGE> 31
exercise price of these options at the date of grant. We recorded amortization
of deferred stock compensation of $288,000 during 1999.
Interest and Other Income (Expense), Net
Interest and other income (expense), net includes income from our cash
investments and interest expense from capital lease financing obligations and
borrowings under our bank line of credit. We had net interest and other expense
of $10,000 in 1997 and $84,000 in 1998 and net interest and other income of
$17,000 in 1999.
Provision for Income Taxes
We elected to be taxed as an S corporation under the Internal Revenue Code
through October 4, 1999. Consequently, our stockholders were taxed on their
proportionate share of our taxable income and no provision for federal income
taxes has been provided in the statement of operations for the years ended
December 31, 1997, 1998 and for the period from January 1, 1999 through October
4, 1999.
The provisions for income taxes of $50,000 in 1997, $10,000 in 1998 and
$48,000 in 1999 reflect state franchise taxes. We did not recognize any tax
benefit for our 1999 losses and fully reserved our deferred tax assets because
of our inability to predict with reasonable certainty sufficient future taxable
income. In addition, no tax planning strategies or net operating loss carryback
opportunities were available at December 31, 1999. Accordingly, we have
concluded that it is more likely that the deferred tax assets will not be
realized and have recorded a valuation allowance of $2.7 million. Future period
taxes may vary depending on our overall operating results, the mix of income
among tax jurisdictions and our ability to utilize the net operating loss
carryforwards.
As of December 31, 1999, we had net operating loss carryforwards for
federal and state tax purposes of approximately $1.5 million and $703,000,
respectively, available to offset future taxable income. The federal and state
net operating loss carryforwards expire in 2019 and 2004, respectively, if not
utilized. Utilization of net operating loss carryforwards may be subject to a
substantial annual limitation due to ownership change limitations provided by
the Internal Revenue Code and similar state provisions. The annual limitation
may result in the expiration of net operating loss carryforwards before
utilization.
29
<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS
The following table presents a summary of our consolidated results of
operations for our five most recent quarters ended March 31, 2000. The
information for each of these quarters is unaudited and has been prepared on a
basis consistent with our audited consolidated financial statements appearing
elsewhere in this prospectus. This information includes all adjustments,
consisting only of normal recurring adjustments, that we considered necessary
for a fair presentation of this information when read in conjunction with our
audited consolidated financial statements and related notes appearing elsewhere
in this prospectus. Results of operations for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 1999 2000
--------- -------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues:
Product revenues................. $2,595 $4,288 $4,828 $ 5,537 $7,042
Contract manufacturing revenues.. 282 220 145 170 222
------ ------ ------ ------- ------
Total net revenues............ 2,877 4,508 4,973 5,707 7,264
Cost of revenues................... 1,655 2,544 2,463 3,334 2,885
------ ------ ------ ------- ------
Gross profit....................... 1,222 1,964 2,510 2,373 4,379
Operating expenses:
Research and development......... 337 552 493 892 1,436
Sales and marketing.............. 504 682 710 1,055 1,522
General and administrative....... 222 434 514 919 939
Special charges.................. -- -- -- 2,990 --
Amortization of deferred stock
compensation.................. -- -- 111 177 306
------ ------ ------ ------- ------
Total operating expenses...... 1,063 1,668 1,828 6,033 4,203
------ ------ ------ ------- ------
Income (loss) from operations...... 159 296 682 (3,660) 176
Interest and other income
(expense), net................... (29) (34) (40) 120 118
Provision for income taxes......... 16 16 16 -- 88
------ ------ ------ ------- ------
Net income (loss).................. $ 114 $ 246 $ 626 $(3,540) $ 206
====== ====== ====== ======= ======
PERCENTAGE OF NET REVENUES:
Net revenues:
Product revenues................. 90.2% 95.1% 97.1% 97.0% 96.9%
Contract manufacturing
revenues...................... 9.8 4.9 2.9 3.0 3.1
------ ------ ------ ------- ------
Total net revenues............ 100.0 100.0 100.0 100.0 100.0
Cost of revenues................... 57.5 56.4 49.5 58.4 39.7
------ ------ ------ ------- ------
Gross profit....................... 42.5 43.6 50.5 41.6 60.3
Operating expenses:
Research and development......... 11.7 12.3 9.9 15.6 19.8
Sales and marketing.............. 17.6 15.1 14.3 18.5 21.0
General and administrative....... 7.7 9.6 10.4 16.1 12.9
Special charges.................. -- -- -- 52.4 --
Amortization of deferred stock
compensation.................. -- -- 2.2 3.1 4.2
------ ------ ------ ------- ------
Total operating expenses...... 37.0 37.0 36.8 105.7 57.9
------ ------ ------ ------- ------
Income (loss) from operations...... 5.5 6.6 13.7 (64.1) 2.4
Interest and other income
(expense), net................... (1.0) (0.7) (0.8) 2.1 1.6
Provision for income taxes......... 0.5 0.4 0.3 -- 1.2
------ ------ ------ ------- ------
Net income (loss).................. 4.0% 5.5% 12.6% (62.0)% 2.8%
====== ====== ====== ======= ======
</TABLE>
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<PAGE> 33
FIVE QUARTERS ENDED MARCH 31, 2000
Net Revenues
Net revenues increased in each of the five quarters ended March 31, 2000.
These quarterly increases were the result of increased selling efforts and more
effective promotion of our products by us and our distributors, increased demand
from our private label reseller and increased availability of our products due
to higher inventory levels at our distributors and our facility. This last
factor was particularly significant in the increase from the first to second
quarter of 1999. increased availability of our products due to higher inventory
levels at our distributors and at our facility.
Cost of Revenues
Our cost of revenues increased from the first quarter of 1999 to the second
quarter of 1999 primarily as the result of increased sales volume. Cost of
revenues as a percentage of revenues decreased in this same time period due to
lower unit costs associated with higher volumes through our testing facilities
and packaging subcontractors. From the second quarter of 1999 to the third
quarter of 1999, cost of revenues decreased in absolute dollar terms due to a
special, one-time price discount granted to us by one of our major suppliers.
The trend of lower unit costs seen in the first and second quarters of 1999
continued in the third quarter and contributed to the decrease in cost of
revenues in absolute dollars during this time period. These same two factors
caused cost of revenues to decrease as a percentage of revenues from the second
quarter to the third quarter of 1999. Cost of revenues increased in the fourth
quarter of 1999 compared to the third quarter for several reasons. First, the
mix of products we shipped during this period consisted of products with higher
costs than in prior periods. Second, we suffered some manufacturing
inefficiencies. Third, we, based on an analysis of our inventory, took a higher
level of reserves for excess inventory. Finally, an increase in period
manufacturing expenses contributed to the increase in cost of revenues from the
third quarter to the fourth quarter of 1999. These same four factors led cost of
revenues to increase as a percentage of revenues during this period. Cost of
revenues increased from the fourth quarter of 1999 to the first quarter of 2000
primarily because of higher sales volume. However, cost of revenues decreased as
a percentage of revenues primarily due to our product mix. Also influencing cost
of revenues as a percentage of revenues in the first quarter of 2000 were
manufacturing efficiencies.
Operating Expenses
RESEARCH AND DEVELOPMENT. Research and development expenses increased in
the first two quarters of 1999 primarily as a result of the addition of
personnel and costs incurred for the development of new products. Research and
development expenses decreased in the third quarter of 1999 compared to the
second quarter of 1999 primarily as a result of lower materials costs for
prototype and test units, partially offset by the opening of our Long Beach
facility in the third quarter of 1999. Research and development expenses
increased in the fourth quarter of 1999 compared to the third quarter of 1999
primarily as a result of higher materials costs for prototype and test units and
increases in personnel. Research and development expenses increased in the first
quarter of 2000 primarily due to increases in personnel in our Texas, Long Beach
and Sunnyvale facilities and the increase in personnel in our Ottawa facility in
the fourth quarter of 1999.
SALES AND MARKETING. Sales and marketing expenses increased in each of the
five quarters ended March 31, 2000 primarily as a result of increased personnel,
higher volume-related sales commissions and the opening of our Long Beach
facility in the third quarter of 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
in each of the five quarters ended March 31, 2000 primarily as a result of
increased personnel and
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<PAGE> 34
professional fees. Additionally, in the fourth quarter of 1999, we recorded
$342,000 of compensation expense resulting from stock options granted to
non-employees.
SPECIAL CHARGES. In the fourth quarter of 1999, we incurred a special
charge of $3.0 million related to a non-recurring bonus payment to a common
stockholder and an officer of Stanford Microdevices.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. We recorded amortization of
deferred stock compensation of $111,000 in the third quarter of 1999, $177,000
in the fourth quarter of 1999 and $306,000 in the first quarter of 2000.
INTEREST AND OTHER INCOME (EXPENSE), NET. Interest and other income
(expense), net, increased to $120,000 in the fourth quarter of 1999 and the
first quarter of 2000 as a result of interest income earned on proceeds from the
issuance of our mandatorily redeemable convertible preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through cash generated from
operations, equipment lease financing and through the private sale of
mandatorily redeemable convertible preferred stock. As of March 31, 2000, we had
cash and cash equivalents of $3.8 million and working capital of $7.2 million.
Our operating activities provided cash of $1.5 million in 1997, $1.3
million in 1998, $560,000 in 1999 and used cash of $946,000 in the three months
ended March 31, 2000. In 1997, cash provided by operating activities was
primarily attributable to net income of $1.1 million, an increase in deferred
margin on distributor inventory of $1.3 million, accrued liabilities of $264,000
and non-cash charges related to depreciation and amortization of $111,000. These
were partially offset by increases in accounts receivable of $687,000,
inventories of $477,000 and other assets of $217,000. In 1998, cash provided by
operating activities was primarily attributable to a $471,000 decrease in
accounts receivable and non-cash charges related to stock option compensation
and depreciation and amortization. These were partially offset by an increase in
accounts payable of $217,000 and deferred margin on distributor inventory of
$130,000. In 1999, cash provided by operating activities was primarily
attributable to increases in accounts payable of $1.9 million, deferred margin
on distributor inventory of $1.8 million, accrued liabilities of $523,000 and
non-cash charges related to deferred stock compensation amortization, stock
option compensation and depreciation and amortization. These were partially
offset by increases in accounts receivable of $752,000, inventories of $1.3
million and other assets of $486,000. In the three months ended March 31, 2000,
cash used in operating activities was primarily attributable to increases in
inventories of $2.8 million and accounts receivable of $1.4 million. These were
partially offset by increases in accrued expenses of $1.5 million and deferred
margin on distributor inventory of $1.2 million.
Our investing activities used cash of $293,000 in 1997, $41,000 in 1998,
$1.9 million in 1999 and $6.3 million in the three months ended March 31, 2000.
Our investing activities reflect purchases of available-for-sale securities,
manufacturing equipment and other fixed assets.
Our financing activities used cash of $869,000 in 1997 and $1.5 million in
1998 and provided cash of $12.0 million in 1999 and $33,000 in the three months
ended March 31, 2000. In 1997, cash used in financing activities consisted of
distributions to stockholders of $784,000 and equipment lease financing of
$85,000. In 1998, cash used in financing activities consisted of distributions
to stockholders of $1.1 million and equipment lease financing of $435,000. In
1999, cash provided by financing activities primarily resulted from $17.0
million of proceeds received from the issuance of mandatorily redeemable
convertible preferred stock. This was partially offset by dividends paid to our
stockholders of $4.4 million and equipment
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<PAGE> 35
lease financing of $573,000. Our December 31, 1999 net loss applicable to common
stockholders includes $255,000 of accretion charges to increase the carrying
amount of our mandatorily redeemable convertible preferred stock to the amount
we would be required to pay if this preferred stock were to be redeemed. In the
three months ended March 31, 2000, cash provided by financing activities was
primarily attributable to proceeds received from stock option exercises
partially offset by equipment lease financing.
We maintain a secured credit facility with a financial institution that
includes a $3.0 million line of credit. Borrowings under the revolving credit
line may be made and repaid at any time and bear interest at the base rate, as
announced by the lender, plus 0.5%. At March 31, 2000, there were no outstanding
amounts under this credit facility. At March 31, 2000, we were in violation of
one of our financial covenants under the credit facility due to payment of a
dividend and non-recurring special charges in the fourth quarter of 1999 and
first quarter of 2000. The financial institution has waived these violations. We
are in the process of negotiating a new credit facility with the same financial
institution to replace the existing line.
We currently anticipate that the net proceeds from this offering, together
with our current available cash and cash equivalents and cash generated from
operations will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and hedging Activities. SFAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133 was to be effective for fiscal years beginning
after June 15, 1999. However, in July 1999, the Financial Accounting Standards
Board issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133. SFAS 137
defers for one year the effective date of SFAS 133 that will now apply to all
fiscal quarters of all fiscal years beginning after June 15, 2000. We believe
that the adoption of SFAS 133 will not have a material impact on our
consolidated financial position, results of operations or cash flows.
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position 98-1, or SOP 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
that entities capitalize certain costs related to internal use software once
certain criteria have been met. We adopted SOP 98-1 for the year ended December
31, 1999. The adoption of SOP 98-1 did not have a material impact on our
financial condition or results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-Up Activities. SOP 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP 98-5 is adopted. We
adopted SOP 98-5 on January 1, 1999. The adoption of SOP 98-5 did not have a
material impact on our financial condition or results of operations.
In December of 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosures related to
revenue recognition policies. We believe that our revenue recognition policy is
in compliance with the provisions of SAB 101 and that the adoption of SAB 101
had no material effect on our financial position or results of operations.
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<PAGE> 36
EFFECT OF YEAR 2000
As of March 31, 2000, we had not experienced any disruptions related to
year 2000 issues, nor do we expect to experience any year 2000 related
disruption in the operation of our systems. To our knowledge, none of our
customers have experienced any year 2000 related issues with our products.
Additionally, to our knowledge, none of our manufacturing, packaging or our
other suppliers have experienced any material year 2000 problems. Although most
year 2000 problems should have become evident by March 31, 2000, additional year
2000 related problems may become evident only after that date. We will continue
to monitor our critical computer applications and those of our suppliers and
vendors throughout the year to ensure that any late year 2000 matters that may
arise are promptly addressed.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our sales have been made to predominantly U.S.-based customers and
distributors in U.S. dollars. As a result, we have not had any material exposure
to factors such as changes in foreign currency exchange rates. However, in
future periods, we expect to expand selling into foreign markets, including
Europe and Asia. Because our sales are denominated in U.S. dollars, a
strengthening of the U.S. dollar could make our products less competitive in
foreign markets.
At March 31, 2000, our cash and cash equivalents consisted primarily of
money market funds and commercial paper and our short term investments consisted
of commercial paper. We did not hold any derivative financial instruments or
long-term investments. Our interest income and expense are sensitive to changes
in the general level of interest rates. In this regard, changes in interest
rates can affect the interest earned on our cash equivalents.
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<PAGE> 37
BUSINESS
OVERVIEW
Stanford Microdevices is a leading designer and supplier of high
performance RF components for communications equipment manufacturers. Our
products are used primarily in wireless communications equipment to enable and
enhance the transmission and reception of voice and data signals. The
performance of the RF section of communications equipment -- which is used to
convert, process and amplify the high frequency signals that transmit voice or
data -- has a significant influence on the overall performance of communications
systems. We design our products to meet the rapidly evolving performance
requirements for mobile wireless applications such as cellular and mobile data
networks, broadband wireline applications such as coaxial cable and fiber optic
networks, and fixed wireless applications such as local and wide area
site-to-site data networks.
We offer a broad line of products that range in complexity from discrete
components to integrated circuits and multi-component modules. We believe our
products are well suited for existing and future communications networks which
are expected to be increasingly centered on data transmission in addition to
voice. We have adopted a fabless operating strategy, which we believe is unique
in the RF components industry. We outsource the manufacturing of our
semiconductor wafers to several wafer fabrication facilities, or third-party
wafer fabs, that use leading-edge process technologies. We focus internally on
our RF design and development expertise and select what we believe to be the
optimal process technology for any given application without the constraint of a
captive wafer fab facility. Our fabless operating strategy, combined with our RF
design and test expertise, gives us the flexibility necessary to deliver a
comprehensive line of high quality products at compelling prices to our
customers.
INDUSTRY BACKGROUND
Demand for Connectivity and Mobility Driving Investment in Communications
Infrastructure
Consumers and businesses are demanding increased connectivity, mobility,
functionality and bandwidth from telecommunications service providers. Increased
deployment and use of wireless communications systems and the rise of wireline
and wireless Internet applications offer users the potential for access any
time, anywhere to voice and data networks. International Data Corporation (IDC),
an independent market research firm, estimates that the number of worldwide
Internet users will increase from 196 million in 1999 to 399 million by 2002.
Users are also increasingly relying on networks for data services in addition to
traditional voice services. The U.S. Department of Commerce has estimated that
data traffic in the United States is doubling every 100 days. Wireless Internet
and other data services will significantly increase the performance demands on
wireless networks. IDC estimates that the number of worldwide subscribers for
wireless phone service will grow from 303 million in 1998 to 1.1 billion by
2003. IDC further estimates that the number of wireless subscribers in the
United States who are able to send and receive information over the Internet is
expected to increase from 7.9 million in 1999 to 61.5 million by 2003.
Communications service providers are making significant investments in
network infrastructure to enable and enhance connectivity for today's
information-driven economy. Wireless and broadband wireline communications
service providers are expanding capacity and offering a broader range of
services to support the changing needs of users. Competitive pressures are also
requiring service providers to offer increased bandwidth and to reduce operating
costs. In the case of wireless networks, communications service providers must
support a rapidly growing number of subscribers and the subscribers' demands for
more expanded service. In addition, wireless network operators are adopting new
standards such as third generation, or 3G, standards that enable the migration
from voice-only to integrated voice
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and high-speed data services, which are not fully supported by today's installed
infrastructure. MultiMedia Telecommunications Association estimates that the
number of subscribers to mobile data services, such as those enabled by 3G
standards, will rise to 16.5 million by 2003 -- representing a 40% compound
annual growth rate from 1999. Providers of broadband wireline services over
cable and fiber networks are also looking for network infrastructure solutions
to meet increasing performance requirements and to minimize their total cost of
ownership.
Challenges Facing Communications Equipment Manufacturers
Manufacturers of communications equipment must develop systems to meet the
requirements of communications service providers. In meeting these challenges,
equipment manufacturers face significant market and product performance
pressures. These include:
- SHORTER TIME TO MARKET -- The intensity of competition and the resulting
need to adopt new technologies is forcing communications equipment
manufacturers to develop and launch products in the shortest time
possible.
- HIGHER PERFORMANCE AND MORE RELIABLE SYSTEMS -- Communications equipment
manufacturers are facing increased demands from communications service
providers for greater bandwidth, which is a measure of a system's
capacity. System reliability is another key performance requirement due
to the high costs of equipment downtime and of maintaining communications
networks.
- REDUCED COSTS -- Communications service providers seek to minimize both
the up-front equipment acquisition costs as well as ongoing operating
costs as they upgrade their networks. Communications equipment
manufacturers must, as a result, offer a better value proposition.
Need for High Performance RF Components from Third-Party Suppliers
Communications equipment manufacturers are adopting new approaches in
designing systems to deliver the performance and feature improvements that
service providers require. In a typical communications system, the principal
functional blocks are the RF subsystem, which receives, amplifies and transmits
signals, the signal processor, which encodes and decodes digitized signals, and
the antenna. Since the RF subsystem receives the signal, interfaces with the
signal processor, and amplifies and transmits the signal, a system's performance
and signal quality are significantly affected by the RF subsystem.
Communications equipment manufacturers often do not have the internal expertise
or the time to address every aspect of a system's RF performance. To lower their
production costs and shorten product development cycles, equipment manufacturers
are increasingly seeking innovative RF components from third-party suppliers who
offer a broad range of high-performance products.
Most RF component suppliers have made significant investments in their own
wafer fabs. These wafer fabs are typically based on a single process technology.
A process technology is a method of manufacturing semiconductor devices and
circuits using a given wafer material. As a result, RF component suppliers
generally focus most of their attention on developing products using their own
process technology even if another process may be more appropriate for a given
application. To adopt one of these other process technologies, these component
suppliers would have to migrate their current facility to the other
technologies, make significant capital investments in new wafer fabs or develop
relationships with merchant wafer fabs. Because all of these steps are expensive
and time consuming, most RF component suppliers resist changing process
technologies. As a result, many of these component suppliers do not offer the
broadest range of products or may offer sub-optimal products for certain
applications.
Manufacturers of communications infrastructure equipment, such as base
stations used by wireless service providers, require components that are
optimized for a feature known as
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<PAGE> 39
linearity. Linearity is a measure of signal quality. Many RF component suppliers
have optimized their products for power efficiency at the expense of linear
performance, making these products well suited for battery-powered, portable
applications, but not optimal for infrastructure applications. We believe these
suppliers would require new design techniques, process technologies and testing
capabilities to modify their products to address the market for infrastructure
equipment.
We believe that there is a substantial market opportunity for a third-party
supplier of high performance RF components who can meet the needs for
flexibility, performance and value required by communications equipment
manufacturers.
OUR SOLUTION
We design, develop and market a broad range of RF components using leading
process technologies for use in wireless and broadband wireline communications
equipment. Our products are designed to provide the following competitive
benefits to communications equipment manufacturers:
OPTIMAL SOLUTIONS. The combination of our design expertise and access
to several leading process technologies enables us to deliver optimal
solutions to our customers. Our fabless operating model provides us with
the flexibility to use multiple process technologies. Because each process
technology has a different impact on characteristics such as linearity,
frequency, operating voltage, output power, noise suppression and heat
dissipation, the selection of a process technology is critical to the
function of a component. Our components are designed to optimize
functionality by selecting the process technology that provides the
appropriate characteristics for the intended application. This approach
also enables us to quickly adapt to changes in product specifications or
market requirements.
HIGH PERFORMANCE FOR INFRASTRUCTURE APPLICATIONS. We design our
products specifically for communications infrastructure equipment. We have
made engineering trade-offs in favor of design characteristics that are
most important to infrastructure equipment manufacturers. Our products are
particularly well suited for communications equipment that require high
capacity, clear signals, longer product life and extended transmit and
receive range.
PRODUCT AND TECHNOLOGY BREADTH. Our product portfolio includes a broad
line of products that range in complexity from discrete components to
integrated circuits and multi-component modules designed to meet the varied
needs of our customers. We offer a wide range of solutions based on
different process technologies. The availability and breadth of our product
portfolio facilitate efficient customer sourcing and improve time to market
for communications equipment manufacturers.
PRICE PERFORMANCE. We believe that our combination of product quality
and high performance at competitive prices makes our products a compelling
value proposition for our customers.
OUR STRATEGY
Our objective is to become the leading supplier of RF components for
wireless and broadband wireline communications equipment. We intend to achieve
this objective by providing a comprehensive portfolio of high performance and
high value standard and customized RF components optimized for their target
applications. Our strategy consists of the following elements:
EXPAND PORTFOLIO OF STANDARD PRODUCTS AND DEVELOP INNOVATIVE CUSTOM
PRODUCTS. We will continue to design products that meet standard
specifications widely adopted by communications equipment manufacturers.
These standard products historically have
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constituted the core of our business and we anticipate that they will
continue to account for a significant portion of our revenues. In addition,
we gain significant economies of scale due to the high sales volumes of
these products. We plan to continue to invest significantly in research and
development to grow our portfolio of these products.
We recently established a separate business unit focused on developing
customized products for specific RF applications. We plan to focus on
expanding our product development initiatives in the wireless and broadband
wireline infrastructure markets. A key aspect of our new product focus will
be to design unique custom multi-component products that offer significant
price and performance advantages over current solutions. We believe that
some of these customized products can be marketed through our distribution
channels in the future as standard products.
LEVERAGE OUR FABLESS OPERATING MODEL. Our fabless strategy gives us
the flexibility to design products that are tailored for the intended
application. By avoiding the administrative and capital-intensive burden of
operating a captive wafer manufacturing facility, we will continue to
maintain the flexibility to adopt and leverage emerging process
technologies. We believe this approach is unique in the RF components
industry and plan to leverage the advantages it provides to offer optimized
solutions for our target markets.
CONTINUE TO INVEST IN OUR TECHNOLOGY AND PRODUCT QUALITY. We will
continue to invest in research and development in the areas of
semiconductor materials, device modeling, RF circuit design, packaging
technology, and test and measurement. We will also maintain and extend a
rigorous quality assurance program to ensure the highest product quality.
Our quality program includes periodic qualification testing of all
products, including extended lifetime testing under accelerated temperature
and other operating conditions, designed to simulate more extreme operating
conditions than would be encountered in most practical applications.
STRENGTHEN STRATEGIC TECHNOLOGY AND SUPPLIER RELATIONSHIPS. We have
formed supplier relationships with TRW, Nortel Networks, Temic
Semiconductors (an Atmel company) and UltraRF (a subsidiary of Spectrian),
and are engaged in joint development efforts with Nortel Networks, Temic
Semiconductors and UltraRF. We plan to strengthen these relationships by
continuing to engage in co-development projects on new products and
adaptations of existing products. We also will seek to establish strategic
technology and supplier relationships with additional third-party wafer
fabs as new process technologies emerge and to secure additional
fabrication capacity.
RECRUIT THE BEST TALENT AVAILABLE. The market for experienced RF
designers and application engineers is highly competitive. Our strategy is
to attract the best talent by offering the opportunity to work with leading
design and process technologies and the flexibility to work at any of our
design centers. We have design centers in Long Beach and Sunnyvale,
California, Ottawa, Canada and Richardson, Texas. By locating our design
centers in areas that have significant numbers of RF-related businesses, we
believe we are better able to recruit experienced design engineers locally.
We plan to open additional design centers in strategic locations and to
continue to recruit experienced RF design engineers at our existing design
centers.
MAINTAIN OUR DISTRIBUTION CHANNELS AND EXPAND OUR DIRECT MARKETING AND
SALES FORCE. We have long-standing relationships with our two worldwide
distributors, Avnet Electronics Marketing and Richardson Electronics, and
will continue to market our standard products through them and other
distributors. We plan to broaden our direct marketing efforts and expand
our direct sales force and sales representatives to market and sell our
customized products.
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PRODUCTS
We sell RF components used in the infrastructure of mobile wireless,
broadband wireline and fixed wireless communications networks. RF components
include low noise and power amplifiers, drivers, pre-drivers, switches,
modulators, demodulators, upconverters and downconverters. They convert, switch,
process and amplify the high frequency signals that carry the information to be
transmitted or received.
The following is a simplified illustration of the RF subsystems in the
transmitter and receiver sections of a typical communication system:
[SIMPLIED RF SUBSYSTEM DIAGRAM]
We classify our products broadly into two categories: standard products,
which we develop from our own specifications and generally sell through
distributors, and customized products under development, which we are designing
for particular applications by original equipment manufacturers and will sell
directly through our own sales force.
Our current product offerings address key functions in the transmission
section of a typical communication system and include:
- LOW NOISE AMPLIFIERS. These are components in the receiver section of an
RF system that receive signals from an antenna at extremely low levels
and amplify these signals. Due to the low noise characteristics of our
amplifiers, they can be used to amplify very weak signals.
- PRE-DRIVERS AND DRIVERS. A pre-driver is a component in the transmitter
section that provides the first stage of amplification in a power
amplifier chain. These amplifiers take very weak transmitted signals and
amplify them. A driver takes the amplified signals from a pre-driver and
further amplifies these signals before transmitting them to the last
stage of amplification. Our pre-drivers and drivers determine the overall
ability of an RF subsystem to work with signals of different strengths
with minimum distortion.
- POWER AMPLIFIERS. These components provide the final stage of signal
amplification to boost signal strength for transmission through the
antenna. Power amplifiers operate at different frequencies, power levels
and air interface standards. The majority of our power amplifier products
are linear amplifiers, which add a minimum amount of distortion to the
39
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input signal. Currently, we purchase our power amplifier products from a
third-party wafer fab for resale under our own brand.
- SWITCHES. These are used to direct RF signals to various ports within a
communications system. Our switches preserve signal strength and minimize
channel interference as they perform their functions.
- DISCRETE DEVICES. These are transistors which contain minimal circuitry
and are used as building blocks in a variety of component applications
such as oscillators, mixers and active circuits. Important attributes of
our discrete devices are wide frequency range, low noise and low power
consumption.
Products under development include:
- MODULATORS AND DEMODULATORS. These are components in the transmitter or
receiver section that combine digital information with an RF signal by
varying the phase and amplitude of the signal so that the resulting
signal can be transmitted or received.
- MIXERS, UPCONVERTERS AND DOWNCONVERTERS. These components are frequently
combined with amplifiers to accept low or high frequency signals, and mix
them with a local oscillator signal to produce a lower or higher
frequency signal for processing or transmission.
- WIRELINE INTEGRATED CIRCUITS. We are currently developing a high-speed
broadband wireline chip set which can be used in fiber optic and local
and wide area network applications. This chip set includes a
transimpedance amplifier, which amplifies the electrically converted
optical signal, a postamplifier, which minimizes signal loss, and a laser
driver, which energizes the laser.
PROCESS TECHNOLOGIES
We have expertise in designing and manufacturing RF components in multiple
process technologies. We design our products using four process technologies to
meet the price and performance requirements of our customers. These process
technologies are:
GALLIUM ARSENIDE HETEROJUNCTION BIPOLAR TRANSISTOR (GAAS HBT). GaAs
HBT technology is an effective alternative or complement to silicon
solutions in many high-performance RF applications. GaAs HBT has inherent
physical properties that allow electrons to move up to five times faster
than those of silicon. This results in integrated circuits that operate at
much higher speeds than silicon devices with lower power consumption. We
use GaAs HBT technology for applications that require high linearity and
low power consumption.
INDIUM GALLIUM PHOSPHIDE HETEROJUNCTION BIPOLAR TRANSISTOR (INGAP
HBT). InGaP HBT technology uses the same wafer material as GaAs HBT, but
offers performance advantages over GaAs HBT due to inherent properties
which generally result in less variation in wafer processing. As a result,
InGaP HBT typically results in higher manufacturing yields. We use this
process for products that require higher frequency, improved linearity,
enhanced noise performance or greater reliability. We are migrating our
products from the GaAs HBT process to the InGaP HBT process as this
technology matures.
SILICON GERMANIUM HETEROJUNCTION BIPOLAR TRANSISTOR (SIGE HBT). Like
GaAs HBT technology, SiGe HBT also achieves high operating speeds by using
a material that has significantly higher electron mobility than silicon,
but still uses silicon wafers and established standard silicon processing.
SiGe HBT technology results in more predictable and improved manufacturing
yields. We use this process in the design and manufacture of our products
to achieve high frequency performance and significant economies of scale.
Because of its
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significantly lower cost, SiGe HBT is a good choice for processing more
integrated and complex components which require increased semiconductor
area.
LATERALLY DIFFUSED METAL OXIDE SEMICONDUCTOR (LDMOS). LDMOS technology
uses standard silicon materials in an alternative configuration to deliver
high-power solutions, high efficiency and superior linearity when compared
to traditional silicon transistors. Because the LDMOS process uses silicon,
LDMOS devices are less expensive than devices manufactured using gallium
arsenide wafers. Silicon dissipates heat more efficiently than gallium
arsenide, and has the capability to operate at higher voltages. As a
result, our products were designed using the LDMOS process for high-output
power applications required for transmitter applications.
Below is a summary of our current products and products under development
indicating the process technologies used in manufacturing:
<TABLE>
<CAPTION>
PROCESS TECHNOLOGY
---------------------------
GAAS INGAP SIGE LDMOS
---- ----- ---- -----
<S> <C> <C> <C> <C>
CURRENT PRODUCTS:
Low Noise Amplifiers.................................. X X
Pre-Drivers........................................... X X X
Drivers............................................... X X
Power Amplifiers...................................... X
Switches.............................................. X
Discrete Devices...................................... X X
PRODUCTS UNDER DEVELOPMENT:
Modulators and Demodulators........................... X
Mixers, Upconverters and Downconverters............... X
Wireline Integrated Circuits.......................... X X
</TABLE>
We shipped our first products using SiGe and InGaP in the fourth quarter of
1999 and have begun to design products using LDMOS. Although we currently offer
LDMOS power amplifiers as a reseller of UltraRF, we have not yet generated any
revenues from resale of these products.
CUSTOMERS
End customers for our products are primarily manufacturers of
communications infrastructure equipment. The following is a list of our 20
largest customers, based on 1999 revenues, who have purchased our products
either directly or through our distributors, Avnet Electronics Marketing and
Richardson Electronics:
<TABLE>
<S> <C>
Aerostar Industry Motorola
Air-Tech System MRV Communications
Editron Olson Technology
GSS Array Technologies Phase Atlantic
Hughes Network Systems Pulsar Microwave
Italtel Rohde & Schwarz
J Cort Systems Sam Ji Electronics
M/A-COM Microelectronics Sanmina Corporation
Microwave International Telaxis Communications
Minicircuits Laboratories Young Woo Telecom
</TABLE>
SALES, MARKETING AND CUSTOMER SUPPORT
We sell our products worldwide through U.S.-based distributors, through a
private label reseller who sells our products under its brand and through our
direct sales force. Our products are also sold through a worldwide network of
independent sales representatives whose orders
41
<PAGE> 44
are fulfilled either by us or our distributors. Each of these channels is
supported by our customer service and marketing communication functions. We are
expanding our marketing efforts to create awareness for our products within our
target markets and to support our direct and indirect sales efforts. We have
implemented an integrated mix of marketing activities including trade journal
advertisements, and public relations and promotional events such as tradeshows,
seminars and technical conferences.
We generally sell our standard products through distributors. We believe
that sales through our distributors will continue to account for a significant
amount of our revenues in the foreseeable future. We plan to sell customized
products through our direct sales force to a targeted group of communications
equipment manufacturers. We believe this approach will enable us to work more
closely with these customers to gain a better understanding of, and more
effectively meet, their needs.
Our products are highly technical and our customers frequently consult with
us to select a component for a given application, determine product performance
under specified conditions unique to their system, or test a product for new
applications. To meet the needs of our customers, we provide support in all
stages of the sales process, from concept definition and product selection to
post-sale support. These services are provided by our applications engineering
organization, which works closely with our sales organization in all pre- and
post-sale activities. We intend to invest in expanding our applications
engineering organization to assist our customers.
As of March 31, 2000, we had 22 employees in our sales and marketing
organization, including seven application engineers.
OPERATIONS
Our products are designed at our four design centers located in North
America. We apply our expertise in packaging during the design phase to ensure
that our RF components meet high performance standards. The relationship between
a circuit and its package is critical to the reliability and electrical
performance of RF components. We outsource the fabrication of our semiconductor
wafers to several independent wafer fabs. Our four principal third-party wafer
fabs are:
- TRW for GaAs HBT;
- Nortel Networks for InGaP HBT;
- Temic Semiconductors for SiGe HBT; and
- UltraRF for LDMOS.
Our supply agreements with Nortel Networks, Temic Semiconductors and
UltraRF give us multi-year supply guarantees. Our supply agreement with TRW
includes supply guarantees through December 31, 2000. We will seek to extend our
supply agreements with these third-party wafer fabs while concurrently seeking
second sources for the wafers they supply. GEC Marconi and TriQuint
Semiconductor also manufacture limited quantities of semiconductor wafers for
us.
We have unconditional purchase obligations under these supply agreements.
Because the products we are purchasing are unique to us, our agreements with
these suppliers prohibit cancellation of our orders subsequent to the production
release of the products in our suppliers' manufacturing facilities, regardless
of whether our customers cancel orders. At December 31, 1999, we had
approximately $5.9 million of unconditional purchase obligations.
Following production of wafers by our third-party wafer fabs, we perform
wafer inspection at our headquarters in Sunnyvale, California. As a result, we
are able to ensure that the wafers
42
<PAGE> 45
meet high standards of reliability required for their use in communications
equipment. Semiconductor packaging is then outsourced to five offshore
subcontractors and packaged components are returned to our headquarters in
Sunnyvale, California for final testing, quality assurance, and tape and reel
assembly for final shipment.
The following diagram illustrates this manufacturing flow:
[Flow Chart]
RESEARCH AND DEVELOPMENT
We focus our research activities in the areas of semiconductor materials,
device modeling, RF circuit design, packaging technology, and test and
measurement. In the area of semiconductor materials, we are focusing our
research efforts on two areas: heterojunctions, or semiconductor junctions made
out of two dissimilar semiconductor materials, and emerging semiconductor
materials that offer high linearity and low power consumption critical for
digital communications networks. In the area of device modeling, we are
expanding our library of device models which predict the performance of a
transistor within a circuit design.
Our circuit design efforts are focused on developing products that provide
repeatable performance and reliability and that are easy to use in
communications equipment design. Our products generally incorporate integrated
matching structures, eliminating the need for additional external components and
providing stable performance over a range of temperatures and varying supply
voltages. We also work closely with our third-party wafer fabs to design test
circuits for new process technologies.
In the area of packaging technology, we are developing specialized packages
that offer both high frequency performance and efficient heat dissipation. We
also work closely with our packaging subcontractors to research new package
designs and materials. We are building a team of experienced packaging engineers
to expand research and development in advanced RF packaging.
Our proprietary test and measurement techniques coupled with our packaging
expertise completes our back-end, or production, competency. We have a number of
high-speed automatic component testers that are capable of recording high
frequency data at extremely high throughput rates using our proprietary
software. We intend to continue to increase throughput rates by developing new
test software that accelerates data recording while adding the ability to
measure additional test parameters.
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<PAGE> 46
Our principal development work is concentrated on expanding the versatility
of existing products and developing customized solutions for targeted
communications equipment manufacturers. A key factor in this development work is
to design products with improved functionality by selecting the process
technology that provides the optimal performance and price for our customers.
Our ability to align our design expertise with leading process technologies
enables us to focus and adapt our research and development efforts to keep pace
with changing market requirements.
At March 31, 2000, we had 27 employees in our research and development
organization. We incurred research and development expenses of approximately
$643,000 in 1997, $932,000 in 1998, $2.3 million in 1999 and $1.4 million in the
three months ended March 31, 2000.
COMPETITION
The RF semiconductor industry is intensely competitive. Competition in our
markets is primarily affected by the ability to design standard and customized
products that meet customers' price and performance requirements in a sufficient
quantity and in a timely manner, the quality of customer service and technical
support, and the availability and breadth of product offerings.
We compete primarily with other suppliers of high performance RF components
used in the infrastructure of communications networks such as Agilent, Alpha
Industries, Anadigics, Conexant, Infineon, M/A-COM, Minicircuits Laboratories,
NEC, RF Micro Devices, TriQuint Semiconductor and Watkins-Johnson. We also
compete with current and potential communications equipment manufacturers who
manufacture RF components internally such as Ericsson, Lucent, Motorola and
Nortel Networks. We expect increased competition from existing competitors and
from a number of companies that may enter the RF component market, as well as
future competition from companies that may offer new or emerging technologies.
In addition, many of our current and potential competitors have significantly
greater financial, technical, manufacturing and marketing resources than we
have. Our failure to successfully compete in our markets would have a material
adverse effect on our business, financial condition and results of operations.
INTELLECTUAL PROPERTY
We rely upon a combination of copyright, trade secret and trademark laws to
protect our intellectual property. Third-party wafer fabs own the patents for
the process technologies used in the manufacture of our wafers. We do not
currently have any patents or patent applications pending. However, we intend to
seek patent protection for our future products and technologies where
appropriate and to protect our proprietary technology under U.S. and foreign
laws affording protection for integrated circuit designs, trademarks and trade
secrets.
We rely primarily upon trade secrets, technical know-how and other
unpatented proprietary information relating to our product development and
production activities. To protect our trade secrets, technical know-how and
other proprietary information, our employees are required to enter into
agreements providing for the maintenance of confidentiality and assignment of
rights to inventions made by them while employed by us. We also enter into
non-disclosure agreements to protect our confidential information delivered to
third parties and control access to and distribution of our proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our products or
technology or to develop products with the same functionality as our products.
Monitoring unauthorized use of our proprietary information is difficult and we
cannot be certain that the steps we have taken will prevent misappropriation of
our technology, particularly in foreign countries where the laws may not protect
proprietary rights as fully as do the laws of the United States.
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<PAGE> 47
Although we rely on copyright, trade secret and trademark law to protect
our technology, we believe that factors such as the technological and creative
skills of our personnel, new product developments, frequent product enhancements
and reliable product maintenance are more essential to establishing and
maintaining a technology leadership position. We can give no guarantee that
others will not develop technologies that are similar or superior to our
technology.
BACKLOG
At December 31, 1999, our backlog was approximately $11.5 million. We
include in our backlog all accepted product purchase orders for which delivery
has been specified within one year, including orders from distributors. Of the
$11.5 million in total backlog as of December 31, 1999, $10 million was
attributable to purchase orders by our distributors. We do not recognize revenue
from sales through our distributors until the distributor has sold our product
to their customer. Product orders in our backlog are subject to changes in
delivery schedules or to cancellation at the option of the purchaser without
significant penalty. Our backlog may vary significantly from time to time
depending upon the level of capacity available to satisfy unfilled orders.
Accordingly, although useful for scheduling production, backlog as of any
particular date may not be a reliable indicator of sales for any future period.
EMPLOYEES
As of March 31, 2000, we had 91 full time employees, including 22 in sales
and marketing, 27 in research and development, 28 in operations and 14 in
general and administrative functions. None of our employees are subject to a
collective bargaining agreement, and we believe that our relations with our
employees are good.
FACILITIES
Our headquarters are located in Sunnyvale, California in two buildings in
which we lease an aggregate of approximately 32,000 square feet. One lease
expires in 2002 and the other expires in 2004. We also lease approximately 5,000
square feet of office space in Richardson, Texas, approximately 3,000 square
feet of office space in Long Beach, California and approximately 3,800 square
feet of office space in Ottawa, Canada. We believe that our existing facilities
meet our current needs and that we will be able to obtain additional commercial
space as needed. We do not own any real estate.
LEGAL PROCEEDINGS
On March 17, 2000, the Board of Trustees of Stanford University filed a
complaint against us in the United States District Court of the Northern
District of California alleging, among other things, trademark infringement,
false designation of origin, dilution, and unfair competition. Stanford
University seeks a preliminary and permanent injunction against our use of the
name "Stanford" and any logo containing the letter "S" on a red background, and
also seeks compensatory damages, exemplary and punitive damages, costs and
attorneys' fees. A hearing for preliminary injunction has been scheduled for May
8, 2000. Based on our preliminary investigation, we believe that we have
meritorious defenses to Stanford University's claims and intend to vigorously
defend ourselves in any litigation that may arise from these claims. We are
unable at this time to predict the outcome of this litigation. If any litigation
were to be decided adversely to us, we could be enjoined from future use of the
"Stanford" name and from the use of a logo containing the letter "S", we might
be required to pay substantial damages, and we could be subject to significant
costs of litigation. See "Risk Factors -- Stanford University has filed a
lawsuit against us alleging trademark infringement." We may also from time to
time become involved in litigation relating to claims arising from our ordinary
course of business. These claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
45
<PAGE> 48
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages, and positions of our current executive officers and
directors as of March 1, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John Ocampo..................... 40 Chairman of the Board and Chief Technology Officer
Robert Van Buskirk.............. 50 President, Chief Executive Officer and Director
Walter Baker.................... 33 Vice President and General Manager of Standard
Products Unit
Gary Gianatasio................. 59 Vice President and General Manager of Wireless
Infrastructure Products Unit
Guy Krevet...................... 53 Vice President, Operations
Susan Ocampo.................... 42 Treasurer
Gerald Quinnell................. 43 Chief Operating Officer and Vice President, Sales
and Marketing
Thomas Scannell................. 49 Vice President, Finance and Administration, Chief
Financial Officer, Secretary and Assistant
Treasurer
John Bumgarner, Jr.............. 57 Director
Peter Chung..................... 32 Director
Casimir Skrzypczak.............. 58 Director
</TABLE>
Executive Officers
JOHN OCAMPO, a co-founder of Stanford Microdevices, has served as our
Chairman of the Board and Chief Technology Officer since May 1999. From 1984 to
May 1999, Mr. Ocampo also served as our President and Chief Executive Officer.
From 1982 to 1984, Mr. Ocampo served as General Manager at Magnum Microwave, an
RF component manufacturer. From 1980 to 1982, he served as Engineering Manager
at Avantek, a telecommunications engineering company, now
Hewlett-Packard/Avantek. Mr. Ocampo holds a B.S.E.E. degree from Santa Clara
University.
ROBERT VAN BUSKIRK has served as our President and Chief Executive Officer
and as a director since June 1999. Before joining Stanford Microdevices, Mr. Van
Buskirk held the position of Executive Vice President of Business Development
and Operations from October 1998 to June 1999 at Multilink Technology
Corporation, a company specializing in the design, development, and marketing of
high bit-rate electronic products for advanced fiber optic transmission systems.
Prior to his position at Multilink, Mr. Van Buskirk held various management
positions at TRW, a semiconductor wafer manufacturer, including Executive
Director of the TRW GaAs telecom products business from August 1993 to October
1998. Mr. Van Buskirk holds a B.A. from California State University at Long
Beach.
WALTER BAKER has served as our Vice President and General Manager of the
Standard Products Unit since November 1999. Mr. Baker served as our Vice
President of Engineering from September 1998 to November 1999, and as
Engineering Manager of our design center in Richardson, Texas from September
1997 to September 1998. From June 1996 to September 1997, he was a Senior RFIC
Design Engineer at Fujitsu Electronics, a manufacturer of electronic components.
From May 1993 to June 1996, Mr. Baker held the position of Design Manager at ITT
General Transistor Corporation (GTC), a manufacturer of transistors. Mr. Baker
received his B.S.E.E from Texas A&M University, an M.S.E.E. degree from Georgia
Tech, and an M.B.A. from the University of Phoenix. Mr. Baker is a member of the
Institute of Electrical and Electronic Engineers.
46
<PAGE> 49
GARY GIANATASIO has served as Vice President and General Manager of our
Wireless Infrastruture Products Unit since December 1999. From July 1997 through
November 1999, Mr. Gianatasio provided services to Stanford Microdevices as an
independent management consultant. From January 1997 to December 1999, Mr.
Gianatasio served as a principal of G. Gianatasio & Associates. From April 1990
to July 1997, Mr. Gianatasio held various positions at Spectrian Corporation, an
RF component company, most recently as Senior Vice President of Business
Development. Mr. Gianatasio holds a B.S. from San Jose State University.
GUY KREVET has served as our Vice President, Operations since November
1998. From June 1995 to November 1998, Mr. Krevet served as Vice President and
General Manager of Operation, Engineering, and Manufacturing for Avnet, Inc., a
distributor of electronic components and computer products. From April 1971 to
June 1995, Mr. Krevet served in various positions at Hewlett-Packard/Avantek,
most recently as Manufacturing Manager.
SUSAN OCAMPO is co-founder of Stanford Microdevices, and has served as our
Treasurer since November 1999. From 1988 to November 1999, Mrs. Ocampo also
served as Chief Financial Officer and Secretary and as one of our directors.
Mrs. Ocampo holds a B.A. from Maryknoll College, in Manila, Philippines.
GERALD QUINNELL has served as our Vice President, Sales and Marketing and
Chief Operating Officer since November 1998. Mr. Quinnell served as President
and Chief Operating Officer of the RF and Microwave business unit of Avnet, Inc.
from June 1997 to September 1998, and as Corporate Vice President of Avnet,
Inc., from June 1997 to September 1998. From November 1988 to September 1998,
Mr. Quinnell served as Chief Operating Officer of Penstock, Inc., an RF and
microwave distribution company subsequently sold to Avnet, Inc. Mr. Quinnell
holds a B.S. from the University of Phoenix.
THOMAS SCANNELL has served as our Vice President, Finance and
Administration, Chief Financial Officer, Secretary and Assistant Treasurer since
November 1999. From November 1996 to May 1999 Mr. Scannell served as the Vice
President, Finance of Spectra-Physics Lasers, a laser manufacturer. From
November 1990 to November 1996, Mr. Scannell held the positions of Division
Controller and Assistant Corporate Controller at Raychem Corporation, a
materials science company. Mr. Scannell holds a B.A. and an M.B.A. from Stanford
University.
Directors
JOHN BUMGARNER, JR. has served as our director since December 1999. Mr.
Bumgarner has been a Senior Vice President of Corporate Development and Planning
at Williams, a communications and natural gas pipeline infrastructure company,
since 1979. Mr. Bumgarner currently serves as President of Williams
International and President of Williams Headquarters Building Group. Mr.
Bumgarner also serves as President of Strategic Investments for Williams
Communications. Mr. Bumgarner also serves as a director of MPSI, a global
software and database company, PowerTel, a telecommunications service provider
in Australia, Apco Argentina, an exploration and production company, and
Williams Communications, a telecommunications company. Mr. Bumgarner received a
B.S. from the University of Kansas, and an M.B.A. from Stanford University.
PETER CHUNG has served as our director since October 1999. Mr. Chung is a
General Partner and Member of various entities affiliated with Summit Partners,
L.P., a venture capital and private equity firm, where he has been employed
since August 1994. Summit Partners, L.P. and its affiliates manage a number of
private equity funds, including Summit Ventures V, L.P., Summit V Companion
Fund, L.P., Summit V Advisors (QP) Fund, L.P., Summit V Advisors Fund, L.P. and
Summit Investors III, L.P. Prior to attending Stanford Business School, Mr.
Chung was a Financial Analyst with the Mergers and Acquisitions department at
Goldman, Sachs & Co. from 1989 to 1992. Mr. Chung also serves as a director of
ADVA AG Optical Networking, an optical networking systems company, Ditech
Communications Corporation, a developer of echo
47
<PAGE> 50
cancellation and optical networking equipment, Somera Communications, Inc., a
supplier of telecommunications infrastructure equipment and services, Splash
Technology Holdings, Inc., a color server systems company, and several privately
held companies. Mr. Chung received an A.B. from Harvard University and an M.B.A.
from Stanford University.
CASIMIR SKRZYPCZAK has served as our director since January 2000. Since
October 1999, Mr. Skrzypczak has been a Senior Vice President at Cisco Systems,
a networking systems company. Prior to joining Cisco, Mr. Skrzypczak served as a
Group President at Telcordia Technologies, a telecommunications company, from
July 1997 to October 1999. From September 1985 to June 1997, Mr. Skrzypczak
served as President of NYNEX Corporation, a telecommunications company. Mr.
Skrzypczak also serves as a director of JDS Uniphase, a fiber-optic products
manufacturer. Mr. Skrzypczak holds a B.E. from Villanova University and an
M.B.A. from Hofstra University.
Except for John Ocampo and Susan Ocampo, who are husband and wife, there
are no family relationships among any of our directors or executive officers.
BOARD OF DIRECTORS
Our board of directors is currently comprised of five directors. In
accordance with the terms of our certificate of incorporation, the terms of
office of our board of directors will be divided into three classes upon the
closing of this offering: Class I, whose term will expire at the annual meeting
of stockholders to be held in 2001, Class II, whose term will expire at the
annual meeting of stockholders to be held in 2002, and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2003. The Class
I directors will be Messrs. Chung and Van Buskirk, the Class II directors will
be Messrs. Bumgarner and Skrzypczak, and the Class III director will be Mr.
Ocampo. At each annual meeting of stockholders after the initial classification,
the successors to directors whose terms will then expire will be elected to
serve from the time of election and qualification until the third annual meeting
following election. Any additional directorships resulting from an increase in
the number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of our directors.
BOARD COMMITTEES
Our board of directors has a compensation committee and an audit committee.
The compensation committee consists of Messrs. Chung and Bumgarner. The
compensation committee was designated in September 1999 and the audit committee
was designated in November 1999. The compensation committee makes
recommendations regarding our stock option plans and all matters concerning
executive compensation. The audit committee consists of Messrs. Bumgarner, Chung
and Skrzypczak. The audit committee approves our independent auditors, reviews
the results and scope of annual audits and other accounting related services,
and evaluates our internal audit and control functions.
DIRECTOR COMPENSATION
We do not pay any cash compensation to directors for serving in that
capacity, although directors are reimbursed for expenses in connection with
attendance at board of directors and committee meetings. Directors are eligible
to participate in our Amended and Restated 1998 Stock Plan. Pursuant to our
Amended and Restated 1998 Stock Plan, all non-employee directors are
automatically granted an option to purchase 40,000 shares of common stock upon
their election to the board of directors and an option to purchase an additional
10,000 shares of common stock each year following the date of our annual
stockholder's meeting if on such date, he has served on our board of directors
for at least the previous six months. On December 29, 1999, we granted Mr.
Bumgarner an option to purchase 40,000 shares of common stock at an exercise
price of $3.50 per share. On January 13, 2000, we granted
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<PAGE> 51
Mr. Skrzypczak an option to purchase 40,000 shares of common stock at an
exercise price of $5.50 per share. Employee directors are also eligible to
participate in our employee stock purchase plan. See "-- Employee Benefit
Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee consists of Mr. Chung and Mr. Bumgarner. None of
our executive officers serves as a director or member of the compensation
committee or other board committee performing equivalent functions of another
entity that has one or more executive officers serving on the board of directors
or compensation committee of Stanford Microdevices. Prior to the formation of
the compensation committee, compensation decisions were made by the board of
directors beginning in May 1999 and prior to that by our President.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
We have entered into change of control agreements with Guy Krevet and Mr.
Quinnell which provide that these executive officers are entitled to a maximum
of six months of severance pay and acceleration of options in the event of the
termination of employment of such individual within twelve months of a change of
control of Stanford Microdevices. In addition, we have signed an offer letter
with Mr. Scannell that provides for six months of severance pay in the event Mr.
Scannell is terminated without cause, and acceleration of all outstanding
options in the event of a change of control of Stanford Microdevices. We also
signed an offer letter with Mr. Gianatasio that provides for four months of
severance pay and one year acceleration of options in the event Mr. Gianatasio
is terminated without cause, and acceleration of all outstanding options in the
event of a change of control of Stanford Microdevices.
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<PAGE> 52
EXECUTIVE COMPENSATION
The following table sets forth in summary form information concerning the
compensation paid by us during the fiscal year ended December 31, 1999 to our
Chief Executive Officer and each of our four other most highly compensated
executive officers. These individuals are referred to as the named executive
officers in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- --------------------------- -------- -------- ------------ ------------------- ------------
<S> <C> <C> <C> <C> <C>
Robert Van Buskirk......... $ 93,461 $ 50,000 -- 342,180 $2,897
President and Chief
Executive Officer
John Ocampo................ 241,799 100,000 2,989,958 -- 17,932
Chairman of the Board and
Chief
Technology Officer
Susan Ocampo............... 217,673 100,000 -- -- 17,924
Treasurer
Gerald Quinnell............ 200,000 100,000 -- 119,924 3,293
Chief Operating Officer
and Vice President,
Sales and Marketing
Guy Krevet................. 154,038 75,000 -- 111,090 3,293
Vice President,
Operations
</TABLE>
The amount in the column entitled "Other Annual Compensation" for Mr.
Ocampo consists of amounts paid to Mr. Ocampo as a special bonus to assist Mr.
and Mrs. Ocampo with federal and state tax liabilities of Stanford Microdevices
paid by Mr. and Mrs. Ocampo while we were an S corporation and to assist Mr. and
Mrs. Ocampo in paying taxes they incurred as a result of the receipt of these
amounts and taxes associated with receipt of a dividend paid in 1999.
The amounts in the column entitled "All Other Compensation" consist of term
life insurance premiums paid by us and contributions by us of $2,500 to each
named executive officer's 401(k) plan account. We also paid Mr. and Mrs. Ocampo
$14,841 each pursuant to our profit sharing plan.
Mr. Van Buskirk joined Stanford Microdevices as our President and Chief
Executive Officer in May 1999. Mr. Van Buskirk's salary on an annualized basis
in 1999 was $225,000. Mr. Ocampo served as our President and Chief Executive
Officer until May 1999. Mrs. Ocampo served as our Chief Financial Officer and
Secretary until November 1999.
The table above excludes Mr. Scannell, our Vice President, Finance and
Administration, Chief Financial Officer and Secretary, who joined Stanford
Microdevices in November 1999. Mr. Scannell's annual salary is $175,000 and he
was granted an option to purchase 200,000 shares in 1999 at an exercise price of
$1.50 per share.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides summary information regarding stock options
granted to each of the named executive officers in 1999. The information
regarding stock options granted to
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<PAGE> 53
named executive officers as a percentage of total options granted to employees
in 1999 is based on options to purchase a total of 2,211,373 shares that were
granted to employees, consultants and directors in 1999, all pursuant to our
1998 Stock Plan. No stock appreciation or stock purchase rights were granted
during 1999.
Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by the board of directors on the date of grant.
The potential realizable values set forth in the table below assume that
the fair market value of our common stock on the date of grant will appreciate
at the indicated rate compounded annually for the entire ten-year term of the
option and that the option is exercised and sold on the last day of its term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the Securities and Exchange Commission and do not reflect
our projections or estimates of future stock price growth.
All options indicated in the table below have a ten year term. The options
vest as to 25% of the shares one year from the vesting commencement date and the
remaining shares shall vest at the rate of 1/48 of the shares at the end of each
month thereafter, provided that the optionee remains our employee or a
consultant to Stanford Microdevices. In addition, Mr. Krevet and Mr. Quinnell
have agreements that provide for acceleration of vesting under certain
conditions as described in "-- Employment Agreements and Change of Control
Arrangements."
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- OPTION VALUE AT ASSUMED
NUMBER PERCENT OF TOTAL ANNUAL RATE OF STOCK
OF SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
---- ------------- ---------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert Van Buskirk... 200,000 9.0% $1.50 6/7/09 $188,668 $478,123
22,180 1.0 1.50 9/30/09 20,923 53,024
120,000 5.4 1.50 11/8/09 113,201 286,874
John Ocampo.......... -- -- -- -- -- --
Susan Ocampo......... -- -- -- -- -- --
Gerald Quinnell...... 39,924 1.8 1.50 9/30/09 37,662 95,443
80,000 3.6 1.50 11/08/09 75,467 191,249
Guy Krevet........... 11,090 0.5 1.50 9/30/09 10,462 26,512
100,000 4.5 1.50 11/8/09 94,334 239,061
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth for each of the named executive officers
certain information concerning the number of shares subject to both exercisable
and unexercisable stock options at December 31, 1999. Also reported are values
for "in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding stock options and $3.50, which is the
fair market value of the common stock as of December 31, 1999 as determined in
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good faith by our board of directors. No shares were acquired by the named
executive officers upon exercise of stock options during the year ended December
31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1999 AT DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert Van Buskirk.................. -- 342,180 $ -- $684,360
John Ocampo......................... -- -- -- --
Susan Ocampo........................ -- -- -- --
Gerald Quinnell..................... 108,313 371,611 273,176 895,472
Guy Krevet.......................... 30,087 181,003 75,882 404,298
</TABLE>
EMPLOYEE BENEFIT PLANS
AMENDED AND RESTATED 1998 STOCK PLAN
Our Amended and Restated 1998 Stock Plan provides for the grant of
incentive stock options to our employees, including our officers and employee
directors, and for the grant of nonstatutory stock options and stock purchase
rights to our employees, directors and consultants. This Amended and Restated
1998 Stock Plan was adopted by our board of directors and was approved by our
stockholders in February 2000.
A total of 7,194,691 shares of our common stock have been reserved for
issuance under our Amended and Restated 1998 Stock Plan. In addition, annual
increases will be added beginning in 2001, equal to the lesser of 1,500,000
shares, 3% of our outstanding shares on such date, or a lesser amount determined
by our board of directors. As of December 31, 1999, no options had been
exercised, options to purchase 5,231,373 shares of common stock were outstanding
and 1,963,318 were available for future grant.
Administration
Our board of directors or a committee of our board of directors administers
our Amended and Restated 1998 Stock Plan. The administrator has the power to
determine, among other things:
- the terms of the options or stock purchase rights granted, including the
exercise price of the option or stock purchase right;
- the number of shares subject to each option or stock purchase right;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
Options
The administrator determines the exercise price of options granted under
our Amended and Restated 1998 Stock Plan, but with respect to all incentive
stock options and nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the exercise price must at least equal the fair market
value of our common stock on the date of grant. The term of an incentive stock
option may not exceed ten years, except that with respect to any participant who
owns 10% or more of the voting power of all classes of our outstanding capital
stock, the term must not exceed five years and the exercise price must equal at
least 110% of the fair market value on the grant date. The administrator
determines the term of all other options.
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<PAGE> 55
No optionee may be granted an option to purchase more than 1,000,000 shares
in any fiscal year. In connection with his or her initial service, an optionee
may be granted an additional option to purchase up to 1,000,000 shares.
After termination of one of our employees, directors or consultants, he or
she may exercise his or her option for the period of time stated in the option
agreement. Generally, if termination is due to death or disability, the option
will remain exercisable for 12 months. In all other cases, the option will
generally remain exercisable for three months. However, an option may never be
exercised later than the expiration of its term.
Stock Purchase Rights
The administrator determines the exercise price of stock purchase rights
granted under our Amended and Restated 1998 Stock Plan. Unless the administrator
determines otherwise, the restricted stock purchase agreement will grant us a
repurchase option that we may exercise upon the voluntary or involuntary
termination of the purchaser's service with us for any reason (including death
or disability). The purchase price for shares we repurchase will generally be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to us. The administrator determines the rate at
which our repurchase option will lapse.
Transferability of Options and Stock Purchase Rights
Our Amended and Restated 1998 Stock Plan generally does not allow for the
transfer of options or stock purchase rights, other than by will or by the laws
of descent or distribution, and only the optionee may exercise an option or
stock purchase right during his or her lifetime.
Automatic Option Grants to Non-Employee Directors
Our Amended and Restated 1998 Stock Plan also provides for the automatic
grant of 40,000 shares of common stock to a director who first becomes a
non-employee director (except those directors who become non-employee directors
by ceasing to be employee directors). This option will vest as to 25% of the
shares subject to the option on each anniversary of the date of grant. Each
non-employee director will automatically be granted an option to purchase 10,000
shares each year following the date of our annual stockholder's meeting (except
after the first such annual meeting if it is held within six months of the date
of this offering) if on such date, he or she will have served on our board of
directors for at least the previous six months. All of these options will vest
as to 25% of the shares subject to the option on each anniversary of the date of
grant. All options automatically granted to non-employee directors will have a
term of ten years and the exercise price will be 100% of the fair market value
per share of common stock on the date of grant.
Adjustments upon Merger or Asset Sale
Our Amended and Restated 1998 Stock Plan provides that in the event of our
merger with or into another corporation or a sale of substantially all of our
assets, the successor corporation will assume or substitute an equivalent option
or right for each outstanding option or stock purchase right. If following the
assumption or substitution of an option automatically granted to one of our
outside directors any such outside director is terminated other than by his or
her voluntary resignation, then he or she will have the right to exercise the
option as to all of the shares subject to the option, including shares which
would not otherwise be exercisable.
If there is no assumption or substitution of outstanding options or stock
purchase rights, the administrator will provide notice to the optionee that he
or she has the right to exercise the option or stock purchase right as to all of
the shares subject to the option or stock purchase right, including shares which
would not otherwise be exercisable, for a period of 15 days from
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<PAGE> 56
the date of the notice. The option or stock purchase right will terminate upon
the expiration of the 15-day period.
Amendment and Termination of the Amended and Restated 1998 Stock Plan
Our Amended and Restated 1998 Stock Plan will automatically terminate in
2010, unless we terminate it sooner. In addition, our board of directors has the
authority to amend, suspend or terminate our Amended and Restated 1998 Stock
Plan provided it does not adversely affect any previously granted option or
stock purchase right or any previously issued shares of common stock.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 Employee Stock Purchase Plan was adopted by our board of
directors, and approved by our stockholders in February 2000 and is intended to
become effective upon completion of this offering. A total of 300,000 shares of
our common stock has been reserved for issuance, plus annual increases beginning
in 2001 equal to the lesser of 350,000 shares, 1% of the outstanding shares on
such date, or a lesser amount as may be determined by our board of directors. As
of the date of this prospectus, no shares have been issued under our 2000
Employee Stock Purchase Plan.
Structure of the 2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan is intended to qualify under Section
423 of the Code and contains consecutive, overlapping 24-month offering periods.
Each offering period includes four six-month purchase periods. The offering
periods generally start on the first trading day on or after May 15 and November
15 of each year and terminate on the first trading day on or after the May 15 or
November 15 offering period commencement date 24 months later, except for the
first such offering period which will commence on the first trading day on or
after the effective date of this offering and will end on the first trading day
on or after May 15, 2002 and the second offering period will commence on the
first trading day on or after November 15, 2000.
Eligibility
All of our employees are eligible to participate if they are customarily
employed by us or any participating subsidiary for at least 20 hours per week
and more than five months in any calendar year. However, an employee may not be
granted an option to purchase stock under the Purchase Plan if such employee:
- immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
- whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.
Purchases
Our Purchase Plan permits participants to purchase common stock through
payroll deductions of up to 15% of their eligible compensation which includes a
participant's base straight time gross earnings and commissions, but exclusive
of overtime pay, shift premium, incentive compensation, incentive payments,
bonuses and other compensation. A participant may purchase a maximum of 10,000
shares during a six month purchase period.
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<PAGE> 57
Amounts deducted and accumulated by the participant are used to purchase
shares of our common stock at the end of each six-month purchase period. The
price is 85% of the lower of the fair market value of our common stock either:
- at the beginning of an offering period, or
- at the end of a purchase period.
If the fair market value at the end of a purchase period is less than the
fair market value at the beginning of the offering period, participants will be
withdrawn from the current offering period following their purchase of shares on
the purchase date and will be automatically re-enrolled in a new offering
period. Participants may end their participation at any time during an offering
period, and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
Transferability of Rights
A participant may not transfer rights granted under our 2000 Employee Stock
Purchase Plan other than by will, the laws of descent and distribution or as
otherwise provided under the Purchase Plan.
Merger or Asset Sale
In the event of our merger with or into another corporation or a sale of
all or substantially all of our assets, a successor corporation will assume or
substitute each outstanding option. If the successor corporation refuses to
assume or substitute for the outstanding options, the offering period then in
progress will be shortened, and a new exercise date will be set.
Amendment and Termination of the 2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan will terminate in 2010 unless we
terminate it sooner. Our board of directors has the authority to amend or
terminate our 2000 Employee Stock Purchase Plan, except that no such action may
adversely affect any outstanding rights to purchase stock under our 2000
Employee Stock Purchase Plan.
PROFIT SHARING PLAN
In January of 1997, we adopted a profit sharing plan that allows for
discretionary contributions to the plan at the discretion of our board of
directors out of our current or accumulated profits. Our contribution is limited
to 15% of eligible participants' annual compensation, subject to certain
adjustments. Our contributions were approximately $91,000 in 1997, $121,000 in
1998 and $127,000 in 1999. We intend to terminate this plan.
401(k) RETIREMENT PLAN
We maintain a tax-qualified retirement and deferred savings plan for our
employees, commonly known as a 401(k) plan. The 401(k) plan provides that each
participant may contribute up to 15% of his or her pre-tax gross compensation up
to a statutory limit, which was $10,000 in the 1999 calendar year. Under our
401(k) Plan, we make matching non-discretionary contributions to our 401(k) plan
of up to $2,500 per year for each participant in the plan. Under the 401(k)
plan, we may make discretionary contributions as determined by our board of
directors. In 1999, we made an aggregate of $51,000 in contributions to the
401(k) plan.
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LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- breach of their duty of loyalty to the corporation or its stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
- any transaction from which the director derives an improper personal
benefit.
The limitation of liability in our certificate of incorporation does not
apply to liabilities arising under the federal or state securities laws and does
not affect the availability of equitable remedies such as injunctive relief or
rescission.
Our bylaws provide that we shall indemnify our directors, officers,
employees and agents to the maximum extent permitted by Delaware law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any current or former officer, director, employee
or other agent of our company, or of another enterprise if serving at our
request, for any liability arising out of his or her actions in that capacity,
regardless of whether we would have the power to indemnify him or her against
liability under the provisions of Delaware law.
Prior to the effective time of this offering, we intend to enter into
agreements to indemnify our directors and officers, in addition to the
indemnification provided for in our bylaws. These agreements, among other
things, require us to indemnify our directors and officers for any and all
expenses including attorneys fees, and including any federal, state, local or
foreign taxes imposed on them as a result of the actual or deemed receipt of any
payments under the indemnification agreement, judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by us,
which approval shall not be unreasonably withheld) any action, suit or
proceeding, including any action by or in the right of Stanford Microdevices
arising out of the individual's status as a director, officer, employee, or
agent of Stanford Microdevices, any subsidiary of Stanford Microdevices or any
other company or enterprise to which the person provides services at our request
and to advance expenses incurred by the individual in connection with any
proceeding against the individual with respect to which the individual may be
entitled to indemnification by us. We believe that our certificate of
incorporation, by law provisions and indemnification agreements are necessary to
attract and retain qualified persons as directors and officers. Upon completion
of this offering, we will also maintain directors and officers liability
insurance.
At present, we are not aware of any pending litigation or proceeding
involving a director or officer in which indemnification is required or
permitted, and we are not aware of any threatened litigation or proceeding that
may result in a claim for indemnification.
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CERTAIN TRANSACTIONS
The following is a description of transactions in the last three years to
which we have been a party, in which the amount involved in the transaction
exceeds $60,000 and in which any director, executive officer or holder of more
than 5% of our capital stock had or will have a direct or indirect material
interest other than compensation arrangements which are otherwise described
under "Management."
On September 30, 1999, we declared a cash dividend payable to all holders
of common stock as of October 1, 1999 in an aggregate amount of $4.0 million.
Mr. and Mrs. Ocampo, and trusts for their benefit, were the sole common
stockholders of Stanford Microdevices at the time of this dividend and received
payment of the entire $4.0 million. Mr. and Mrs. Ocampo are principal
stockholders of Stanford Microdevices and each is an executive officer. Mr.
Ocampo is our Chairman of the Board, and our Chief Technology Officer. Mrs.
Ocampo is our Treasurer. We agreed to pay a special bonus to Mr. Ocampo to
assist Mr. and Mrs. Ocampo with any federal or state taxes, including a gross-up
payment, associated with the payment of the dividend in October 1999. A total of
$3.0 million was paid to Mr. and Mrs. Ocampo in December 1999 as a result of
this agreement and to reimburse Mr. and Mrs. Ocampo for the S corporation
federal and state taxes of Stanford Microdevices in 1998 and 1999. We also paid
additional dividends to Mr. and Mrs. Ocampo as follows: $784,000 in 1997,
$1,100,000 in 1998 and $388,000 in 1999.
In October 1999, we sold an aggregate 4,983,388 shares of our mandatorily
redeemable convertible preferred stock at a price per share of $3.01 to entities
affiliated with Summit Partners and in connection therewith issued warrants to
purchase up to 1,100,000 shares of common stock at an exercise price of $4.50
per share to entities affiliated with Summit Partners. Upon consummation of this
offering, each share of mandatorily redeemable convertible preferred stock will
automatically convert into one share of our common stock, and all unexercised
warrants will terminate. Mr. Chung, a director of Stanford Microdevices, is a
general partner in certain funds affiliated with Summit Partners. Summit
Partners is also entitled to registration rights with respect to the common
stock issued or issuable upon conversion of its mandatorily redeemable
convertible preferred stock and upon exercise of its warrants. We believe that
the shares issued in this transaction were sold at the then fair market value.
In the past, we have used the services of MPI Corporation of Manila,
Philippines, for the packaging of substantially all of our RF components and all
of our contract manufacturing services. MPI is owned by Jose Ocampo, a cousin of
John Ocampo, our co-founder, Chairman of the Board and Chief Technology Officer,
and a principal stockholder of Stanford Microdevices. We paid MPI an aggregate
of $1,902,000 in 1997, $1,056,000 in 1998 and $1,235,000 in 1999 for these
services. We also granted Jose Ocampo options to purchase 333,270 shares of
common stock at exercise prices ranging from $0.92 to $1.50.
We plan to enter into an indemnification agreement with each of our current
and future executive officers and directors.
See the description of certain change of control agreements entered into
with some of our officers described above under "Management -- Employment
Agreements and Change of Control Arrangements."
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PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 31, 2000, and as adjusted to
reflect the sale of the shares of common stock offered hereby, certain
information with respect to the beneficial ownership of the common stock as to:
- each person known by us to own beneficially more than 5% of the
outstanding shares of our common stock;
- each of the named executive officers;
- each of our directors; and
- all of our directors and executive officers as a group.
Except as indicated in the table or footnotes below, and subject to
applicable community property laws, the persons named below have sole voting and
investment power with respect to all shares of common stock held by them.
Applicable percentage ownership in the table is based on 20,908,182 shares
of common stock outstanding as of March 31, 2000, and 24,908,182 shares
outstanding immediately following the completion of this offering. Beneficial
ownership is determined in accordance with the rules of the SEC. Shares of
common stock subject to options that are presently exercisable or exercisable
within 60 days of March 31, 2000 are deemed outstanding for the purpose of
computing the percentage ownership of the person or entity holding options or
warrants, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person or entity.
Unless otherwise indicated below, each person or entity named below has an
address in care of Stanford Microdevices' principal executive offices at 726
Palomar Avenue, Sunnyvale, California 94086.
<TABLE>
<CAPTION>
BENEFICIALLY OWNED
PERCENTAGE OF SHARES
NUMBER OF SHARES --------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders, Directors and Named Executive
Officers:
John and Susan Ocampo(1)....................... 14,012,422 67.0% 56.3%
Entities affiliated with Summit Partners
L.P.(2)...................................... 5,702,618 26.4 22.3
Robert Van Buskirk............................. -- * *
Guy Krevet(3).................................. 41,659 * *
Gerald Quinnell(4)............................. 149,971 * *
John Bumgarner, Jr............................. 71,248 * *
Peter Chung(5)................................. -- * *
Casimir Skrzypczak............................. 18,182 * *
All directors and executive officers as a
group (11 persons)(6)..................... 14,382,354 67.9% 57.1%
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Consists of 1,050,000 shares held by John Ocampo, 1,050,000 shares held by
Susan Ocampo, 7,954,243 shares held jointly by John and Susan Ocampo, as
community property, 1,500,000 shares held by John Ocampo and Susan Ocampo,
Trustees of Susan Ocampo Annuity Trust U/I Dtd. September 27, 1999,
1,500,000 shares held by John Ocampo and Susan Ocampo, Trustees of John
Ocampo Annuity Trust U/I dtd. September 27, 1999, 900,000 shares held by
Samat Partners, a California limited partnership and an aggregate of 58,179
shares held by a custodian and various trusts for the benefit of the
Ocampos' minor children. Mrs. Ocampo is the custodian and Mr. and Mrs.
Ocampo are co-trustees with a third person of each these trusts and share
voting and
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dispositive authority over these shares. Mr. and Mrs. Ocampo disclaim
beneficial ownership of the shares held by these trusts except to the extent
of their pecuniary interest in these shares.
(2) Consists of 3,691,389 shares held by Summit Ventures V, L.P., 75,794 shares
held by Summit Investors III, L.P., 79,958 shares held by Summit V Advisors,
L.P., 874,599 shares held by Summit Ventures V Companion Fund, L.P., 261,648
shares held by Summit V Advisors (QP), L.P., and an aggregate of
approximately 719,230 shares subject to outstanding warrants exercisable
within 60 days of March 31, 2000 (assuming net exercise of the warrants and
an initial public offering price of $13.00 per share) held by these
entities. Summit Partners, LLC is the general partner of Summit Partners V,
L.P., which is the general partner of each of Summit Ventures V, L.P.,
Summit V Advisors, L.P., Summit V Advisors (QP), L.P. and Summit Ventures V
Companion Fund, L.P. Summit Partners, LLC, through an investment committee,
has voting and dispositive authority over the shares held by each of these
entities and Summit Investors III. The address of record for entities
affiliated with Summit Partners, L.P. is 499 Hamilton Avenue, Suite 200,
Palo Alto, CA 94301.
(3) Consists of 41,659 shares subject to outstanding options exercisable within
60 days of March 31, 2000.
(4) Consists of 149,971 shares subject to outstanding options exercisable within
60 days of March 31, 2000.
(5) Mr. Chung, one of our directors, is a member of Summit Partners LLC, the
general partner of Summit Ventures V, which is the general partner of each
of Summit Ventures V, L.P., Summit V Advisors, L.P., Summit Ventures V
Companion Fund, L.P. and Summit V Advisors Fund (QP), L.P. Summit Partners,
LLC, through an investment committee, has voting and dispositive authority
over the shares held by these entities and Summit Investors III, L.P. Mr.
Chung does not have voting or dispositive authority over these shares and
disclaims beneficial ownership except to the extent of his pecuniary
interest in these shares.
(6) Also includes an aggregate of 280,502 shares subject to outstanding options
exercisable within 60 days of March 31, 2000.
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<PAGE> 62
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering our certificate of incorporation will be
amended and restated to provide for total authorized capital stock of
200,000,000 shares of common stock, $0.001 par value per share, and 5,000,000
shares of preferred stock, $0.001 par value per share.
The following summary does not purport to be complete and is subject to,
and qualified in its entirety by, the provisions of our restated certificate of
incorporation, which is included as an exhibit to the registration statement of
which this prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
Assuming the conversion of all outstanding shares of mandatorily redeemable
convertible preferred stock into common stock as of March 31, 2000 and the net
exercise of outstanding warrants to purchase approximately 719,230 shares of our
common stock (assuming an initial public offering price of $13.00 per share),
there were 21,627,412 shares of common stock outstanding held of record by 61
stockholders. After giving effect to the sale of common stock offered hereby,
there will be 25,627,412 shares of common stock outstanding.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Holders of common
stock have no preemptive rights or rights to convert their common stock into any
other securities. There are no redemption or sinking fund provisions applicable
to the common stock. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued upon completion of
this offering will be fully paid and non-assessable.
PREFERRED STOCK
Pursuant to our restated certificate of incorporation that will be filed
upon completion of this offering, our board of directors will have the
authority, without further action by the stockholders, to designate and issue up
5,000,000 shares of preferred stock in one or more series. Our board of
directors will also be able to designate the powers, preferences, privileges and
relative participating, optional or special rights and the qualifications,
limitations or restrictions of each series of preferred stock, including
dividend rights, conversion rights, voting rights, terms of redemption and
liquidation preferences, any or all of which may be greater than the rights of
the common stock. Our board, without stockholder approval, can issue preferred
stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of common stock. Preferred stock
could thus be issued quickly with terms calculated to delay or prevent a change
in control of Stanford Microdevices or make removal of management more
difficult. Additionally, the issuance of preferred stock may have the effect of
decreasing the market price of the common stock, and may adversely affect the
voting and other rights of the holders of common stock. Upon the closing of this
offering, there will be no shares of preferred stock outstanding and we have no
present plans to issue any of the preferred stock.
REGISTRATION RIGHTS
Assuming the conversion of all outstanding mandatorily redeemable
convertible preferred stock into common stock upon completion of this offering,
the holders of 6,367,069 shares of common stock or their transferees are
entitled to registration rights with respect to these shares under the
Securities Act. These rights are provided under the terms of an agreement
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between Stanford Microdevices and the holders of these securities. Subject to
limitations in the agreement, these registration rights include the following:
- The holders of at least a majority of these securities then outstanding
may require, on two occasions beginning six months after the date of this
prospectus, that we use our commercially reasonable efforts to register
these securities for public resale, provided that the anticipated
aggregate offering price of such public resale would exceed $10,000,000.
- If we register any of our common stock either for our own account or for
the account of other security holders, the holders of these securities
are entitled to include their shares of common stock in that
registration, subject to the ability of the underwriters to limit the
number of shares included in the offering, provided that these holders
may not be reduced below 30% of the total number of shares included in
the offering.
- The holders of these securities may also require us, not more than once
in any 12 month period, to register all or a portion of these securities
on Form S-3 when use of that form becomes available to us, provided,
among other limitations, that the proposed aggregate selling price, net
of any underwriters' discounts or commissions, is at least $2,500,000.
We will be responsible for paying all registration expenses other than
underwriting discounts and commissions, and the holders selling their shares
will be responsible for paying all selling expenses.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS
AND OF DELAWARE LAW
Charter Documents
Provisions of our charter and bylaws may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of us. These provisions are expected to
discourage coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of Stanford Microdevices to first
negotiate with us. These provisions could limit the price investors might be
willing to pay in the future for our common stock and could have the effect of
delaying or preventing a change in control. We believe that the benefits of
increased protection of our ability to negotiate with the proponent of an
unfriendly or unsolicited acquisition proposal outweigh the disadvantages of
discouraging these proposals because, among other things, negotiation will
result in an improvement of their terms. These provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock. These provisions include:
- division of the board of directors into three separate classes;
- elimination of cumulative voting in the election of directors;
- prohibitions on our stockholders from acting by written consent and
calling special meetings;
- procedures for advance notification of stockholder nominations and
proposals; and
- the ability of the board of directors to alter our bylaws without
stockholder approval.
In addition, subject to limitations prescribed by law, our board of
directors has the authority to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The issuance of preferred stock, while providing flexibility
in connection with possible financings or acquisitions or other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of our outstanding voting stock.
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Delaware Law
We are also subject to Section 203 of the Delaware General Corporation Law
which subject to certain exceptions prohibits a publicly held Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date the person became an
interested stockholder, unless:
- prior to the date of the transaction, the board of directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock outstanding at the time the transaction
commenced excluding for purposes of determining the number of shares
outstanding (a) shares owned by persons who are directors and also
officers and (b) shares held by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or following the date of the transaction the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, by the affirmative vote of at least two-thirds
of the outstanding voting stock that is not owned by the interested
stockholder.
Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns or, within three years prior to the
determination of interested stockholder status, did own 15% or more of a
corporation's outstanding voting securities. We expect the existence of this
provision to have an anti-takeover effect with respect to transactions that our
board of directors do not approve in advance. We also anticipate that Section
203 may also discourage attempts that might result in a premium over the market
price for the shares of common stock held by stockholders. A Delaware
corporation may opt out of Section 203 with an express provision in its original
certificate of incorporation or an express provision in its certification of
incorporation or bylaws resulting from amendments approved by the holders of at
least a majority of the corporation's outstanding voting shares. We have not
opted out of Section 203.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services. ChaseMellon's address is 85 Challenger Road, Ridgefield
Park, New Jersey 07660 and its telephone number is (800) 356-2017.
62
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have outstanding 24,908,182 shares
of common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of options after March 31, 2000. Of these shares, the 4,000,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act; provided however, that if shares
are purchased by "affiliates" as that term is defined in Rule 144 of the
Securities Act, their sales of shares would be subject to certain limitations
and restrictions that are described below.
The remaining 20,908,182 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. All of these shares will be
subject to lock-up agreements described below on the effective date of the
offering. These shares will become eligible for sale as follows:
<TABLE>
<CAPTION>
NUMBER OF
DATE OF AVAILABILITY FOR SALE SHARES COMMENT
----------------------------- ---------- --------------------------------------
<S> <C> <C>
90th day after the effective date of
this offering....................... 0 All holders of securities are bound by
lock-up agreements
181st day after the date of this
prospectus.......................... 20,818,752 180-day lock-up expires; shares
saleable under Rule 144, 144(k) or 701
Various dates thereafter.............. 89,430 Restricted securities held for one
year or less as of the 181st day after
the date of this prospectus
</TABLE>
In addition, we have 1,667,818 shares of our common stock available for
future grant pursuant to our stock plans, and 5,266,530 shares subject to
outstanding options at March 31, 2000. All of these outstanding options are also
subject to a 180-day lock-up. We intend to register, prior to the expiration of
the lock-up, all of the shares of common stock reserved for issuance under our
stock option plans and under our employee stock purchase plan. This registration
will permit the resale of shares by non-affiliates in the public market without
restriction beginning on expiration of the lock-ups. We also have outstanding
warrants to purchase approximately 719,230 shares of common stock (assuming net
exercise of the warrants and the assumed initial public offering price of $13.00
per share). The shares subject to these warrants will be available for sale upon
expiration of the 180-day lock-up.
We, and each of our officers and directors and all of our stockholders and
option holders, have agreed with Deutsche Bank Securities Inc. not to sell or
otherwise dispose of any their shares for a period of 180 days after the date of
this prospectus without the prior written consent of Deutsche Bank Securities
Inc. Deutsche Bank Securities Inc., however, may in its sole discretion, at any
time and without notice, release all or any portion of the shares subject to
lock-up agreements. Deutsche Bank Securities Inc. does not have any current
plans to effect such a release.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 250,000 shares immediately after this offering; or
63
<PAGE> 66
- the average weekly trading volume of the common stock on the Nasdaq
National Market System during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to other requirements regarding the
manner of sale, notice filing and the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, would be entitled to sell
these shares under Rule 144(k) without regard to the requirements described
above. Therefore, unless otherwise restricted, "144(k) shares" may be sold
immediately upon the completion of this offering. Of the 20,908,182 shares of
common stock held by existing stockholders as of March 31, 2000, 898,148 shares
are eligible for resale pursuant to Rule 144(k).
RULE 701
In general, any employee, director, officer, consultant or advisor who
purchases shares from us in connection with a written compensatory plan or
contract before the effective date of the offering is entitled to resell these
shares 90 days after the effective date of the offering in reliance on Rule 144,
without having to comply with certain restrictions, including the holding
period, contained in Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of these options, including exercises after the date of this
prospectus. Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this prospectus, may be sold by persons other than
"affiliates" subject only to the manner of sale restrictions of Rule 144 and by
"affiliates" under Rule 144 without compliance with its one-year minimum holding
requirement. Of the 20,908,182 shares of common stock held by existing
stockholders as of March 31, 2000, 260,343 shares are eligible for resale
pursuant to Rule 701.
REGISTRATION RIGHTS
After this offering, the holders of 6,367,069 shares of our common stock
will be entitled to certain rights with respect to registration of such shares
under the Securities Act. Registration of these shares under the Securities Act
would result in these shares becoming freely tradeable without restriction under
the Securities Act (except for shares purchased by our affiliates). Investors
should look at "Description of Capital Stock -- Registration Rights" for a
description of those shares entitled to registration.
64
<PAGE> 67
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Banc of America Securities LLC, CIBC World Markets Corp. and FleetBoston
Robertson Stephens Inc. have severally agreed to purchase from Stanford
Microdevices the following respective number of shares of common stock at a
public offering price less the underwriting discounts and commissions set forth
on the cover page of this prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc. .............................
Banc of America Securities LLC.............................
CIBC World Markets Corp. ..................................
FleetBoston Robertson Stephens Inc. .......................
---------
Total.................................................... 4,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than $ per share to other dealers.
After the initial public offering, representatives of the underwriters may
change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 600,000 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered hereby. To the extent that
the underwriters exercise this option, each of the underwriters will become
obligated, subject to conditions, to purchase approximately the same percentage
of additional shares of common stock as the number of shares of common stock to
be purchased by it in the above table bears to the total number of shares of
common stock offered hereby. We will be obligated, pursuant to the option, to
sell these additional shares of common stock to the underwriters to the extent
the option is exercised. If any additional shares of common stock are purchased,
the underwriters will offer the additional shares on the same terms as those on
which the 4,000,000 shares are being offered.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is % of the initial public offering price. We have
agreed to pay the underwriters the following
65
<PAGE> 68
fees, assuming either no exercise or full exercise by the underwriters of the
underwriters' over-allotment option:
<TABLE>
<CAPTION>
TOTAL FEES
----------------------------------------------
WITHOUT EXERCISE OF WITH FULL EXERCISE OF
FEE PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by Stanford
Microdevices....................
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $1,600,000.
We have agreed to indemnify the underwriters against some specified types
of liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect of
any of these liabilities.
Each of our officers and directors, and substantially all of our
stockholders and holders of options and warrants to purchase our stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held by these persons
for a period of 180 days after the date of this prospectus without the prior
written consent of Deutsche Bank Securities Inc. This consent may be given at
any time without public notice. We have entered into a similar agreement with
the representatives of the underwriters, except that we may grant options and
sell shares pursuant to our Amended and Restated 1998 Stock Plan and our 2000
Employee Stock Purchase Plan without such consent. There are no agreements
between the representatives and any of our stockholders or affiliates releasing
them from these lock-up agreements prior to the expiration of the 180-day
period.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 400,000 shares for our vendors, employees, family
members of employees, customers and other third parties. The number of shares of
our common stock available for sale to the general public will be reduced to the
extent these reserved shares are purchased. Any reserved shares that are not
purchased by these persons will be offered by the underwriters to the general
public on the same basis as the other shares in this offering.
66
<PAGE> 69
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiation among Stanford Microdevices and the representatives
of the underwriters. Among the factors to be considered in determining the
public offering price will be:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of other companies
that we and the representatives of the underwriters believe to be
comparable to us; and
- estimates of our business potential.
The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California, will pass upon the validity of the common stock offered hereby for
Stanford Microdevices. Morrison & Foerster LLP, Irvine, California, will pass
upon certain legal matters in connection with this offering for the
underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules at December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 as set forth in their
report. We have included our financial statements and schedule in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION AVAILABLE TO YOU
We have filed with the SEC a registration statement on Form S-1, including
exhibits, schedules and amendments filed with this registration statement, under
the Securities Act with respect to the common stock to be sold under this
prospectus. Prior to the offering we were not required to file reports with the
SEC. This prospectus does not contain all the information set forth in the
registration statement. For further information about our company and the shares
of common stock to be sold in the offering, please refer to the registration
statement. Statements made in this prospectus concerning the contents of any
contract, agreement or other document filed as an exhibit to the registration
statement are summaries of the terms of contract, agreements or documents and
are not necessarily complete. Complete exhibits have been filed with the
registration statement.
The registration statement and exhibits may be inspected, without charge,
and copies may be obtained at prescribed rates, at the SEC's Public Reference
facility maintained by the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-732-0330. The registration statement and other
information filed with the SEC is available at the web site maintained by the
SEC on the worldwide web at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent accountants and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial statements.
67
<PAGE> 70
STANFORD MICRODEVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency)............................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 71
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Stanford Microdevices, Inc.
We have audited the accompanying consolidated balance sheets of Stanford
Microdevices, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Stanford Microdevices, Inc. at December 31, 1998 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
San Jose, California
February 16, 2000,
except for the fourth paragraph of
Note 11 as to which the
date is April 10, 2000.
F-2
<PAGE> 72
STANFORD MICRODEVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AS OF
----------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
------ -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 217 $ 10,965 $ 3,777
Short-term investments....................... -- -- 4,950
Accounts receivable, net of allowance for
doubtful accounts of $116, $100 and $100 at
December 31, 1998 and 1999 and March 31,
2000....................................... 929 1,681 3,053
Inventories.................................. 969 2,227 5,021
Other current assets......................... 14 348 696
------ -------- --------
Total current assets....................... 2,129 15,221 17,497
Property and equipment, net.................. 1,602 4,271 5,879
Deposits and other assets.................... 75 227 249
------ -------- --------
Total assets............................... $3,806 $ 19,719 $ 23,625
====== ======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (NET
CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable............................. $ 583 $ 2,493 $ 2,487
Accrued expenses............................. 449 972 2,491
Deferred margin on distributor inventory..... 1,534 3,287 4,460
Capital lease obligations, current portion... 417 723 819
------ -------- --------
Total current liabilities.................. 2,983 7,475 10,257
Capital lease obligations...................... 813 1,299 1,608
Mandatorily redeemable convertible preferred
stock........................................ -- 38,857 64,781
Commitments
Stockholders' equity (net capital deficiency):
Preferred stock, $0.001 par value:
Authorized shares -- 5,000,000 (pro forma)
Issued and outstanding shares -- none (pro
forma)..................................... -- -- $ --
Common stock, $0.001 par value:
Authorized shares -- 30,000,000
(actual) -- 200,000,000 (pro forma)
Issued and outstanding shares -- 15,000,000
at December 31, 1998 and 1999;
15,260,343 at March 31, 2000; 20,908,182
(pro forma)............................. 15 15 15 21
Additional paid-in capital................... 210 5,342 6,326 71,101
Deferred stock compensation.................. -- (4,255) (4,630) (4,630)
Retained earnings (accumulated deficit)...... (215) (29,014) (54,732) (54,732)
------ -------- -------- --------
Total stockholders' equity (net capital
deficiency)............................. 10 (27,912) (53,021) $ 11,760
------ -------- ======== ========
Total liabilities, mandatorily redeemable
convertible preferred stock and
stockholders' equity (net capital
deficiency)............................. $3,806 $ 19,719 $ 23,625
====== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 73
STANFORD MICRODEVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Product revenues.......................... $ 5,963 $ 7,417 $ 17,248 $ 2,595 $ 7,042
Contract manufacturing revenues........... 935 814 817 282 222
------- ------- -------- ------- --------
Total net revenues...................... 6,898 8,231 18,065 2,877 7,264
Cost of revenues............................ 3,970 4,854 9,996 1,655 2,885
------- ------- -------- ------- --------
Gross profit................................ 2,928 3,377 8,069 1,222 4,379
Operating expenses:
Research and development.................. 643 932 2,274 337 1,436
Sales and marketing....................... 461 1,107 2,951 504 1,522
General and administrative................ 659 965 2,089 222 939
Special charges........................... -- -- 2,990 -- --
Amortization of deferred stock
compensation............................ -- -- 288 -- 306
------- ------- -------- ------- --------
Total operating expenses................ 1,763 3,004 10,592 1,063 4,203
------- ------- -------- ------- --------
Income (loss) from operations............... 1,165 373 (2,523) 159 176
Interest expense............................ 28 97 167 30 46
Interest and other income, net.............. 18 13 184 1 164
------- ------- -------- ------- --------
Income (loss) before taxes.................. 1,155 289 (2,506) 130 294
Provision for income taxes.................. 50 10 48 16 88
------- ------- -------- ------- --------
Net income (loss)........................... 1,105 279 (2,554) 114 206
Accretion of mandatorily redeemable
convertible preferred stock............... -- -- (21,857) -- (25,924)
------- ------- -------- ------- --------
Net income (loss) applicable to common
stockholders.............................. $ 1,105 $ 279 $(24,411) $ 114 $(25,718)
======= ======= ======== ======= ========
Historical basic and diluted net income
(loss) per share applicable to common
stockholders.............................. $ 0.07 $ 0.02 $ (1.63) $ 0.01 $ (1.71)
======= ======= ======== ======= ========
Shares used to compute historical basic and
diluted net income (loss) per share
applicable to common stockholders......... 15,000 15,000 15,000 15,000 15,000
======= ======= ======== ======= ========
Pro forma net income (loss) data
(unaudited):..............................
Income (loss) before taxes (as reported).... -- -- $ (2,506) 130 294
Pro forma provision for income taxes
(unaudited)............................... -- -- 160 40 88
-------- ------- --------
Pro forma net income (loss) (unaudited)..... -- -- $ (2,666) 90 $ 206
Pro forma basic net income (loss) per share
(unaudited)............................... -- -- $ (0.16) -- $ 0.01
Pro forma diluted net income (loss) per
share (unaudited)......................... -- -- $ (0.16) -- $ 0.01
Shares used to compute pro forma basic net
income (loss) per share (unaudited)....... 16,825 21,675
Shares used to compute pro forma diluted net
income (loss) per share (unaudited)....... 16,825 26,314
</TABLE>
See accompanying notes.
F-4
<PAGE> 74
STANFORD MICRODEVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS'
COMMON STOCK ADDITIONAL DEFERRED EARNINGS EQUITY
------------------- PAID-IN STOCK (ACCUMULATED) (NET CAPITAL
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) DEFICIENCY)
---------- ------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.... 15,000,000 $15 $ -- $ -- $ 252 $ 267
Distributions to
stockholders................ -- -- -- -- (784) (784)
Net income and comprehensive
net income.................. -- -- -- -- 1,105 1,105
---------- --- ------ ------- -------- --------
Balance at December 31, 1997.... 15,000,000 15 -- -- 573 588
Compensation expense related
to stock options to non-
employees................... -- -- 210 -- -- 210
Distributions to
stockholders................ -- -- -- -- (1,067) (1,067)
Net income and comprehensive
net income.................. -- -- -- -- 279 279
---------- --- ------ ------- -------- --------
Balance at December 31, 1998.... 15,000,000 15 210 -- (215) 10
Compensation expense related
to stock options to non-
employees................... -- -- 589 -- -- 589
Deferred stock compensation... -- -- 4,543 (4,543) -- --
Amortization of deferred stock
compensation................ -- -- -- 288 -- 288
Accretion of mandatorily
redeemable convertible
preferred stock............. -- -- -- -- (21,857) (21,857)
Distributions to
stockholders................ -- -- -- -- (4,388) (4,388)
Net loss and comprehensive net
loss........................ -- -- -- -- (2,554) (2,554)
---------- --- ------ ------- -------- --------
Balance at December 31, 1999.... 15,000,000 15 5,342 (4,255) (29,014) (27,912)
Exercise of stock options
(unaudited)................. 260,343 -- 240 -- -- 240
Compensation expense related
to stock options to non-
employees (unaudited)....... -- -- 63 -- -- 63
Deferred stock compensation
(unaudited)................. -- -- 681 (681) -- --
Amortization of deferred stock
compensation (unaudited).... -- -- -- 306 -- 306
Accretion of mandatorily
redeemable convertible
preferred stock
(unaudited)................. -- -- -- -- (25,924) (25,924)
Net income and comprehensive
net income (unaudited)...... -- -- -- -- 206 206
---------- --- ------ ------- -------- --------
Balance at March 31, 2000
(unaudited)................... 15,260,343 $15 $6,326 $(4,630) $(54,732) $(53,021)
========== === ====== ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 75
STANFORD MICRODEVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
------ ------- ------- ------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................ $1,105 $ 279 $(2,547) $ 114 $ 206
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization.............. 111 391 547 131 329
Compensation expense related to stock
options.................................. -- 210 589 30 63
Amortization of deferred stock
compensation............................. -- -- 281 -- 306
Changes in operating assets and
liabilities:
Accounts receivable...................... (687) 471 (752) (754) (1,372)
Inventories.............................. (477) 123 (1,258) (180) (2,794)
Other assets............................. (217) 128 (486) (1) (370)
Accounts payable......................... 86 (217) 1,910 587 (6)
Accrued expenses......................... 264 19 523 385 1,519
Deferred margin on distributor
inventory.............................. 1,273 (130) 1,753 196 1,173
------ ------- ------- ----- -------
Net cash provided by (used in)
operating activities................ 1,458 1,274 560 508 (946)
INVESTING ACTIVITIES
Purchases of available-for-sale securities... -- -- -- -- (4,950)
Purchases of property and equipment.......... (293) (41) (1,851) (7) (1,325)
------ ------- ------- ----- -------
Net cash used in investing activities........ (293) (41) (1,851) (7) (6,275)
FINANCING ACTIVITIES
Proceeds from issuance of mandatorily
redeemable convertible preferred stock..... -- -- 17,000 -- --
Principal payments on capital lease
obligations................................ (85) (435) (573) (128) (207)
Proceeds from loan payable................... -- -- 200 200 --
Repayment of loan payable.................... -- -- (200) -- --
Distributions to stockholders................ (784) (1,067) (4,388) (166) --
Proceeds from exercise of stock options...... -- -- -- -- 240
------ ------- ------- ----- -------
Net cash provided by (used in) financing
activities................................. (869) (1,502) 12,039 (94) 33
------ ------- ------- ----- -------
Increase (decrease) in cash.................. 296 (269) 10,748 407 (7,188)
Cash at beginning of period.................. 190 486 217 217 10,965
------ ------- ------- ----- -------
Cash at end of period........................ $ 486 $ 217 $10,965 $ 624 $ 3,777
====== ======= ======= ===== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest....................... $ 28 $ 97 $ 167 $ 30 $ 46
Cash paid for income tax..................... $ 7 $ 51 $ 24 $ 0 $ 0
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING
ACTIVITIES
Equipment acquired under capital lease....... $ 233 $ 1,405 $ 1,365 $ 141 $ 612
Accretion of mandatorily redeemable
convertible preferred stock................ $ -- $ -- $21,857 $ -- $25,924
Deferred stock compensation.................. $ -- $ -- $ 4,543 $ -- $ 681
</TABLE>
See accompanying notes.
F-6
<PAGE> 76
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company was incorporated in California and began operations in 1985 as
Matrix Microassembly Corporation. In 1987, the Company sold its first products
and began to generate revenues. The Company began doing business as Stanford
Microdevices, Inc. in 1992. In November 1997, the Company reincorporated in
Delaware as Stanford Microdevices, Inc. The Company is a leading designer and
supplier of high performance RF components for communications equipment
manufacturers. Its products are used primarily in wireless communications
equipment to enable and enhance the transmission and reception of voice and data
signals. From 1985 through October 1999, the Company was organized as a
Subchapter S corporation for federal tax reporting purposes. In October 1999,
the Company's election to be treated as an S corporation under the Internal
Revenue Code was revoked.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Stanford Microdevices, Canada. Intercompany
balances and transactions have been eliminated.
Through December 31, 1999, the Company operated on calendar fiscal quarters
and a fiscal year ending December 31. Beginning in 2000, the Company will
operate on thirteen week fiscal quarters ending on the Sunday closest to the end
of the calendar quarter, with the exception of the fourth quarter, which will
end on December 31. The Company's first quarter of fiscal year 2000 ended on
April 2, 2000. For presentation purposes, the accompanying interim financial
statements refer to the quarter's calendar month end for convenience.
Unaudited Interim Financial Information
The accompanying consolidated financial statements and related notes as of
March 31, 2000 and for the three months ended March 31, 1999 and 2000 are
unaudited, but include all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for a fair presentation of its
consolidated financial position, operating results, and cash flows for the
interim date and periods presented. Results for the three month period ended
March 31, 2000 are not necessarily indicative of results to be expected for the
full fiscal year of 2000 or for any future period.
Foreign Currency Translation
The Company uses the U.S. dollar as its functional currency for Stanford
Microdevices, Canada. All monetary assets and liabilities are remeasured at the
current exchange rate at the end of the period, nonmonetary assets and
liabilities are remeasured at historical exchange rates and revenues and
expenses are remeasured at average exchange rates in effect during the period.
Transaction gains and losses resulting from the process of remeasurement were
not material in any period presented.
F-7
<PAGE> 77
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenue from product sales to customers, other than distributors, is
generally recognized at the time the product is shipped, title has transferred,
and no obligations remain. In circumstances where a customer delays acceptance
of our product, the Company defers recognition of the revenue until acceptance.
To date, the Company has not had customers delay acceptance of its products. A
provision is made for estimated product returns as shipments are made. Product
returns for nondistributor customers were not material for any period presented.
Contract manufacturing revenue is recognized at the time of shipment of
completed assemblies when no further obligations remain.
The Company grants its distributors limited rights of return and certain
price adjustments on unsold inventory held by the distributors. Under the
Company's rights of return policy, its distributors may exchange product
currently in their inventory for other of the Company's product. This policy is
designed to allow the Company's distributors to efficiently obtain product that
they want. In practice, the Company will exchange any reasonable amount of
inventory requested by its distributors.
Under the Company's price adjustment policy, the Company will accept
credits from its distributors on previous sales to them. These credits are
designed to allow the distributors to pass back to the Company discounts they
were forced to grant to their end customers due to competitive pricing
situations. In practice, the Company will accept any reasonable credit requested
from its distributors.
The Company has limited control over the extent to which products sold to
distributors are sold to third party customers. Accordingly, the Company
recognizes revenues on sales to distributors at the time its products are sold
by the distributors to third party customers. The recognition of sales to
distributors and the related gross profit on the products held by distributors
is deferred until the sale to the third party customer. The deferred gross
profit is included as "deferred margin on distributor inventory" in the
accompanying balance sheets.
Advertising Expenses
The Company expenses its advertising costs in the period in which they are
incurred. Advertising expense was $60,000 in 1997, $134,000 in 1998, and
$366,000 in 1999.
F-8
<PAGE> 78
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Research and Development Costs
Research and development costs are charged to expense as incurred.
Cash, Cash Equivalents and Short-Term Investments
Cash equivalents consist of financial instruments which are readily
convertible to cash and have original maturities of three months or less at the
time of acquisition. The Company's cash and cash equivalents as of December 31,
1997, 1998 and 1999 and March 31, 2000 consisted primarily of bank deposits and
commercial paper and money market funds issued or managed by large financial
institutions in the United States. Cash equivalents are carried at cost which
approximates fair value. Short-term investments consist of commercial paper with
original maturities of greater than 90 days and remaining maturities of less
than one year. Short-term investments are classified as available-for-sale and
are reported at fair value, with unrealized gains and losses, net of tax,
recorded in stockholders' equity. The estimated fair market values of cash
equivalents and short-term investments are based on quoted market prices.
Cash equivalents as of December 31, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR MARKET
COST GAIN LOSS VALUE
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Cash equivalents:
Money market funds........................... $ 53 -- -- $ 53
Commercial paper............................. 10,800 -- -- 10,800
------- ------- ------- -------
Total cash equivalents......................... $10,853 -- -- $10,853
======= =======
</TABLE>
Cash equivalents and short-term investments as of March 31, 2000 were as
follows (in thousands) (unaudited):
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR MARKET
COST GAIN LOSS VALUE
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Money Market funds............................. $2,011 -- -- $2,011
Commercial Paper............................... 6,600 -- -- 6,600
------ ------- ------- ------
$8,611 -- -- $8,611
====== ======
Included in cash equivalents................... $3,661 -- -- $3,661
Included in short-term investments............. 4,950 -- -- 4,950
------ ------
$8,611 $8,611
====== ======
</TABLE>
Concentrations of Credit Risk, Customers and Suppliers
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash equivalents and
accounts receivable. The Company places its cash equivalents with high credit
financial institutions, primarily in money market accounts and
F-9
<PAGE> 79
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
commercial paper which are readily convertible to cash and have original
maturities of three months or less at the time of acquisition. The Company has
established guidelines relative to diversification and maturities that attempt
to maintain safety and liquidity. The Company has not experienced any losses on
its cash equivalents.
The Company's accounts receivables are primarily derived from revenue
earned from customers located in the United States. Sales to foreign customers
are generally denominated in U.S. dollars, minimizing currency risk to the
Company. The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral from its customers. The
Company maintains an allowance for doubtful accounts receivable based upon the
expected collectibility of accounts receivable.
A relatively small number of customers account for a significant percentage
of the Company's net revenues. For the year ended December 31, 1997, three
customers accounted for approximately 49%, 19% and 11% of net revenues,
respectively. For the year ended December 31, 1998, three customers accounted
for approximately 40%, 36% and 11% of net revenues, respectively. For the year
ended December 31, 1999, three customers accounted for approximately 41%, 38%
and 13% of net revenues, respectively. For the three months ended March 31,
1999, three customers accounted for approximately 37%, 39% and 10% of net
revenues, respectively. For the three months ended March 31, 2000, three
customers accounted for approximately 31%, 39% and 24% of net revenues,
respectively. The Company expects that the sale of its products to a limited
number of customers may continue to account for a high percentage of net
revenues for the foreseeable future.
Currently, the Company relies on a limited number of suppliers of materials
and labor for the significant majority of its product inventory but is pursuing
alternative suppliers. As a result, should the Company's current suppliers not
produce and deliver inventory for the Company to sell on a timely basis,
operating results may be adversely impacted.
Inventories
Inventories are stated at the lower of standard cost, which approximates
actual (first-in, first-out method) or market (estimated net realizable value).
The valuation of inventories at the lower of cost or market requires the use of
estimates regarding the amounts of current inventory that will be sold. These
estimates are dependent on the Company's assessment of current and expected
orders from its customers, including consideration that orders are subject to
cancellation with limited advance notice prior to shipment.
The components of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- MARCH 31,
1998 1999 2000
---- ------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Inventories:
Raw materials............................ $276 $ 914 $2,035
Work-in-process.......................... 212 659 1,987
Finished goods........................... 481 654 999
---- ------ ------
Total................................. $969 $2,227 $5,021
==== ====== ======
</TABLE>
F-10
<PAGE> 80
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation
and amortization. Property and equipment are depreciated for financial reporting
purposes using the straight-line method over the estimated useful lives of three
to seven years. Leasehold improvements are amortized using the straight-line
method over the shorter of the useful lives of the assets or the terms of the
leases. The Company periodically performs reviews to evaluate the recoverability
of its property and equipment based upon expected undiscounted cash flows and
recognizes impairment from the carrying value of property and equipment, if any,
based on the fair value of such assets. No asset impairment occurred in any of
the periods presented. Property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1998 1999 2000
------ ------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Property and equipment:
Machinery and equipment......................... $1,739 $3,600 $4,670
Computer equipment and software................. 121 1,274 1,442
Furniture and fixtures.......................... 47 101 505
Leasehold improvements.......................... 241 389 684
------ ------ ------
Total........................................ 2,148 5,364 7,301
Less accumulated depreciation and amortization.. 546 1,093 1,422
------ ------ ------
Property and equipment, net....................... $1,602 $4,271 $5,879
====== ====== ======
</TABLE>
Income Taxes
The Company previously elected to be taxed as an S corporation under
Subchapter S of the Internal Revenue Code. Consequently, the stockholders were
taxed on their proportionate share of the Company's taxable income and no
provision for Federal income taxes has been provided for periods in which the
Company elected to be taxed as an S corporation. Effective October 4, 1999, the
Company revoked its election to be treated as an S corporation under the
Internal Revenue Code.
Subsequent to October 4, 1999, the Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109 (FAS 109),
"Accounting for Income Taxes." FAS 109 requires the use of the liability method
of accounting for income taxes. Under the liability method, deferred income tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using enacted
tax rates and laws that will be in effect when the differences are expected to
reverse. The Company records a valuation allowance against deferred tax assets
when it is more likely than not that such assets will not be realized.
Fair Value of Financial Instruments
The Company's financial instruments, including cash equivalents, accounts
receivable and accounts payable are carried at cost, which approximates their
fair value because of the short-term maturity of these instruments. The fair
value of capital lease obligations are estimated based on current interest rates
available to the Company for debt instruments with similar
F-11
<PAGE> 81
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
terms, degrees of risk, and remaining maturities. The carrying values of these
obligations approximate their fair values.
Stock-Based Compensation
As described in Note 5, the Company has elected to account for its employee
stock plans in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25), and to adopt
the disclosure-only provisions as required under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123).
The Company accounts for stock issued to nonemployees in accordance with
the provisions of FAS 123 and Emerging Issues Task Force Issue No. 96-18,
"Accounting for Equity Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."
Comprehensive Income (Loss)
The Company has adopted Statement of Accounting Standards No. 130,
"Reporting Comprehensive Income" (FAS 130). FAS 130 requires that all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company's comprehensive
net income (loss) was the same as its net income (loss) for the years ended
December 31, 1997, 1998 and 1999 and the three months ended March 31, 1999 and
2000.
Segments of an Enterprise
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" (FAS
131). FAS 131 superseded Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise". FAS 131 establishes
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. FAS 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The adoption
of FAS 131 did not affect the Company's results of operations or financial
position, see Note 9.
Net Income (Loss) Per Share
The Company computes net income (loss) per share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS
128) and SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of
FAS 128 and SAB 98, basic net income (loss) per share is computed by dividing
the net income (loss) applicable to common stockholders for the period by the
weighted average number of shares of Common Stock outstanding during the period.
Diluted net income (loss) per share is computed by dividing the net income
(loss) applicable to common stockholders for the period by the weighted average
number of shares of Common Stock and potential Common Stock equivalents
outstanding
F-12
<PAGE> 82
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
during the period, if dilutive. Potential Common Stock equivalents include
incremental shares of Common Stock issuable upon the exercise of stock options
and warrants and upon conversion of Mandatorily Redeemable Convertible Preferred
Stock.
The following table sets forth the computation of basic and diluted net
income (loss) per share for the periods indicated (in thousands, except per
share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- -------------------
1997 1998 1999 1999 2000
------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss) applicable
to common stockholders.... $ 1,105 $ 279 $(24,411) $ 114 $(25,718)
======= ======== ======== ======= ========
Weighted average number of
common shares outstanding
during the period......... 15,000 15,000 15,000 15,000 15,000
======= ======== ======== ======= ========
Basic and diluted net income
(loss) per share
applicable to common
stockholders.............. $ 0.07 $ 0.02 $ (1.63) $ 0.01 $ (1.71)
======= ======== ======== ======= ========
</TABLE>
The effects of options to purchase 5,231,373 shares of Common Stock at an
average exercise price of $1.25 for the year ended December 31, 1999 have not
been included in the computation of diluted net loss per share as the effect
would have been antidilutive.
The effects of warrants to purchase 1,100,000 shares of Common Stock at an
average exercise price of $4.50 for the year ended December 31, 1999 have not
been included in the computation of diluted net loss per share as the effect
would have been antidilutive.
The effects of conversion of 5,647,839 shares of Mandatorily Redeemable
Convertible Preferred Stock for the year ended December 31, 1999 have not been
included in the computation of diluted net loss per share as the effect would
have been antidilutive.
The effects of options to purchase 3,020,000 and 3,100,222 shares of Common
Stock at an average exercise price of $0.92 for the year ended December 31, 1998
and the three months ended March 31, 1999, respectively, have no impact on the
computation of diluted net income per share because the option's exercise price
was not less than the estimated average market price of the Company's common
shares during that period.
The effects of options to purchase 5,266,530 shares of Common Stock at an
average exercise price of $1.59 for the three months ended March 31, 2000 have
not been included in the computation of diluted net loss per share as the effect
would have been antidilutive.
The options, warrants and Mandatorily Redeemable Convertible Preferred
Stock that were antidilutive in 1999 may be dilutive in future years'
calculations as they were still outstanding at December 31, 1999.
F-13
<PAGE> 83
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Pro Forma Net Income (loss) and Pro Forma Basic and Diluted Net Income
(loss) Per Share (Unaudited)
The pro forma tax provision for the year ended December 31, 1999 is based
on the tax rate the Company believes it would have incurred had the Company not
been an S Corporation for income tax purposes. The provision consists of federal
and state minimum taxes for which no carryback opportunity would have existed.
Pro forma basic and diluted net income (loss) per share for the year ended
December 31, 1999 and the three months ended March 31, 2000 is computed using
the weighted average number of shares of Common Stock outstanding, including the
pro forma effects of the automatic conversion of the Company's Mandatorily
Redeemable Convertible Preferred Stock into shares of the Company's Common Stock
effective upon the closing of the Company's initial public offering as if such
conversion occurred on October 4, 1999, the date of original issuance. The
shares used in calculating the pro forma basic and diluted net income (loss) per
share amounts also include the number of shares issuable upon the net exercise
of warrants to purchase the Company's Common Stock as such warrants expire upon
the completion of the Company's initial public offering. For the purposes of pro
forma net income (loss) per share, the Company assumes the warrants will be
exercised prior to or in connection with the completion of the initial public
offering. The shares used in calculating the pro forma basic and diluted net
income (loss) per share include the number of shares to be sold in the Company's
proposed initial public offering whose proceeds would be required to pay the
$4,000,000 dividend to stockholders paid by the Company in the fourth quarter of
1999. In addition, the shares used to compute pro forma diluted net income per
share include the weighted average effect of options outstanding, if dilutive.
The following table sets forth the computation of the number of shares used
to compute pro forma basic and diluted income (loss) per share (in thousands)
(unaudited):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- -------------------
BASIC DILUTED BASIC DILUTED
------ ------- ------- --------
<S> <C> <C> <C> <C>
Weighted average common stock outstanding......... 15,000 15,000 15,000 15,000
Conversion of Mandatorily Redeemable Convertible
Preferred Stock into Common Stock............... 1,346 1,346 5,648 5,648
Net exercise of warrants.......................... 171 171 719 719
Shares required to cover dividend to
stockholders.................................... 308 308 308 308
Common stock equivalents outstanding, if
dilutive........................................ -- -- -- 4,639
------ ------ ------ ------
Shares used to compute pro forma income (loss) per
share........................................... 16,825 16,825 21,675 26,314
</TABLE>
For the purposes of calculating pro forma basic and diluted net income
(loss) per share, net loss applicable to common stockholders has been adjusted
to eliminate accretion on the Company's Mandatorily Redeemable Convertible
Preferred Stock.
Pro Forma Stockholders' Equity (Unaudited)
If the offering contemplated by the Company is completed, each share of
Mandatorily Redeemable Convertible Preferred Stock outstanding will
automatically be converted into one
F-14
<PAGE> 84
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
share of Common Stock. Unaudited pro forma stockholders' equity at March 31,
2000, as adjusted for the assumed conversion of Mandatorily Redeemable
Convertible Preferred Stock based on the shares of Mandatorily Redeemable
Convertible Preferred Stock outstanding at March 31, 2000, is disclosed on the
balance sheet.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and hedging Activities: (FAS 133). FAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. FAS 133 was to be effective for fiscal years beginning after
June 15, 1999. However, in July 1999, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133" (FAS 137). FAS 137 defers for one year the effective
date of FAS 133 which will now apply to all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company does not believe the adoption of FAS
133 will have a material impact on its consolidated financial position, results
of operations or cash flows.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued SOP 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use, (SOP 98-1). SOP 98-1 requires that entities
capitalize certain costs related to internal use software once certain criteria
have been met. The Company adopted SOP 98-1 for the year ended December 31,
1999. The adoption of SOP 98-1 did not have a material impact on the Company's
financial condition or results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-Up Activities, (SOP 98-5). SOP 98-5 requires that all start-up costs
related to new operations must be expensed as incurred. In addition, all
start-up cost that were capitalized in the past must be written off when SOP
98-5 is adopted. The Company adopted SOP 98-5 on January 1, 1999. The adoption
of SOP 98-5 did not have a material impact on the Company's financial condition
or results of operations.
In December of 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosures related to
revenue recognition policies. We believe that our revenue recognition policy is
in compliance with the provisions of SAB 101 and that the adoption of SAB 101
had no material effect on our financial position or results of operations.
2. LINE OF CREDIT AND CAPITAL LEASE OBLIGATIONS
Line of Credit
The Company maintains a secured credit facility with Comerica Bank that
includes a $3,000,000 line of credit. Borrowings under the revolving credit line
may be made and repaid at any time and bear interest at the base rate (as
announced by the lender) plus 0.5%. In addition, borrowings under the revolving
credit line are subject to the Company's compliance with certain financial and
other covenants and are secured by certain of the Company's assets.
F-15
<PAGE> 85
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
At December 31, 1999, there were no outstanding amounts under this credit
facility. At December 31, 1999, the Company was in violation of one of its
covenants under the credit facility. Comerica Bank has waived these violations.
Capital Lease Obligations
The Company leases certain equipment under noncancelable lease agreements
that are accounted for as capital leases. Equipment under capital lease
arrangements and included in property and equipment aggregated approximately
$1,800,000 and $3,165,000 at December 31, 1998 and 1999, respectively. Related
accumulated depreciation was approximately $570,000 and $1,143,000 at December
31, 1998 and 1999, respectively. Depreciation expense related to assets under
capital leases is included in depreciation expense. In addition, the capital
leases are generally secured by the related equipment and the Company is
required to maintain liability and property damage insurance.
Future minimum lease payments under noncancelable capital leases at
December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000....................................................... $ 877
2001....................................................... 691
2002....................................................... 513
2003....................................................... 229
------
Total minimum lease payments............................... 2,310
Less amounts representing interest......................... 288
------
Present value of minimum lease payments.................... 2,022
Less current portion....................................... 723
------
Long-term portion.......................................... $1,299
======
</TABLE>
3. COMMITMENTS
The Company leases its facilities under operating lease agreements. The
operating leases for the Company's facilities expire in 2001 through 2004.
Future minimum lease payments under these leases as of December 31, 1999 are as
follows (in thousands):
<TABLE>
<S> <C>
2000..................................................... $ 551
2001..................................................... 550
2002..................................................... 497
2003..................................................... 37
2004..................................................... 37
------
Total minimum lease payments............................. $1,672
======
</TABLE>
Rent expense under the operating leases was $91,000, $401,000, and $424,000
for the years ended December 31, 1997, 1998 and 1999, respectively.
Unconditional Purchase Obligations
The Company has unconditional purchase obligations to certain suppliers
that supply the Company's wafer requirements. Because the products the Company
purchases are unique to it,
F-16
<PAGE> 86
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
its agreements with these suppliers prohibit cancellation subsequent to the
production release of the products in its suppliers manufacturing facilities,
regardless of whether the Company's customers cancel orders. At December 31,
1999, the Company had approximately $5,900,000 of unconditional purchase
obligations.
4. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Mandatorily Redeemable Convertible Preferred Stock at December 31, 1999
consists of the following:
<TABLE>
<CAPTION>
SHARES SHARES LIQUIDATION REDEMPTION
AUTHORIZED OUTSTANDING PREFERENCE AMOUNT
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Series A........................ 6,000,000 5,647,839 $17,255,000 $38,857,000
</TABLE>
In October 1999, the Company issued 5,647,839 shares of Mandatorily
Redeemable Convertible Preferred Stock at $3.01 per share for net proceeds of
approximately $17,000,000. The holders of the Mandatorily Redeemable Convertible
Preferred Stock have various rights and preferences as follows:
Voting
Each share of Mandatorily Redeemable Convertible Preferred Stock has voting
rights equal to an equivalent number of shares of Common Stock into which it is
convertible and votes together with the holders of Common Stock.
As long as at least 1,412,000 shares of the originally issued shares of
Mandatorily Redeemable Convertible Preferred Stock are outstanding, the Company
must obtain approval from the holders of at least a majority of the then
outstanding shares of Mandatorily Redeemable Convertible Preferred Stock in
order to amend the amended restated certificate of incorporation or bylaws,
change the authorized number of directors of the Company, authorize or issue any
other equity security senior to or on parity with the Mandatorily Redeemable
Convertible Preferred Stock, alter or change the rights, preferences or
privileges of the Mandatorily Redeemable Convertible Preferred Stock, redeem or
purchase any shares of Preferred Stock or Common Stock other than by redemption
in accordance with the amended restated certificate of incorporation, liquidate,
dissolve or effect a recapitalization or reorganization in any form of
transaction, increase or decrease the number of authorized shares of Mandatorily
Redeemable Convertible Preferred Stock, dispose of more than 25% of the
Company's property or business, merge or consolidate with any other corporation
or effect a transaction in which more than 50% of the voting power of the
Company is disposed of.
Conversion
Each share of Mandatorily Redeemable Convertible Preferred Stock
outstanding is automatically convertible into one share of Common Stock, subject
to adjustment for dilution, and will be converted into Common Stock in the event
of the closing of a public offering of at least $30,000,000 in aggregate
proceeds at a minimum price of $7.53 per share. As of December 31, 1999, the
Company had reserved 5,647,839 shares of its Common Stock for issuance upon
conversion of the outstanding Mandatorily Redeemable Convertible Preferred
Stock.
F-17
<PAGE> 87
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Dividends
Holders of shares of Mandatorily Redeemable Convertible Preferred Stock are
entitled to receive cumulative dividends at the per annum rate of $0.18 per
share, prior to payment of dividends on any other class of stock. These
dividends accrue and cumulate whether or not declared by the Board of Directors,
but are not payable upon the successful completion of an initial public
offering. The Company has accrued such dividends at December 31, 1999 as
accretion to the Mandatorily Redeemable Convertible Preferred Stock redemption
value.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, holders of the Mandatorily Redeemable
Convertible Preferred Stock are entitled to receive $3.01 per share plus accrued
but unpaid dividends, prior to any distribution to the holders of Common Stock.
Any assets remaining after distribution of the preference amounts on the
Mandatorily Redeemable Convertible Preferred Stock will be distributed on a pro
rata basis to all holders of Mandatorily Redeemable Convertible Preferred Stock
and Common Stock until such time as the holders of the Mandatorily Redeemable
Convertible Preferred Stock have received $7.53 per share. Any assets remaining
after distribution of these amounts will be distributed on a pro rata basis to
holders of Common Stock.
Redemption
The holders of a majority of the then outstanding Mandatorily Redeemable
Convertible Preferred Stock may cause the Company to redeem their shares after
the seventh anniversary of the Mandatorily Redeemable Convertible Preferred
Stock issuance date in three annual installments. Redemption will be at the
greater of fair market value or the original issue price plus accrued but unpaid
dividends. During the fourth quarter of 1999 and the first quarter of 2000, the
Company recorded an increase to its accumulated deficit of $21,857,000 and
$25,924,000 related to the accretion to the Mandatorily Redeemable Convertible
Preferred Stock redemption value which is based on the fair value of the
Mandatorily Redeemable Convertible Preferred Stock as estimated by the Company.
5. STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Warrants
In connection with its sale of Mandatorily Redeemable Convertible Preferred
Stock, the Company issued warrants to purchase 1,100,000 shares of Common Stock
at $4.50 per share. The warrants are immediately exercisable and expire at the
earlier of October 5, 2002, the completion of an initial public offering of the
Company's Common Stock of greater than $4.50 per share, the sale or transfer of
substantially all of the assets of the Company or the closing of an acquisition
of the Company.
Common Stock
Each share of Common Stock is entitled to one vote. The holders of Common
Stock are also entitled to receive dividends from legally available assets of
the Company when and if
F-18
<PAGE> 88
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
declared by the Board of Directors, subject to the prior rights of holders of
Mandatorily Redeemable Convertible Preferred Stock.
At December 31, 1999, shares of Common Stock were reserved for future
issuance as follows:
<TABLE>
<S> <C>
Conversion of Mandatorily Redeemable Convertible
Preferred Stock..................................... 5,647,839
Warrants.............................................. 1,100,000
1998 Stock Plan....................................... 5,994,691
----------
12,742,530
==========
</TABLE>
Stock Option Plan
In January 1998, the Company established the 1998 Stock Plan (the 1998
Plan) under which stock options may be granted to employees, directors and
consultants of the Company and authorized 4,000,000 shares of Common Stock
thereunder. In 1999, Board of Directors approved increases in the number of
shares authorized for issuance under the 1998 Plan to 5,994,691. Under the 1998
Plan, nonstatutory stock options may be granted to employees, directors and
consultants, and incentive stock options (ISO) may be granted only to employees.
In the case of an ISO that is granted to an employee who, at the time of the
grant of such option, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company, the per share
exercise price shall not be less than 110% of the fair market value per share on
the date of grant. For ISO's granted to any other employee, the per share
exercise price shall not be less than 100% of the fair value per share on the
date of grant. The exercise price for nonqualified options may not be less than
85% of the fair value of Common Stock at the option grant date. Options
generally expire after ten years. Vesting and exercise provisions are determined
by the Board of Directors. Options generally vest over 4 years, 25% after the
first year and ratably each month over the remaining 36 months.
Rights to purchase stock may also be granted under the 1998 Plan with
terms, conditions, and restrictions determined by the Board of Directors.
F-19
<PAGE> 89
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
The following is a summary of option activity for the 1998 Plan:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
--------------------------------------------------------
PRICE WEIGHTED
SHARES NUMBER OF PER AVERAGE
AVAILABLE SHARES SHARE EXERCISE PRICE
---------- --------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997....... -- -- $-- $ --
Authorized....................... 4,000,000 -- $-- $ --
Granted.......................... (3,020,000) 3,020,000 $0.92 $0.92
Exercised........................ -- -- $-- $ --
Canceled......................... -- -- $-- $ --
---------- ---------
Balance at December 31, 1998....... 980,000 3,020,000 $0.92 $0.92
Authorized....................... 1,994,691 -- $-- $ --
Granted.......................... (2,211,373) 2,211,373 $0.92 - $ 3.50 $1.71
Exercised........................ -- -- $-- $ --
Canceled......................... -- -- $-- $ --
---------- ---------
Balance at December 31, 1999....... 763,318 5,231,373 $0.92 - $ 3.50 $1.25
Authorized (unaudited)........... -- -- $-- $ --
Granted (unaudited).............. (299,500) 299,500 $5.50 - $10.00 $6.93
Exercised (unaudited)............ -- (260,343) $0.92 $0.92
Canceled (unaudited)............. 4,000 (4,000) $1.50 $1.50
---------- ---------
Balance at March 31, 2000
(unaudited)...................... 467,818 5,266,530 $0.92 - $10.00 $1.59
========== =========
</TABLE>
In addition, the following table summarizes information about stock options
that were outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OF SHARES LIFE PRICE OF SHARES PRICE
--------------- --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.92 3,150,000 8.37 $0.92 2,346,664 $0.92
$1.50 1,813,373 9.80 $1.50 235,490 $1.50
$3.50 268,000 9.99 $3.50 -- $3.50
--------- ---------
Total 5,231,373 8.93 $1.25 2,582,154 $0.97
========= =========
</TABLE>
In 1998, the Company granted approximately 1,070,000 stock options to
nonemployees at exercise prices of $0.92 per share in exchange for services. The
Company recorded charges to cost of sales and general and administrative expense
in 1998 of $60,000 and $150,000, respectively, representing the fair value of
vested stock options granted to nonemployees in 1998. In 1999, the Company
granted approximately 102,000 stock options to nonemployees at exercise prices
of $1.50 per share in exchange for services. The Company recorded charges to
cost of sales, sales and marketing and general and administrative expense in
1999 of $93,000, $23,000, and $474,000, respectively, representing the fair
value of vested stock options granted to nonemployees in 1998 and 1999. All of
these options were outstanding at December 31, 1999. Approximately 9,365 of
these options were unvested at December 31, 1999. For the three months ended
March 31, 2000, the Company recorded charges to sales
F-20
<PAGE> 90
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
and marketing expense of $63,000 representing the fair value of stock options
granted to a nonemployee which vested during the period. All of these options
were vested at March 31, 2000.
Stock-Based Compensation
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based awards to employees and directors. Under APB Opinion
No. 25, when the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income (loss) and net income (loss) per
share is required under FAS 123 and is calculated as if the Company had
accounted for its employee stock options granted during the years ended December
31, 1998 and 1999 under the fair value method of FAS 123. The fair value for
employee and director stock options granted was estimated at the date of grant
using a minimum value option pricing model with the following weighted-average
assumptions: risk-free interest rates of 5.66% and 6.45% for 1998 and 1999,
respectively; no dividend yield; and a weighted average expected life of the
option of 5.5 years.
As discussed above, the valuation models used under FAS 123 were developed
for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, valuation models require
the input of highly subjective assumptions, including the expected life of the
option. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had
compensation cost for the Company's stock-based compensation plan been
determined consistent with fair value method of FAS 123, the Company's net
income (loss) applicable to common stockholders and net income (loss) per share
applicable to common stockholders would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1999
-------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net income (loss) applicable to common stockholders:
As reported............................................. $ 279 $(2,802)
Pro forma............................................... $ (172) $(2,828)
Basic and diluted net income (loss) per share attributable
to holders of Common Stock:
As reported............................................. $ 0.02 $ (0.19)
Pro forma............................................... $(0.01) $ (0.19)
</TABLE>
The effects on pro forma disclosures of applying FAS 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because FAS 123 is
F-21
<PAGE> 91
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
applicable only to options granted subsequent to December 31, 1997 the pro forma
effect will not be fully reflected until 2002.
The options' weighted average grant date fair value, which is the value
assigned to the options under FAS 123, was $0.25 and $1.36 for options granted
during 1998 and 1999, respectively.
Deferred Stock Compensation
In connection with the grant of stock options to employees for the year
ended December 31, 1999 and the three month period ended March 31, 2000, the
Company recorded deferred stock compensation within stockholders' equity of
approximately $4,543,000 and $681,000, respectively, representing the difference
between the deemed fair value of the Common Stock for financial statement
presentation purposes and the option exercise price of these options at the date
of grant. During the year ended December 31, 1999 and the three months ended
March 31, 2000 we amortized $288,000 and $306,000 respectively, of this deferred
stock compensation. We will amortize the remaining deferred stock compensation
using the straight-line method, over the vesting period of the related options,
generally four years.
6. EMPLOYEE BENEFIT PLANS
In January of 1997, the Company adopted a profit sharing plan that allows
for discretionary contributions to the plan at the discretion of the Board of
Directors out of the current or accumulated profits of the Company. The Company
contribution is limited to 15% of eligible participants annual compensation,
subject to certain adjustments. Contributions made by the Company were
approximately $91,000, $121,000 and $127,000 in 1997, 1998 and 1999,
respectively.
In October of 1999, the Company adopted a 401(k) and profit sharing plan
(the Plan) that allows eligible employees to contribute up to 15% of their
salary, subject to annual limits. Under the Plan, eligible employees may defer a
portion of their pretax salaries but not more than statutory limits. The Company
shall make matching nondiscretionary contributions to the Plan of up to $2,500
per year for each plan participant. In addition, the Company may make
discretionary contributions to the Plan as determined by the Board of Directors.
Contributions to the Plan during the year ended December 31, 1999, were
approximately $51,000.
7. INCOME TAXES
The Company elected to be taxed as an S-corporation under the Internal
Revenue Code through October 4, 1999. Consequently, the stockholders were taxed
on their proportionate share of our taxable income and no provision for federal
income taxes has been provided in the statements of operations for the years
ended December 31, 1997 and 1998 and for the period beginning January 1, 1999
through October 4, 1999. The Company's S-corporation status was revoked in
October 1999.
F-22
<PAGE> 92
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Our provision for income taxes for the years ended December 31, 1997, 1998,
and 1999 is summarized as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
State..................................................... $50 $10 $48
--- --- ---
$50 $10 $48
=== === ===
</TABLE>
A reconciliation of taxes computed at the federal statutory income tax rate
to provision (benefit) for (from) income taxes follows:
<TABLE>
<CAPTION>
1997 1998 1999
----- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision (benefit) computed at federal statutory
rate................................................. $ 393 $ 98 $ (850)
S-corporation earnings taxes at the stockholder
level................................................ (393) (98) (351)
State tax.............................................. 50 10 48
Valuation allowance.................................... -- -- 1,097
Amortization of deferred stock compensation............ -- -- 95
Other.................................................. -- -- 9
----- ---- ------
$ 50 $ 10 $ 48
===== ==== ======
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the value of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities as of December 31, 1999 consist of
the following (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 534
Accruals and reserves.................................. 662
Deferred margin on distributor inventory............... 1,303
Compensation expense related to stock options.......... 266
Other.................................................. 19
-------
Total deferred tax assets........................... 2,784
Valuation allowance...................................... (2,719)
-------
Gross deferred tax assets................................ 65
Deferred tax liability:
Tax over book depreciation............................. (65)
-------
Net deferred tax assets (liabilities).................... $ --
=======
</TABLE>
Realization of the Company's deferred tax assets is dependent on the
Company's ability to generate sufficient future taxable income, the timing and
amount of which the Company has concluded cannot be determined with certainty at
this time. Based on the Company's uncertainty as to its ability to project
sufficient future taxable income, the Company has concluded that it is more
likely that the deferred tax assets will not be realized. Accordingly, in 1999,
the Company recorded a valuation allowance for the net deferred tax assets of
$2,719,000 to reflect these uncertainties.
F-23
<PAGE> 93
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
As of December 31, 1999, the Company had net operating loss carryforwards
for federal and state tax purposes of approximately $1,450,000 and $703,000,
respectively. The federal and state net operating loss carryforwards will expire
in 2019 and 2004, respectively, if not utilized.
Utilization of the net operating loss carryforwards may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating loss
carryforwards before utilization.
8. RELATED PARTY TRANSACTIONS
The Company purchases assembly services from a packaging subcontractor and
supplier of contract manufacturing services located in the Philippines (the
Supplier). The Supplier's principle stockholder is a cousin of the Company's
chairman of the board.
The Company granted 600,000 and 66,540 stock options with exercise prices
of $0.92 and $1.50 in 1998 and 1999, respectively to two employees of the
Supplier. In connection with the option grants, the Company recorded $150,000
and $93,000 of compensation expense in 1998 and 1999, respectively in accordance
with EITF 96-18.
Purchases from the Supplier totaled $1,902,000 $1,056,000 and $1,235,000
for the years ended December 31, 1997, 1998 and 1999, respectively.
9. SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company operates in one business segment, the sale of radio frequency
semiconductor components for communications network infrastructures. The Company
sells its radio frequency semiconductor components to original equipment
manufacturers in the wireless and wireline infrastructure market through
distributors, worldwide outside sales representatives, through a private label
manufacturing partnership, and acting as a contract manufacturer. The chief
executive officer has been identified as the chief operating decision maker
(CODM) because he has the final authority over resource allocation decisions and
performance assessment.
All of the Company's net revenues are generated in the United States. The
Company's long-lived assets reside in the following geographic areas (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Long-lived assets:
United States....................................... $3,661
Canada.............................................. 837
------
$4,498
======
</TABLE>
Three of the Company's customers, Minicircuits Laboratories, Richardson
Electronics Laboratories and Pulsar Microwave accounted for 49%, 19% and 11% of
net revenues, respectively, for the year ended December 31, 1997. Minicircuits
Laboratories, Richardson Electronics Laboratories and Avnet Electronics
accounted for 36%, 40%, and 11% of net revenues, respectively, for the year
ended December 31, 1998. Minicircuits Laboratories,
F-24
<PAGE> 94
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Richardson Electronics Laboratories and Avnet Electronics accounted for 41%,
38%, and 13% of net revenues, respectively, for the year ended December 31,
1999. Minicircuits Laboratories, Richardson Electronics Laboratories and Avnet
Electronics accounted for 37%, 39% and 10% of net revenues, respectively, for
the three months ended March 31, 1999. Minicircuits Laboratories, Richardson
Electronics Laboratories and Avnet Electronics accounted for 31%, 39% and 24% of
net revenues, respectively, for the three months ended March 31, 2000. No other
customer accounted for more than 10% of net revenues during these periods.
10. SPECIAL CHARGES
In the fourth quarter of 1999, the Company's Board of Directors paid a cash
dividend to holders of Common Stock in an aggregate amount of $4,000,000. The
Company also agreed to pay a non-recurring bonus to its stockholders to cover
any federal or state taxes associated with the payment of the dividend. A total
bonus of $2,990,000 was paid in December 1999 as a result of this agreement. The
Company recorded the $2,990,000 as special charges in the statement of
operations as this amount represents a nonrecurring transaction that the Company
does not consider to be reflective of its ongoing operations.
11. SUBSEQUENT EVENTS
Initial Public Offering
In February 2000, the Company's Board of Directors approved the filing of a
Registration Statement with the Securities and Exchange Commission permitting
the Company to sell Common Stock to the public. Upon completion of the initial
public offering, the Company's Certificate of Incorporation will be amended to
authorize 200,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock.
1998 Stock Plan
In February 2000, the Company's Board of Directors approved an increase in
the number of shares reserved under the 1998 Stock Plan by 1,200,000 shares. In
addition, the Board approved automatic increases on the first day of each of the
Company's fiscal years beginning January 1, 2001, equal to the lesser of
1,500,000 shares, 3% of the outstanding shares on such date, or a lesser amount
determined by the Board of Directors. The shares may be authorized, but
unissued, or reacquired Common Stock. The changes to the 1998 Stock Plan are
subject to stockholder approval.
2000 Employee Stock Purchase Plan
In February 2000, the Company's Board of Directors approved the 2000
Employee Stock Purchase Plan (the Purchase Plan). A total of 300,000 shares of
Common Stock has been reserved for issuance under the Purchase Plan, as well as
an automatic annual increase on the first day of each of the Company's fiscal
years beginning January 1, 2001 equal to the lesser of 350,000 shares, 1% of the
outstanding Common Stock on that date, or a lesser amount as determined by the
Board. The Purchase Plan is subject to stockholder approval.
F-25
<PAGE> 95
STANFORD MICRODEVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
Litigation
On March 17, 2000, Stanford University filed a complaint against the
Company alleging trademark infringement, false designation of origin, dilution
and unfair competition. The complaint seeks injunctive relief as well as
compensatory, exemplary and punitive damages, costs and attorneys' fees. A
hearing pertaining to the request for preliminary injunction is scheduled for
May 8, 2000. Although the Company is unable to predict the outcome of the
litigation at this time, management believes the Company has meritorious
defenses and intends to defend the litigation vigorously.
F-26
<PAGE> 96
EDGAR DESCRIPTION OF GRAPH ON PAGE 32:
[Graph entitled "Simplified RF Subsystem" consisting of three rectangles in one
row under the header "Receiver" located over a second row of two rectangles and
three triangles under the header "Transmitter". The three rectangles in the top
row contain the words "Low Noise Amplifier", "Downconverter" and "Demodulator"
inside. The first triangle in the bottom row is above the words "Power
Amplifier". To its right is a second triangle with the word "Driver" beneath it.
To its right is a third triangle with the word "Pre-Driver" beneath it. To its
right is the first rectangle with the word "Upconverter" inside. To its right is
the second triangle with the word "Modulator" inside. A line runs from the
farthest right rectangle in the bottom row through the items in the bottom row,
up on the left side through a square with the word "Switch" to its right, and
through the rectangles on the top row. A line with a circle at top and crescents
of increasing side appearing to the left of the circle extends from the square
with the word "Switch" next to it and is topped with the word "Antenna". To the
right of the two rows of triangles and rectangles are the words "Data Signal
Input/Output". Above these words is a curving line and an arrow pointing in
towards the bottom row. Below the words "Signal Input/Output" is a curving line
and an arrow pointing away from the top row.]
EDGAR DESCRIPTION OF GRAPH ON PAGE 36:
[Diagram consisting of four rows of bubbles and rectangles connected by lines.
The first row consists of four bubbles with the words "Wafer Fabrication" to the
left. Inside the first bubble are the words "GaAs Fab". Inside the second bubble
are the words "InGaP Fab". Inside the third bubble are the words "SiGe Fab".
Inside the fourth bubble are the words "LDMOS Fab". The second row consists of
one rectangle with the words "Wafer Inspection" to the left. Inside the
rectangle are the words "Stanford Microdevices Wafer Qualification". The third
row consists of five bubbles with the words "Semiconductor Packaging" to the
left. Inside the first bubble are the words "Packager-Malaysia". Inside the
second bubble are the words "Packager-Thailand". Inside the third bubble are the
words "Packager-Philippines". Inside the fourth bubble are the words
"Packager-Philippines". Inside the fifth bubble are the words "Packager-Taiwan".
The fourth row consists of one rectangle with the words "Final Testing and
Quality Assurance to the left. Inside the rectangle are the words "Stanford
Microdevices RF Test, Tape and Reel, and Quality Assurance". ]
EDGAR DESCRIPTION OF INSIDE FRONT COVER ARTWORK:
[Graphic of human hand holding a globe of the world. Underneath this graphic are
the words "Helping the world stay in touch." Underneath these words is the
following text: "Stanford Microdevices is a leading designer and supplier of
high performance RF components for communications equipment manufacturers. We
design our products to meet the rapidly evolving performance requirements of:
Mobile wireless applications such as cellular and mobile data networks.
Broadband wireline applications such as high-speed transmission of
voice, data and video.
Fixed wireless applications such as local and wide area site-to-site data
networks.
Our innovative RF products help businesses and people connect for any time, any
where communications." Underneath this text is the logo of Stanford
Microdevices.]
EDGAR DESCRIPTION OF GATEFOLD ARTWORK:
[Graphic containing the heading at the top of the page "Delivering RF
Innovation". Beneath this heading is a diagram consisting of three subdiagrams
arranged from left to right.
The diagram on the left is entitled "Mobile Wireless" and consists of two
squares attached by a horizontal line with dots on each end, with a third larger
square attached to this line with another vertical line with dots. Each square
contains a photograph. The larger square on top has an arrow pointing to it from
the left.
The diagram in the middle is connected to the diagram on the left by a
horizontal line with curves in it and is entitled "Broadband Wireline". This
diagram consists of two squares attached by a horizontal line with dots on each
end, with a third larger square attached to this line with another vertical line
with dots. Each square contains a photograph.
The diagram to the right is connected to the diagram in the middle by a
horizontal line with two parallel vertical lines in the middle of it and is
entitled "Fixed Wireless". This diagram consists of two squares attached by a
horizontal line with dots on each end, with a third larger square attached to
this line with another vertical line with dots. Each square contains a
photograph.]
EDGAR DESCRIPTION OF INSIDE FRONT COVER ARTWORK:
[Stanford Microdevices logo and URL address]
<PAGE> 97
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF
COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 4
Forward-Looking Statements........... 15
Use of Proceeds...................... 16
Dividend Policy...................... 16
Capitalization....................... 17
Dilution............................. 18
Selected Consolidated Financial
Data............................... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................. 35
Management........................... 46
Certain Transactions................. 57
Principal Stockholders............... 58
Description of Capital Stock......... 60
Shares Eligible for Future Sale...... 63
Underwriting......................... 65
Legal Matters........................ 67
Experts.............................. 67
Where You Can Find Additional
Information........................ 67
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. DEALERS ARE ALSO
OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
LOGO
STANFORD MICRODEVICES
4,000,000 SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
ROBERTSON STEPHENS
PROSPECTUS
, 2000
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC Registration Fee........................................ $ 17,002
NASD Fee.................................................... 6,940
Nasdaq National Market Listing Fee.......................... 95,000
Legal Fees and Expenses..................................... 500,000
Accounting Fees and Expenses................................ 600,000
Printing Expenses........................................... 250,000
Transfer Agent Fees......................................... 15,000
Miscellaneous............................................... 116,058
----------
Total............................................. $1,600,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach of their
fiduciary duty as a director to the fullest extent permitted under Delaware law.
In addition, as permitted by Section 145 of the Delaware General Corporation
Law, the Bylaws of the Registrant provide that: (1) the Registrant is required
to indemnify its directors and executive officers and persons serving in these
capacities in other business enterprises (including, for example, subsidiaries
of the Registrant) at the Registrant's request, to the fullest extent permitted
by Delaware law, including in those circumstances in which indemnification would
otherwise be discretionary; (2) the Registrant may, in its discretion, indemnify
its employees and agents in those circumstances where indemnification is not
required by law; (3) the rights conferred in the Bylaws are not exclusive, and
the Registrant is authorized to enter into indemnification agreements with its
directors, executive officers and employees; and (4) the Registrant may not
retroactively amend the Bylaw provisions in a way that is adverse to the
directors, executive officers and employees who benefit from these protections.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the Bylaws, as well as certain additional procedural
protections. In addition, these indemnity agreements provide that parties to the
indemnification agreements will be indemnified to the fullest possible extent
not prohibited by law against any and all expenses (including any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under the Indemnification Agreement),
judgments, fines, penalties and amounts paid in settlement (if such settlement
is approved in advance by the Registrant, which approval shall not be
unreasonably withheld), actually and reasonably incurred in relation to the
Indemnitee's position as a director, officer, employee, agent or fiduciary of
the Registrant, or any subsidiary of the Registrant, or in relation to the
Indemnitee's service at the request of the Registrant as a
II-1
<PAGE> 99
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise or in relation to
Indemnitee's action or inaction while serving in such a capacity. Stanford
Microdevices will not be obligated pursuant to the indemnity agreements to
indemnify or advance expenses to an indemnified party with respect to
proceedings or claims initiated by the indemnified party and not by way of
defense, counterclaim or crossclaim, except with respect to proceedings
specifically authorized by the Registrants' Board of Directors or brought to
enforce a right to indemnification under the indemnity agreement, the
Registrants' Bylaws or any statute or law. Under the agreements, the Registrant
is not obligated to indemnify the indemnified party (1) for any expenses
incurred by the indemnified party with respect to any proceeding instituted by
the indemnified party to enforce or interpret the agreement, if a court of
competent jurisdiction determines that each of the material assertions made by
the indemnified party in such proceeding was not made in good faith or was
frivolous; (2) for any amounts paid in settlement of a proceeding unless the
Registrant consents to such settlement; (3) with respect to any proceeding
brought by the Registrant against the indemnified party for willful misconduct,
unless a court determines that each of such claims was not made in good faith or
was frivolous; (4) on account of any suit in which judgment is rendered against
the indemnified party for an accounting of profits made from the purchase or
sale by the indemnified party of securities of the Registrant pursuant to the
provisions of sec. 16(b) of the Securities Exchange Act of 1934 and related
laws; (5) on account of the indemnified party's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct or a knowing violation of the law; (6) an account
of any conduct from which the indemnified party derived an improper personal
benefit; (7) on account of conduct the indemnified party believed to be contrary
to the best interests of the Registrant or its stockholders; (8) on account of
conduct that constituted a breach of the indemnified party's duty of loyalty to
the Registrant or its stockholders; or (9) if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.
The indemnification provision in the Certificate of Incorporation, Bylaws
and the indemnification agreements entered into between the Registrant and its
directors and executive officers, may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
arising under the 1933 Act.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Form of Underwriting Agreement.............................. 1.1
Restated Certificate of Incorporation of Registrant as
currently in effect....................................... 3.1
Form of Restated Certificate of Incorporation of Registrant
to be filed upon closing of the offering.................. 3.2
Bylaws of Registrant, as amended, as currently in effect.... 3.3
Form of Indemnification Agreement to be entered into by the
Registrant with each of its directors and executive
officers.................................................. 10.1
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued and sold the
following securities:
(a) During the past three years, the Registrant sold an aggregate of
260,343 shares of unregistered common stock to directors, officers,
employees, former employees and consultants at an exercise price of $0.92
per share. These shares were sold pursuant to the exercise of options
granted by the Board of Directors. As to each director, officer, employee
and consultant of the Registrant who was issued these securities, the
Registrant
II-2
<PAGE> 100
relied upon Rule 701 of the Securities Act of 1933, as amended (the
"Securities Act"). Each such person was granted such options pursuant to a
written contract between such person and the Registrant. In addition, the
Registrant met the conditions imposed under Rule 701(b).
(b) On October 5, 1999, the Registrant sold 5,647,839 shares of
unregistered Series A Preferred Stock and issued warrants to purchase
1,100,000 shares of Common Stock to two venture capital companies for
aggregate cash consideration of $3.01 per share, for proceeds of
$16,999,995.39. The Registrant relied upon Section 4(2) of the Securities
Act in connection with the sale of these shares.
Appropriate legends were affixed to the share certificates issued in the
transactions described above. All recipients had adequate access, through their
relationships with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation of Registrant as
currently in effect.
3.2** Form of Restated Certificate of Incorporation of Registrant
to be filed upon the closing of the offering.
3.3** Bylaws of Registrant, as amended, as currently in effect.
4.1 Form of Registrant's Common Stock Certificate.
4.2** Investors' Rights Agreement, dated as of October 5, 1999,
among the Registrant and the parties named therein.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1** Form of Indemnification Agreement to be entered into by
Registrant with each of its directors and executive
officers.
10.2** Change of Control Severance Agreement dated November 23,
1998 between Registrant and Guy Krevet.
10.3** Change of Control Severance Agreement dated December 1, 1998
between Registrant and Gerald Quinnell.
10.4** Offer Letter dated October 22, 1999 between Registrant and
Thomas Scannell.
10.5** Offer Letter dated November 1, 1999 between Registrant and
Gary Gianatasio.
10.6** Agreement dated December 1, 1999 among Registrant, John and
Susan Ocampo, and certain stockholders.
10.7+** Services Sale Agreement between Registrant and TRW, Inc.
dated August 19, 1998, as amended.
10.8+** Foundry Agreement between Registrant and Temic Semiconductor
dated September 1, 1999.
10.9+ Volume Purchase Agreement between Registrant and Nortel
Networks dated September 1, 1999.
10.10+** Supply Agreement between Registrant and Spectrian, Inc.
dated October 7, 1999.
10.11** Amended and Restated 1998 Stock Plan and related agreements.
10.12** 2000 Employee Stock Purchase Plan and related agreements.
10.13 Sublease between Registrant and Telesensory dated September
5, 1997.
10.14** Lease between Registrant and Arden Realty dated July 30,
1999.
10.15 Lease for between Registrant and Aetna Life Insurance
Company dated May 26, 1998.
10.16 Sublease between Registrant and Family and Child Guidance
Centers dated November 22, 1999.
</TABLE>
II-3
<PAGE> 101
<TABLE>
<CAPTION>
<C> <S>
10.17 Lease between Registrant and Elk Property Management Limited
dated November 19, 1999.
10.18 Lease Agreement between Registrant and Aetna Life Insurance
Company dated January 14, 2000.
11.1 Statement of computation of net income per share and pro
forma net income per share (see Note 5 of Notes to Financial
Statements).
21.1** Subsidiaries of the Registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Ernst & Young, LLP, Independent Auditors.
24.1** Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
** Previously filed.
+ Confidential treatment has been requested for portions of these exhibits.
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Sunnyvale, State of California, on this 12th day of April, 2000.
STANFORD MICRODEVICES, INC.
By: /s/ THOMAS SCANNELL
------------------------------------
Thomas Scannell
Vice President of Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* Chairman of the Board and April 12, 2000
- -------------------------------------------------------- Chief Technology Officer
John Ocampo
* President, Chief Executive April 12, 2000
- -------------------------------------------------------- Officer and Director
Robert Van Buskirk (Principal Executive
Officer)
/s/ THOMAS SCANNELL Vice President of Finance April 12, 2000
- -------------------------------------------------------- and Chief Financial Officer
Thomas Scannell (Principal Financial and
Accounting Officer)
* Director April 12, 2000
- --------------------------------------------------------
John C. Bumgarner, Jr.
* Director April 12, 2000
- --------------------------------------------------------
Peter Chung
* Director April 12, 2000
- --------------------------------------------------------
Casimir Skrzypczak
*By /s/ THOMAS SCANNELL
---------------------------------------------------
Attorney-in-fact
</TABLE>
II-5
<PAGE> 103
SCHEDULE II
STANFORD MICRODEVICES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
ADDITIONS-
BALANCE AT CHARGED BALANCE AT
YEAR ENDED BEGINNING OF TO COSTS DEDUCTIONS- END OF
DECEMBER 31, PERIOD AND EXPENSES WRITE-OFFS PERIOD
- ------------------------------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
1997................................. $ -- $91,000 $ -- $ 91,000
1998................................. 91,000 25,000 -- 116,000
1999................................. 116,000 -- 16,000 100,000
</TABLE>
S-1
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation of Registrant as
currently in effect.
3.2** Form of Restated Certificate of Incorporation of Registrant
to be filed upon the closing of the offering.
3.3** Bylaws of Registrant, as amended, as currently in effect.
4.1 Form of Registrant's Common Stock Certificate.
4.2** Investors' Rights Agreement, dated as of October 5, 1999,
among the Registrant and the parties named therein.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1** Form of Indemnification Agreement to be entered into by
Registrant with each of its directors and executive
officers.
10.2** Change of Control Severance Agreement dated November 23,
1998 between Registrant and Guy Krevet.
10.3** Change of Control Severance Agreement dated December 1, 1998
between Registrant and Gerald Quinnell.
10.4** Offer Letter dated October 22, 1999 between Registrant and
Thomas Scannell.
10.5** Offer Letter dated November 1, 1999 between Registrant and
Gary Gianatasio.
10.6** Agreement dated December 1, 1999 among Registrant, John and
Susan Ocampo, and certain stockholders.
10.7+** Services Sale Agreement between Registrant and TRW, Inc.
dated August 19, 1998, as amended.
10.8+** Foundry Agreement between Registrant and Temic Semiconductor
dated September 1, 1999.
10.9+ Volume Purchase Agreement between Registrant and Nortel
Networks dated September 1, 1999.
10.10+** Supply Agreement between Registrant and Spectrian, Inc.
dated October 7, 1999.
10.11** Amended and Restated 1998 Stock Plan and related agreements.
10.12** 2000 Employee Stock Purchase Plan and related agreements.
10.13 Sublease between Registrant and Telesensory dated September
5, 1997.
10.14** Lease between Registrant and Arden Realty dated July 30,
1999.
10.15 Lease for between Registrant and Aetna Life Insurance
Company dated May 26, 1998.
10.16 Sublease between Registrant and Family and Child Guidance
Centers dated November 22, 1999.
10.17 Lease between Registrant and Elk Property Management Limited
dated November 19, 1999.
10.18 Lease Agreement between Registrant and Aetna Life Insurance
Company dated January 14, 2000.
11.1 Statement of computation of net income per share and pro
forma net income per share (see Note 5 of Notes to Financial
Statements).
21.1** Subsidiaries of the Registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LP Independent Auditors.
24.1** Power of Attorney (see page II-7).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
** Previously filed.
+ Confidential treatment has been requested for portions of these exhibits.
<PAGE> 1
EXHIBIT 1.1
_______________ Shares
STANFORD MICRODEVICES, INC.
Common Stock
($.001 Par Value)
UNDERWRITING AGREEMENT
_______________, 2000
Deutsche Bank Securities Inc.
Banc of America Securities LLC
CIBC World Markets Corp.
FleetBoston Robertson Stephens Inc.
As Representatives of the
Several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Stanford Microdevices, Inc., a Delaware corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of __________ shares of the Company's Common
Stock, $.001 par value (the "Firm Shares") pursuant to this underwriting
agreement (the "Agreement"). The respective amounts of the Firm Shares to be so
purchased by the several Underwriters are set forth opposite their names in
Schedule I hereto. The Company also proposes to sell at the Underwriters' option
an aggregate of up to __________ additional shares of the Company's Common Stock
(the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
1
<PAGE> 2
Deutsche Bank Securities Inc. ("Deutsche Bank") has agreed to reserve a
portion of the Shares to be purchased by it under this Agreement for sale to the
Company's directors, officers, employees and business associates and other
parties related to the Company (collectively, "Participants"), as set forth in
the Prospectus under the heading "Underwriters" (the "Directed Share Program").
The Shares to be sold by Deutsche Bank pursuant to the Directed Share Program
are hereinafter referred to as the "Directed Shares." Any Directed Shares not
orally confirmed for purchase by any Participants by the end of the business day
on which this Agreement is executed will be offered to the public by the
Underwriters as set forth in the Prospectus.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters
as follows:
(a) A registration statement on Form S-1 (File No. 333-31382)
with respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to any
Prospectus shall be deemed to include any supplements or amendments thereto,
filed with the Commission after the date of the filing of the Prospectus under
Rules 424(b) or 430A, and prior to the termination of the offering of the Shares
by the Underwriters.
(b) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Each of the subsidiaries of
the Company listed in Exhibit ___ hereto (collectively, the "Subsidiaries") has
been duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement. The Subsidiaries are the only
subsidiaries, direct or indirect, of the Company. The Company and each of the
Subsidiaries are duly qualified to transact business in all jurisdictions in
which the conduct of
2
<PAGE> 3
their business requires such qualification. The outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and validly issued,
are fully paid and non-assessable and are owned by the Company or another
Subsidiary free and clear of all liens, encumbrances and equities and claims;
and no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in the Subsidiaries are outstanding.
(c) The outstanding shares of the Company's Common Stock and
Preferred Stock have been duly authorized and validly issued and are fully paid
and non-assessable; the shares of Common Stock to be issued upon conversion of
the Preferred Stock immediately prior to the closing of the offering of the
Shares have been duly authorized and when issued will be validly issued, fully
paid and non-assessable; the Shares to be issued and sold by the Company have
been duly authorized and when issued will be validly issued, fully paid and
non-assessable; and no preemptive rights of stockholders exist with respect to
any of the Shares or the issue and sale thereof. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any shares of Common Stock.
(d) The information set forth under the caption "Capitalization"
in the Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the jurisdiction of
the Company's incorporation.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform to, the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(f) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the results of
operations and cash flows of the Company and the consolidated Subsidiaries, at
the indicated dates and for the indicated periods. Such financial statements and
related schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods involved,
except as disclosed
3
<PAGE> 4
therein, and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and statistical data included
in the Registration Statement presents fairly the information shown therein and
such data has been compiled on a basis consistent with the financial statements
presented therein and the books and records of the Company.
(g) Ernst & Young LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending or, to
the knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency or otherwise which if
determined adversely to the Company or any of its Subsidiaries might result in
any material adverse change in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and of the Subsidiaries taken as a whole or to prevent the
consummation of the transactions contemplated hereby, except as set forth in the
Registration Statement.
(i) The Company and the Subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial statements
(or as described in the Registration Statement) hereinabove described, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. The Company and the Subsidiaries
occupy their leased properties under valid and binding leases conforming in all
material respects to the description thereof set forth in the Registration
Statement. The Company's assets are adequate for the conduct of the Company's
business as described in the Registration Statement.
(j) The Company and the Subsidiaries have filed all federal,
state, local and foreign tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments received by
them or any of them to the extent that such taxes have become due and are not
being contested in good faith and for which an adequate reserve for accrual has
been established in accordance with generally accepted accounting principles.
All tax liabilities have been adequately provided for in the financial
statements of the Company, and the Company does not know of any actual or
proposed additional material tax assessments.
(k) Since the respective dates as of which information is given
in the Registration Statement, as it may be amended or supplemented, there has
not been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise), or
prospects of the Company and its Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is probable
of being entered into by the Company or the Subsidiaries, other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
The Company and the Subsidiaries have no material contingent obligations which
are not disclosed in the Company's financial statements which are included in
the Registration Statement.
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(l) Neither the Company nor any of the Subsidiaries is or with
the giving of notice or lapse of time or both, will be, in violation of or in
default under its Charter or Bylaws or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by which
it, or any of its respective properties, is bound and which default is of
material significance in respect of the condition, financial or otherwise of the
Company and its Subsidiaries taken as a whole or the business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Subsidiaries taken as a whole. The execution,
delivery and performance of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof do not
and will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company or any Subsidiary is
a party, or of the Charter or Bylaws of the Company or any order, rule or
regulation applicable to the Company or any Subsidiary of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction over the Company or any Subsidiary.
(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(n) The Company and each of the Subsidiaries hold all material
licenses, certificates and permits from governmental authorities which are
necessary to the conduct of their businesses; the Company and the Subsidiaries
each own or possess the right to use all patents, patent rights, trademarks,
trade names, service marks, service names, copyrights, license rights, know-how
(including trade secrets and other unpatented and unpatentable proprietary or
confidential information, systems or procedures) and other intellectual property
rights ("Intellectual Property") necessary to carry on their business in all
material respects; neither the Company nor any of the Subsidiaries has
infringed, and none of the Company or the Subsidiaries have received notice of
conflict with, any Intellectual Property of any other person or entity. The
Company has taken all reasonable steps necessary to secure interests in such
Intellectual Property from its contractors. There are no outstanding options,
licenses or agreements of any kind relating to the Intellectual Property of the
Company that are required to be described in the Prospectus and are not
described in all material respects. The Company is not a party to or bound by
any options, licenses or agreements with respect to the Intellectual Property of
any other person or entity that are required to be set forth in the Prospectus
and are not described in all material respects. None of the technology employed
by the Company has been obtained or is being used by the Company in violation of
any contractual obligation binding on the Company or any of its officers,
directors or employees or otherwise in violation of the rights of any persons;
the Company has not received any written or oral communications alleging that
the Company has violated, infringed or conflicted with, or, by conducting its
business as set forth in the Prospectus, would violate, infringe or conflict
with, any of the Intellectual Property of any other person or entity. The
Company knows of no infringement by others of Intellectual Property owned by or
licensed to the Company.
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<PAGE> 6
(o) Neither the Company, nor to the Company's knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in passive
market making transactions in the Shares on the Nasdaq Stock Market in
accordance with Regulation M under the Exchange Act.
(p) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940, as amended (the "1940 Act") and the rules and regulations of the
Commission thereunder.
(q) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(r) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(s) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(t) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement.
(u) No material labor dispute with employees of the Company
exists or to the knowledge of the Company is threatened and the Company is not
aware of any existing, threatened or imminent labor disturbance by the employees
of any of its principal suppliers, manufacturers or contractors that could
result in any material adverse change in the condition, financial or otherwise
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<PAGE> 7
of the Company or the business, management, properties, assets, rights,
operations or prospects of the Company.
(v) This Agreement has been duly authorized, executed and
delivered by the Company.
(w) No relationship, direct or indirect, exists between or among
the Company or the Subsidiaries, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or the Subsidiaries, on the
other hand, which is required to be described in the Registration Statement or
the Prospectus that is not so described.
(y) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of any of them, except as
disclosed in the Registration Statement and the Prospectus.
(y) Neither the Company nor the Subsidiaries, nor, to the best of
the Company's knowledge, any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or the Subsidiaries, has used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provisions of the Foreign
Corrupt Practices Act of 1972; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
(z) The Company has not been advised, and has no reason to
believe, that it and each of its Subsidiaries are not conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting business, except where failure to be so in compliance
would not materially adversely affect the earnings, business, management,
properties, assets, rights, operations or prospects of the Company and the
Subsidiaries, taken as a whole.
(aa) The business, operations and facilities of the Company and
the Subsidiaries have been and are being conducted in compliance with all
applicable laws, ordinances, rules, regulations, licenses, permits, approvals,
plans, authorizations or requirements relating to occupational safety and
health, pollution, protection of health or the environment (including, without
limitation, those relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or hazardous or toxic substances, materials
or wastes into ambient air, surface water, groundwater or land, or relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemical substances, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, whether solid, gaseous or
liquid in nature) or otherwise relating to remediating real property in which
the Company or the Subsidiaries have or had any interest, whether owned or
leased, of any governmental department, commission, board, bureau, agency or
instrumentality of the United States, any state or political subdivision thereof
and all applicable judicial or administrative agency or regulatory decrees,
awards, judgments and orders relating thereto, except for such
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<PAGE> 8
failures to so comply as would not, individually or in the aggregate, have a
material adverse affect on the Company's and the Subsidiaries' earnings,
business, management, properties, assets, rights, operations or prospects, taken
as a whole; and neither the Company nor either of the Subsidiaries has received
any notice from a governmental instrumentality or any third party alleging any
violation thereof or liability thereunder (including, without limitation,
liability for costs of investigating or remediating sites containing hazardous
substances or damage to natural resources), except for such violations or
liabilities which would not, individually or in the aggregate, have a material
adverse affect on the Company's and the Subsidiaries' earnings, business,
management, properties, assets, rights, operations or prospects, taken as a
whole.
(bb) The Company has reviewed its operations and that of its
Subsidiaries to evaluate the extent to which the business or operations of the
Company or any of its Subsidiaries will be affected by the Year 2000 Problem. As
a result of such review, the Company has no reason to believe, and does not
believe, that the Year 2000 problem will have a material adverse effect on the
financial position, stockholders' equity or results of operations of the Company
and its Subsidiaries or result in any material loss or interference with the
Company's business or operations. The "Year 2000 Problem" as used herein means
any significant risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission or
other utilization of data or in the operation of mechanical or electrical
systems of any kind will not, in the case of dates or time periods occurring
after December 31, 1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000.
(cc) The Common Stock has been approved for quotation on the
Nasdaq National Market, subject to official notice of issuance.
(dd) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any preliminary prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act.
(ee) There are no contracts, agreements or understandings between
the Company and any person granting such person (i) the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company, except as disclosed in the Prospectus or (ii) to
require the Company to include such securities with the Shares registered
pursuant to the Registration Statement.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per share, the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof.
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<PAGE> 9
(b) Payment for the Firm Shares to be sold hereunder is to be
made by federal (same day) funds against delivery of certificates therefor to
the Representatives for the several accounts of the Underwriters. Such payment
and delivery are to be made through the facilities of the Depository Trust
Company, New York, New York at 10:00 a.m., New York time, on the third business
day after the date of this Agreement or at such other time and date not later
than five business days thereafter as you and the Company shall agree upon, such
time and date being herein referred to as the "Closing Date." (As used herein,
"business day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and are not
permitted by law or executive order to be closed.)
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in whole
or in part by giving written notice (i) at any time before the Closing Date and
(ii) only once thereafter within 30 days after the date of this Agreement, by
you, as Representatives of the several Underwriters, to the Company setting
forth the number of Option Shares as to which the several Underwriters are
exercising the option, the names and denominations in which the Option Shares
are to be registered and the time and date at which such certificates are to be
delivered. The time and date at which certificates for Option Shares are to be
delivered shall be determined by the Representatives but shall not be earlier
than three nor later than 10 full business days after the exercise of such
option, nor in any event prior to the Closing Date (such time and date being
herein referred to as the "Option Closing Date"). If the date of exercise of the
option is three or more days before the Closing Date, the notice of exercise
shall set the Closing Date as the Option Closing Date. The number of Option
Shares to be purchased by each Underwriter shall be in the same proportion to
the total number of Option Shares being purchased as the number of Firm Shares
being purchased by such Underwriter bears to __________, adjusted by you in such
manner as to avoid fractional shares. The option with respect to the Option
Shares granted hereunder may be exercised only to cover over-allotments in the
sale of the Firm Shares by the Underwriters. You, as Representatives of the
several Underwriters, may cancel such option at any time prior to its expiration
by giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date in federal (same day funds) through the facilities of
the Depository Trust Company in New York, New York drawn to the order of the
Company.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public at
the initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
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<PAGE> 10
It is further understood that you will act as the Representatives
for the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters
that:
(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (i) when
the Registration Statement or any post-effective amendment thereto shall have
become effective, (ii) of receipt of any comments from the Commission, (iii) of
any request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including
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<PAGE> 11
such number of copies of the exhibits filed therewith that may reasonably be
requested), and of all amendments thereto, as the Representatives may reasonably
request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(g) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(h) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of Deutsche Bank Securities Inc.
(i) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the Nasdaq National Market.
(j) The Company has caused each officer and director of the
Company and each beneficial owner of the issued and outstanding shares of
capital stock of the Company (including shares of Common Stock which may be
deemed to be owned on the date hereof in accordance with the rules and
regulations of the Commission, shares of Common Stock of the Company which may
be issued upon exercise of a stock option or warrant, and any other security
convertible into or exchangeable for Common Stock) to furnish to you, on or
prior to the date of this agreement, a letter or letters, in form and substance
satisfactory to the Underwriters, pursuant to which each such
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<PAGE> 12
person shall agree not to offer, sell, sell short or otherwise dispose of any
shares of Common Stock of the Company or other capital stock of the Company, or
any other securities convertible, exchangeable or exercisable for Common Shares
or derivative of Common Shares owned by such person or request the registration
for the offer or sale of any of the foregoing (or as to which such person has
the right to direct the disposition of) for a period of 180 days after the date
of this Agreement, directly or indirectly, except with the prior written consent
of Deutsche Bank Securities Inc. ("Lockup Agreements").
(k) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or any of the Subsidiaries to register as an investment
company under the 1940 Act.
(m) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements) incident to securing any
required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; the Listing Fee of the Nasdaq
Stock Market; and the expenses, including the fees and disbursements of counsel
for the Underwriters, incurred in connection with the qualification of the
Shares under state securities or Blue Sky laws. The Company agrees to pay all
costs and expenses of the Underwriters, including the fees and disbursements of
counsel for the Underwriters, incident to the offer and sale of the Directed
Shares. The Company shall not, however, be required to pay for any of the
Underwriters expenses (other than those related to qualification under NASD
regulation and state securities or Blue Sky laws) except that, if this Agreement
shall not be consummated because the conditions in Section 6 hereof are not
satisfied, or because this Agreement is terminated by the Representatives
pursuant to Section 11 hereof, or by reason of any failure, refusal or inability
on the part of the Company to perform any undertaking or satisfy any condition
of this Agreement or to comply with any of the
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<PAGE> 13
terms hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms be due to the default or omission of any
Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
contained herein, and to the performance by the Company of its covenants and
obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of Wilson Sonsini
Goodrich & Rosati, counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; each of the
Subsidiaries has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Company and each of the
Subsidiaries are duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such qualification, or in which the
failure to qualify would have a materially adverse effect upon the business of
the Company and the Subsidiaries taken as a whole; the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable and are owned by the Company or a
Subsidiary; and, to the best of such counsel's knowledge, the outstanding shares
of capital stock of each of the Subsidiaries are owned free and clear of all
liens,
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encumbrances and equities and claims, and no options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to convert
any obligations into any shares of capital stock or of ownership interests in
the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly authorized; the
outstanding shares of the Company's Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable; the shares of Common Stock
to be issued upon conversion of the Preferred Stock immediately prior to the
closing of the offering of the Shares have been duly authorized and when issued
will be validly issued, fully paid and non-assessable; the authorized capital
stock of the Company and all of the Shares conform to the description thereof
contained in the Prospectus; the certificates for the Shares, assuming they are
in the form filed with the Commission, are in due and proper form; the shares of
Common Stock, including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will be validly issued,
fully paid and non-assessable when issued and paid for as contemplated by this
Agreement; and no preemptive rights of stockholders exist with respect to any of
the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any shares of Common Stock or other securities of
the Company included in the Registration Statement or the right, as a result of
the filing of the Registration Statement, to require registration under the Act
of any shares of Common Stock or other securities of the Company.
(iv) Based solely upon the oral advice of the staff of the
Commission, the Registration Statement has become effective under the Act and,
to the best of the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act, and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related notes and schedules and other financial and statistical data
included therein).
(vi) The statements under the captions "Management,"
"Certain Transactions," "Description of Capital Stock," and "Shares Eligible for
Future Sale" in the Prospectus and Items 14 and 15 of the Registration
Statement, insofar as such statements constitute
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<PAGE> 15
a summary of documents referred to therein or of matters of law, fairly
summarize in all material respects the information called for with respect to
such documents and matters.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are no so filed
or described as required, and such contracts and documents as are summarized in
the Registration Statement or the Prospectus are fairly summarized in all
material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the Company or any of the
Subsidiaries except as set forth in the Prospectus.
(ix) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated do not
and will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Charter or Bylaws of the
Company, or any agreement or instrument known to such counsel to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by state
securities and Blue Sky laws as to which such counsel need express no opinion)
except such as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result
of the consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
In rendering such opinion Wilson Sonsini Goodrich & Rosati may
rely as to matters governed by the laws of states other than Delaware,
California or federal laws on local counsel in such jurisdictions, provided that
in each case Wilson Sonsini Goodrich & Rosati shall state that they believe that
they and the Underwriters are justified in relying on such other counsel. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement, at the time it
became effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the
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<PAGE> 16
case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, related notes and
schedules and other financial and statistical information therein). With respect
to such statement, Wilson Sonsini Goodrich & Rosati may state that their belief
is based upon the procedures set forth therein, but is without independent check
and verification.
(c) The Representatives shall have received from Morrison &
Foerster LLP, counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (iv) and (v) of Paragraph (b) of this Section 6, the
due organization and valid existence of the Company under the laws of the State
of Delaware and the validity of the Shares, and the Company shall have furnished
to such counsel such documents as such counsel may reasonably request for the
purpose of passing upon such matters. In rendering such opinion Morrison &
Foerster LLP may rely as to all matters governed other than by the laws of the
State of Delaware, California or federal laws on the opinion of counsel referred
to in Paragraph (b) of this Section 6. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that nothing
has come to the attention of such counsel which leads them to believe that (i)
the Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (except that such counsel need express no view as to financial
statements, related notes and schedules and other financial and statistical
information therein). With respect to such statement, Morrison & Foerster LLP
may state that their belief is based upon the procedures set forth therein, but
is without independent check and verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Morrison & Foerster LLP a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the qualification
for offering and sale by the Underwriters of the Shares under the state
securities or Blue Sky laws of such jurisdictions as the Representatives may
reasonably have designated to the Company.
(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of Ernst & Young LLP confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the
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<PAGE> 17
financial statements and certain financial and statistical information contained
in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under
the Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement
and the Prospectus and, in his opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business.
(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been approved
for designation upon notice of issuance on the Nasdaq National Market.
(i) The Lockup Agreements described in Section 4(j) are in full
force and effect.
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The opinions and certificates mentioned in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Morrison & Foerster
LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section
6 shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections 5
and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees:
(1) To indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which such Underwriter or any such controlling person
may become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided, that the Company shall not be
liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus or such amendment or supplement, in
reliance upon and in conformity
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<PAGE> 19
with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof.
(2) To reimburse each Underwriter and each such
controlling person upon demand for any legal or other out-of-pocket expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter or
controlling person is a party to any action or proceeding. In the event that it
is finally judicially determined that the Underwriters were not entitled to
receive payments for legal and other expenses pursuant to this subparagraph, the
Underwriters will promptly return all sums that had been advanced pursuant
hereto.
(3) To indemnify and hold harmless Deutsche Bank and each
person, if any, who controls, or is controlled by, Deutsche Bank within the
meaning of Section 15 of the Act and Section 20 of the Exchange Act (the
"Deutsche Bank Entities"), against any losses, claims, damages or liabilities to
which such Underwriter or any such controlling person may become subject under
the Act or the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any material prepared by or with the consent of the
Company for distribution to Participants in connection with the Directed Share
Program, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (iii) caused by the failure of any Participant to pay for and accept
delivery of Directed Shares that the Participant agreed to purchase or (iv) any
alleged act or failure to act by any Deutsche Bank Entity in connection with, or
relating in any manner to, the Directed Share Program, other than any loss,
claim, damage, liability or action that are finally judicially determined to
have resulted from the bad faith or gross negligence of the Deutsche Bank
Entities; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof.
(4) To reimburse each Deutsche Bank Entity upon demand for
any legal or other out-of-pocket expenses reasonably incurred by such Deutsche
Bank in connection with investigating or defending any such loss, claim, damage
or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Directed Shares, whether or
not such Deutsche Bank Entity is a party to any action or proceeding. In the
event that it is finally judicially determined that the Deutsche Bank Entities
were not entitled to receive payments for legal and other expenses pursuant to
this subparagraph, the Deutsche Bank Entities will promptly return all sums that
had been advanced pursuant hereto.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or
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<PAGE> 20
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter will
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) and by the Company in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but if settled with such
consent or if there be a final
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<PAGE> 21
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. In addition, the indemnifying party will not, without
the prior written consent of the indemnified party, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding of which indemnification may be sought hereunder (whether or not
any indemnified party is an actual or potential party to such claim, action or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a)(1), (a)(2) or (b) above in respect of any losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter, and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
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(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless a Deutsche Bank Entity under
Section 8(a)(3) or(a)(4) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then the Company shall contribute to the amount paid or payable by such Deutsche
Bank Entity as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and the
Deutsche Bank Entity on the other from the offering of the Directed Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then the Company shall contribute to such amount in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and the Deutsche Bank
Entity on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof),as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Deutsche Bank Entities on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Directed Shares
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Deutsche Bank Entity in
connection therewith. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Deutsche Bank Entity
on the other and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Deutsche Bank Entities agree that it would
not be just and equitable if contributions pursuant to this Section 8(e) were
determined by pro rata allocation (even if the Deutsche Bank Entities were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 8(e). The amount paid or payable by a Deutsche Bank Entity as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 8(e) shall be deemed to
include any legal or other expenses reasonably incurred by such Deutsche Bank
Entity in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), (i) no Deutsche Bank
Entity shall be required to contribute any amount in excess of the underwriting
discounts and commissions applicable to the Directed Shares purchased by such
Deutsche Bank Entity, and (ii) no Deutsche Bank Entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
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(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
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10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Deutsche Bank Securities
Inc., 101 California Street, 48th Floor, San Francisco, California 94111,
Attention: Tony Meneghetti; with copies to Deutsche Bank Securities Inc., One
South Street, Baltimore, Maryland 21202, Attention: General Counsel, and
Deutsche Bank Securities Inc., One Bankers Trust Plaza, 130 Liberty Street, New
York, New York 10006, Attention: Equity Syndicate; if to the Company, to
Stanford Microdevices, Inc., 522 Almanor Avenue, Sunnyvale, California 94086,
Attention: Chief Financial Officer; with a copy to Wilson Sonsini Goodrich &
Rosati, P.C., 650 Page Mill Road, Palo Alto, California 94304, Attention:
_________________.
11. TERMINATION.
(a) This Agreement may be terminated by you by notice to the
Company at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) any downgrading, or placement on any watch list for
possible downgrading, in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Exchange Act); (vii) the suspension of trading of the
Company's common stock by the Nasdaq Stock Market, the Commission, or any other
governmental authority or, (viii) the taking of any action by any governmental
body or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
24
<PAGE> 25
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the
only information furnished or to be furnished by any Underwriter to the Company
for inclusion in any Prospectus or the Registration Statement consists of the
legends required by Item 502 of Regulation S-K under the Act and certain
information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
STANFORD MICRODEVICES, INC.
By
------------------------------------------
Robert Van Buskirk
President and Chief Executive Officer
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
25
<PAGE> 26
of the date first above written.
Deutsche Bank Securities Inc.
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS CORP.
FLEETBOSTON ROBERTSON STEPHENS INC.
As Representatives of the several
Underwriters listed on Schedule I
By: Deutsche Bank Securities Inc.
By:
-----------------------------------
Authorized Officer
26
<PAGE> 27
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------- ----------------------
Deutsche Bank Securities Inc.
Banc of America Securities LLC
CIBC World Markets Corp.
FleetBoston Robertson Stephens Inc.
----------
Total ----------
27
<PAGE> 1
Exhibit 4.1
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
NUMBER SHARES
SMDI- STANFORD
MICRODEVICES
This Certificate is Transferable CUSIP 854399 10 2
in the Cities of Ridgefield Park, SEE REVERSE FOR CERTAIN
N.J. or New York, N.Y. DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.001 PAR VALUE
PER SHARE, OF
STANFORD MICRODEVICES, INC
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned by the
Transfer Agent and Registrar.
WITNESS the facsimile signatures of its duly authorized officers.
Dated: [SEAL]
/s/ ROBERT VAN BUSKIRK /s/ JOHN OCAMPO
PRESIDENT AND CHIEF EXECUTIVE OFFICER CHAIRMAN OF THE BOARD
<PAGE> 2
STANFORD MICRODEVICES, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS, SUCH REQUEST MUST BE MADE TO THE CORPORATION'S SECRETARY AT THE
PRINCIPAL EXECUTIVE OFFICE OF THE CORPORATION.
Keep this Certificate in a safe place. If it is lost, stolen or destroyed,
the Corporation will require a bond of indemnity as a condition to the issuance
of a replacement certificate.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______________ Custodian _______________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
Act _________________________
JT TEN - as joint tenants with right of (State)
survivorship and not as tenants UNIF TRF MIN ACT - ________________ Custodian (until age ____)
in common (Cust)
___________________ under Uniform Transfers
(Minor)
to Minors Act _____________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE(S)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Shares represented by the within Certificate, and do hereby irrevocably
constitute and
appoint _______________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________________________ ________________________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
In presence of EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
______________________________________
______________________________________
Signature(s) Guaranteed
By _______________________________________________________________________
THE SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5.1
OPINION OF WILSON SONSINI GOODRICH & ROSATI
[ON WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
April 12, 2000
Stanford Microdevices, Inc.
726 Palomar Avenue
Sunnyvale, CA 94086
Re: Registration Statement on Form S-1 of
Stanford Microdevices, Inc., a Delaware corporation
(the "Company")
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on March 1, 2000, as amended on April 12,
2000 (the "Registration Statement"), in connection with the registration under
the Securities Act of 1933, as amended, of 4,600,000 shares of Common Stock of
the Company (the "Shares"). The Shares, which include up to 600,000 shares of
Common Stock issuable pursuant to an over-allotment option granted to the
underwriters, are to be sold to the underwriters as described in such
Registration Statement for the sale to the public or issued to the
representatives of the underwriters. As your counsel in connection wit this
transaction, we have examined the proceedings proposed to be taken in connection
with said sale and issuance of the Shares.
It is our opinion that, upon approval by the pricing committee, duly
authorized by the Company's Board of Directors, the Shares when issued and sold
in the manner referred to in the Registration Statement will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE> 1
EXHIBIT 10.9
NORTEL AGREEMENT NO. _____
PURCHASER AGREEMENT NO. _____
VOLUME PURCHASE AGREEMENT
This Volume Purchase Agreement (the "Agreement") is between Nortel Networks
Corporation, a company incorporated under the laws of Canada, having an office
at 185 Corkstown Road, Nepean, Ontario, Canada K2H 8V4 ("Nortel") and Stanford
Microdevices Inc., a company incorporated under the laws of Delaware, having an
office at 522 Almanor Avenue, Sunnyvale, CA ("Purchaser").
1. DEFINITIONS
"Affiliate" of any person shall mean any corporation which, directly or
indirectly, is controlled by the same person.
"Blanket Order" shall mean an Order which does not set forth a Delivery
Date or Shipping Date in respect of the Hardware, and which identifies
the minimum quantity of Hardware to be ordered by Purchaser from Nortel
during the period commencing September 1st 1999 and ending August 31st
2000.
"Cancellation Period(s)" shall mean the period(s) so designated in
Appendix C, which shall end on the Shipping Date.
"Delivery" shall mean Nortel's delivery of Hardware in good condition on
board a common carrier at Nortel's Shipping Location.
"Delivery Date" shall mean the date when the Hardware shall be delivered
to the Delivery Location.
"Delivery Location" shall mean the location specified in an Order to
which the Hardware shall be delivered.
"Hardware" shall mean the hardware set forth in Appendix A
(individually, a "Hardware"), provided under this Agreement pursuant to
an Order, as described in the applicable Technical Specifications, but
shall exclude Services.
"Maximum Delivery Period" shall mean the period so designated in
Appendix C which shall commence on the date that Nortel receives an
Order or a Release.
"Maximum Order Amount" shall mean the amount so designated in Appendix
C.
"Merchandise" shall mean Hardware not ordered as part of the Hardware
that is needed for expansion, spares or replacement parts.
"Minimum Order Amount" shall mean the amount so designated in Appendix
C.
<PAGE> 2
"Order" shall mean the document used by Purchaser to order Hardware under this
Agreement, and shall specify the quantity of Hardware Purchaser commits to
purchase from Nortel during the subsequent thirteen (13) week period.
"Parties" shall mean, collectively, Nortel and Purchaser.
"Party" means, separately, Nortel or Purchaser, as the case may be.
"Person" shall mean any individual, corporation, partnership, firm,
joint venture, syndicate, association, trust, government, governmental
agency, board, commission or authority, and any other form of entity or
organization.
"Price Schedule" shall mean the list of prices for the Hardware provided
to Purchaser by Nortel from time to time.
"Purchaser Specifications" shall mean any information (including without
limitation, software, schematics, designs or techniques) supplied by
Purchaser to Nortel for us in the design or manufacture of the Hardware
or otherwise incorporated therein.
"Release" shall mean the document used by Purchaser pursuant to a
Blanket Order to set the Delivery Date and/or Shipping Date for
specified quantities of Hardware.
"Rescheduling Period(s)" shall mean the period(s) so designated in
Appendix C, which shall end on the Shipping Date.
"Return Material Authorization" shall mean the distinctive identifier
provided by Nortel to Purchaser in respect of a Hardware, which
allegedly does not conform to the warranty in Section 4.1.
"Services" shall mean services associated with the Hardware which may be
purchased from or provided by Nortel, such as, but not limited to,
Hardware replacement, documentation, training or repair pursuant to this
Agreement.
"Shipping Date" shall mean the date when a Hardware shall be delivered
to the carrier at the Shipping Location for shipment to the Delivery
Location.
"Shipping Location(s)" shall mean the location(s) so designated in
Appendix C, from which a Hardware shall be shipped by Nortel.
"Technical Information" shall mean any information of a scientific or
technical nature regardless of form or characteristics and in whatever
form presented, including, but not limited to, inventions, human and
machine-readable computer software and topography, whether or not
subject to patent, copyright or other statutory protection.
"Technical Specifications" shall mean Nortel's standard descriptions,
engineering information, ordering information, technical specifications,
installation and test procedures
-2-
<PAGE> 3
and operating and maintenance/replacement procedures in respect of the
Hardware. The Technical Specifications are attached hereto as Appendix
B.
"Term" shall mean 60 months.
"Territory" shall mean the world.
"Vendor Items" shall mean Hardware which is not integral to the
operation of the Hardware and which is manufactured and/or licensed by
an entity other than Nortel.
"Working Day(s)" shall mean Monday through Friday, inclusive, excluding
holidays recognized by either the federal government of Canada or the
provincial government of Ontario, excluding December 26 through January
1, inclusive, unless notice is actually received by an employee of the
Party to whom it is addressed.
2. ORDERING AND DELIVERY
2.1 Buyer shall be eligible to place Orders, Blanket Orders, or Releases for
the Hardware and/or Services, for delivery or performance in the
Territory, with the benefits of and subject to the terms and conditions
contained in this Agreement. An Order, Blanket Order or Release
submitted pursuant to the terms and conditions of this Agreement, and
which Nortel has accepted within five (5) days of receipt of such Order,
Blanket Order or Release, shall constitute a contract between Nortel and
Purchaser, failing such acceptance, any such Order, Blanket Order or
Release shall be deemed to be void. Purchaser may use the Hardware
itself in the Territory or use the Hardware to provide services to
others in the Territory. Purchaser acknowledges and agrees that in no
circumstances shall this Agreement restrict Nortel from selling, leasing
or otherwise transferring Hardware, excluding Purchaser Specifications,
or hardware incorporating purchaser designs/intellectual property, to
any other Person. [***] Should the terms of any Order, Blanket Order or
Release conflict with the terms of this Agreement, the terms of this
Agreement shall govern unless the parties expressly agree in writing to
the contrary. Notwithstanding that an Order, Blanket Order or Release
does not refer to this Agreement, any Order, Blanket Order or Release
issued by Purchaser during the Term shall be deemed to have been issued
pursuant to this Agreement unless the Parties expressly agree to the
contrary.
2.2 Purchaser shall issue an Order to Nortel on the third Working Day of
each week in respect of the subsequent thirteen (13) week period. An
Order shall set forth a description of the following: (a) Hardware and
quantity; (b) price (in accordance with the current Price Schedule); (c)
Delivery Location; (d) the location where the invoice shall be rendered
for payment; (e) method of shipment; (f) quantity; and (g) Delivery Date
and/or Shipping Date. An Order or a Release shall not be issued for less
than the Minimum Order Amount or for more than the Maximum Order Amount
unless the Parties expressly agree to a larger or smaller amount. All
shipping documents shall reference the number of the Order issued for
the Hardware contained in the shipment.
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment requested has been requested with
respect to the omitted portions.
-3-
<PAGE> 4
2.3 Purchaser agrees to issue Orders for a minimum of one thousand wafers
over the first twelve months of the Term, according to the release
schedule as set out in Appendix C
2.4 Within five (5) Working Days of Nortel's receipt of an Order or a
Release, Nortel shall either confirm the Shipping Date or propose an
alternate Shipping Date. If Nortel fails to do so, Nortel shall be
deemed to have agreed to the Shipping Date set forth by Purchaser. If
Nortel proposes an alternate Shipping Date, then Purchaser shall within
five (5) Working Days of its receipt of notice of such alternate
Shipping Date notify Nortel that either such alternate Shipping Date is
acceptable or such Order or Release is cancelled. If Purchaser fails to
give such notice, it shall be deemed to have agreed to the alternate
Shipping Date.
2.5 Purchaser may, without charge, postpone the Shipping Date at any time
prior to the commencement of the Rescheduling Period, for a period of up
to ninety (90) days. If Purchaser cancels an Order or a Release prior to
the commencement of the Cancellation Period, there shall be no charge to
Purchaser. If Purchaser cancels an Order or a Release during the
Cancellation Period, Purchaser shall reimburse Nortel for the actual
costs Nortel has incurred in connection with the manufacture of such.
2.6 Purchaser may, at any time, request additions, alterations, deductions
or deviations to an Order subject to the condition that such changes and
any adjustments resulting from such changes including, but not limited
to, schedules and prices, shall be mutually agreed upon and, if so
agreed, subsequently detailed in a written revision to the applicable
Order (a "Change Order"). Purchaser acknowledges that a premium charge
may be applied by Nortel should Nortel agree to process a Change Order
outside of its standard Order processing cycle for a Hardware or in the
event that a Change Order requires an additional amount of work (such as
engineering) to be undertaken to comply with such changes.
2.7 The Parties may add new Hardware to Appendix A upon mutual agreement in
writing. The process the Parties shall follow, unless otherwise mutually
agreed, to add new Hardware to Appendix A is described in Appendix E.
2.8 In the event that Nortel decides to cease production of the Hardware for
any reason, including but not limited to discontinuance of its wafer
manufacturing business or significant changes to its wafer manufacturing
process, Nortel will provide Purchaser with a written end-of-life notice
six (6) months prior to such end of production. Upon receipt of such
notice, Purchaser shall submit last time purchase orders to Nortel no
later than either (a) three (3) months after receipt of such notice if
Purchaser's last time purchase order is for a quantity of hardware that
will exceed one hundred fifty (150%) of the quantity of Hardware
purchased under this Agreement in the twelve (12) months preceding
Purchaser's receipt of such notice or (b) no later than six (6) months
after receipt of such notice if Purchaser's last time purchase order is
for a quantity of hardware that are less than one hundred fifty (150%)
of the quantity of Hardware purchased under this Agreement in the twelve
(12) months preceding Purchaser's receipt of such notice. The maximum
quantity of a last time purchase may not exceed three hundred percent
(300%) of the quantity purchased under this Agreement in the twelve (12)
months preceding Purchaser's receipt of such notice and Purchaser must
take delivery of the full order with fifteen (15) months of the notice,
unless rescheduled by Nortel
-4-
<PAGE> 5
in its sole discretion. Last time purchase orders shall be subject to
the terms and conditions of this Agreement.
3. PRICE, PAYMENT AND RISK OF LOSS
3.1 Unless otherwise indicated in the Price Schedule, the prices set forth
in the Price Schedule are: (a) in U.S. dollars; (b) F.O.B. Nortel's
Shipping Location; (c) exclusive of any applicable excise and sales
taxes now existing or hereinafter imposed by any applicable taxing
authority; and (d) exclusive of transportation and insurance charges
applicable between the Shipping Location and the Delivery Location. Such
taxes, transportation and insurance charges and duty for which Purchaser
is liable shall be separately stated on the invoice.
3.3 As of the moment of Delivery of a Hardware, Purchaser accepts all risks
of loss, mishandling, breakage, and other damages relating thereto.
Times quoted for Delivery will date from acceptance of the Order by
Nortel. Title shall pass to Purchaser upon receipt of full payment by
Nortel. If Purchaser returns a Hardware, risk of loss or damage for such
Hardware shall pass to Nortel when Purchaser delivers the Hardware to
the Shipping Location.
3.4 Purchaser grants to Nortel a first priority purchase money security
interest in the Hardware. Nortel may perfect such interest, and
Purchaser shall assist Nortel, as reasonably necessary, to do so. Nortel
may retain such interest until title to the Hardware has passed to
Purchaser. Prior to Hardware title transfer, Purchaser shall not cause
or permit the Hardware or any portion thereof, to be sold, leased or
subjected to a lien or other encumbrance.
3.2 Nortel shall issue invoices for Hardware and/or Services ordered
hereunder as follows:
(a) Invoices for Hardware, Merchandise and/or Vendor Items shall be
issued upon Delivery of the Hardware, Merchandise and/or Vendor Items.
(b) Invoices for Services shall be issued upon completion of the
Services.
(c) All invoices shall be paid in full by Purchaser within [***]
days of the date of Nortel's invoice. Overdue payments may, at Nortel's
sole discretion, be subject to interest charges, calculated daily from
the date due, at one percent (1%) per month, twelve percent (12%) per
annum) or such lesser rate as maybe the maximum permissible rate under
applicable law.
(d) All payments hereunder shall be made in U.S. dollars ($U.S.).
4. WARRANTY
4.1 Nortel warrants to Purchaser that Hardware will at the time of delivery
are new and free and clear of all liens and encumbrances. Nortel further
warrants that the hardware will be free from defects in material and
workmanship for a period of twelve months after delivery such that the
hardware meets the technical specifications outlined in appendix B.
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment requested has been requested with
respect to the omitted portions.
-5-
<PAGE> 6
4.2 Purchaser shall provide written or verbal notice of any Hardware, which
does not conform to the warranty described in Section 4.1 within two
weeks of discovery of such defects. If Purchaser has not so notified
Nortel of any such nonconformance within two weeks of discovery of such
defects of the relevant Hardware, Purchaser shall be deemed to have
accepted this Hardware and Nortel shall have no obligation to replace
this Hardware. If Purchaser does notify Nortel of a nonconformance to
the warranty described in section 4.1 within two weeks of the discovery
of such defects of the relevant Hardware, Nortel shall, at Nortel's
option, replace the Hardware which does not conform to the warranty or
(b) refund to Purchaser the price of such Hardware. All transportation
and other expenses arising from shipping the non-conforming Hardware to
the Shipping Location shall be paid by Purchaser. All transportation and
other expenses arising from shipping the repaired or replaced
non-conforming Hardware from the Shipping Location to the Delivery
Location shall be paid by Nortel.
4.3 Purchaser shall provide written or verbal notice of any Hardware, which
does not conform to the incoming inspection as outlined in Appendix B.
If Purchaser has not so notified Nortel of any such nonconformance
within five weeks of delivery of the relevant Hardware, Purchaser shall
be deemed to have accepted this Hardware and Nortel shall have no
obligation to replace this Hardware. If Purchaser does notify Nortel of
a nonconformance to the incoming inspection as outlined in Appendix B
within five weeks of the delivery of the relevant Hardware, Nortel
shall, at Nortel's option, replace the Hardware which does not conform
to the incoming inspection or (b) refund to Purchaser the price of such
Hardware. All transportation and other expenses arising from shipping
the non-conforming Hardware to the Shipping Location shall be paid by
Purchaser. All transportation and other expenses arising from shipping
the repaired or replaced non-conforming Hardware from the Shipping
Location to the Delivery Location shall be paid by Nortel.
4.4 Vendor Items resold by Nortel as part of the Hardware provided hereunder
shall bear the warranty of the original equipment manufacturer only.
4.5 Nortel shall assign a Return Material Authorization to each Hardware
identified by Purchaser as allegedly not conforming to the warranty in
Section 4.1 Nortel shall promptly provide the Return Material
Authorization to Purchaser. Purchaser and Nortel shall use the Return
Material Authorization in all communications in respect of such
Hardware.
4.6 THE WARRANTIES PROVIDED HEREUNDER ARE IN LIEU OF ALL OTHER WARRANTIES,
GUARANTEES OR CONDITIONS PERTAINING TO THE HARDWARES AND SERVICES,
WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY
AS TO MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE OR
NONINFRINGEMENT, AND THE PROVISIONS HEREIN SHALL CONSTITUTE NORTEL'S
SOLE OBLIGATION AND LIABILITY AND PURCHASER'S SOLE REMEDY FOR BREACH OF
WARRANTY. NORTEL SHALL NOT BE RESPONSIBLE FOR ANY WARRANTY OFFERED BY
PURCHASER TO ANY CUSTOMER(S) OF PURCHASER. IN NO EVENT SHALL NORTEL BE
LIABLE FOR ANY
-6-
<PAGE> 7
INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES RELATING TO
BREACH OF WARRANTY.
5. TERM AND TERMINATION
5.1 This Agreement shall commence on the Effective Date and continue in
effect for the Term. This Agreement shall be automatically renewed for
additional terms of twelve (12) months each on an annual basis after the
Term, unless either Party notifies the other in writing of its intent to
terminate the Agreement, and such notice is received at least sixty
(180) days prior to the end of the current term.
5.2 Subject to Sections 5.3 and 5.4, the termination of this Agreement shall
not effect the rights or obligations of either Party to the other under
any Order or Release issued by Purchaser and accepted by Nortel prior to
such termination.
5.3 If either Party shall be declared insolvent or bankrupt, or if any
assignment of its property shall be made for the benefit of creditors or
otherwise, or if its interest herein shall be levied upon under
execution or seized by virtue of any writ of any court, or if a petition
is filed in any court to declare such Party bankrupt and not dismissed
in sixty (60) days, or if a trustee in bankruptcy, receiver or
receiver-manager or similar officer is appointed for such Party or for
any of such Party's assets, then the other Party may, at its option,
terminate, without charge, this Agreement and/or any or all outstanding
Orders and Releases and shall thereupon be free from all liability and
obligations thereunder. The ability of a Party to terminate in such
instances shall be subject to the applicable bankruptcy and insolvency
statutes.
5.4 Subject to Section 5.3, a Party (the "Non-Breaching Party") may
terminate an Order or a Release only if the other Party (the "Breaching
Party") is in material breach of a term of this Agreement or an Order or
Release and such breach has not been corrected within thirty (30)
Working Days after the date of the Non-Breaching Party's notice thereof
to the Breaching Party. In the event Purchaser terminates an Order or
Release pursuant to this Section 5.4, Purchaser shall reimburse Nortel
for the actual costs incurred to date in connection such Order or
Release.
6. INTELLECTUAL PROPERTY RIGHTS
6.1 This Agreement shall not constitute any transfer of intellectual
property rights of any nature whatsoever.
6.2 Nortel acknowledges that all Purchaser Specifications for the Hardware
are the property of Purchaser.
6.3 Subject to Section 6.4 below, Nortel agrees not to use the Purchaser
Specifications or any customized ASIC, test vectors, or tooling
generated exclusively for the Hardware in the course of development
other than for the manufacture of the Hardware on behalf of Purchaser.
Purchaser acknowledges and agrees that place and route data, database
tapes, mask sets and other customized data relating to the Hardware
contain proprietary information
-7-
<PAGE> 8
of Nortel and Purchaser, and such materials shall therefore remain in
the custody of Nortel at all times. Upon request of Purchaser, however,
Nortel shall destroy such materials produced for Purchaser and provide
certification thereof.
6.4 Nortel or its licensors shall own and retain all intellectual property
rights (including, without limitation, mask work rights) associated with
any and all circuitry design components and process technology furnished
by Nortel in connection with the design, development or manufacture of
the Hardware, including but not limited to 9I) all base array layers
(ii) all Nortel-licensed library elements (including, without
limitation) any megafunctions or macrocells) and (iii) all
Nortel-furnished modification of any such library elements. The rights
of Purchaser in the Hardware designed hereunder shall be strictly
limited to control of the customized configuration of the Hardware
created by the interconnections of such elements of hardware information
contained in the Hardware manufactured for Purchaser.
6.5 Nortel shall own any process, pattern or device discovered by Nortel in
the course of performing this Agreement. If Purchaser discovers any
process, pattern, or device in the course of designing or developing the
Hardware, Nortel shall automatically acquire a fully paid, perpetual,
worldwide license to use such invention in connection with the
manufacture of the Hardware. The Parties shall be deemed joint owners of
any invention, which is jointly discovered.
6.6 Purchaser covenants not to remove, modify or obscure Nortel's logos and
part numbers on the Hardware.
7. CONFIDENTIAL INFORMATION
7.1 Any Technical Information, specifications, drawings, documentation,
schematics, models, pricing information and "know-how" of every kind and
description whatsoever provided by one Party ("Discloser") to the other
("Recipient") in connection with the negotiation or performance of this
Agreement or any Order or Release, regardless of form, shall be deemed
to be confidential information, and the exclusive property, of Discloser
except if such information is: (a) in or becomes part of the public
domain through no fault of Recipient; (b) disclosed to Recipient by a
third party without restriction; (c) known to Recipient at the time of
disclosure and is so documented; (d) independently developed by
Recipient without access to any information furnished to it by Discloser
and is so documented; or (e) disclosed when such disclosure is compelled
pursuant to legal, judicial or administrative proceeding, or otherwise
required by law, subject to Recipient giving all reasonable prior notice
to Discloser to allow it to seek protective or other court orders. All
such confidential information, except as specifically authorized in
writing by Discloser or as provided hereunder, shall be held in
confidence by Recipient and, if in written form, returned to Discloser
upon its request. Recipient shall not: (x) disclose or allow to be
disclosed such information except to its employees who have a bona fide
need to know; (y) reproduce such information without the written consent
of Discloser; or (z) use any of such information for any purpose other
than the satisfaction of its rights and obligations under this
Agreement. The foregoing obligations of confidentiality shall survive
for a period of five (5) years after the applicable disclosure,
notwithstanding the termination or expiration of this Agreement.
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<PAGE> 9
8. INDEMNIFICATION
8.1 Nortel, at its expense, shall indemnify, defend and hold harmless
Purchaser against any claim in the United States of America or Canada
based on an allegation that a Hardware (except for Vendor Items)
infringes a United States or Canadian patent, copyright, or trademark of
another Person, or violates any trade secret or other proprietary
interest of another Person except in respect of any claim relating to
designs or information furnished by Purchaser, and Nortel will pay any
resulting costs, damages, and attorney's fees finally awarded against
Purchaser that are attributable to such claim and will pay the part of
any settlement that is attributable to such claim provided that: (a)
Purchaser notifies Nortel promptly in writing of the claim; (b) Nortel
is permitted to control the defense or settlement of the claim; and (c)
Purchaser cooperates reasonably in such defense or settlement at
Nortel's expense. Purchaser shall not settle or compromise any such
legal action without Nortel's prior written approval. The selection of
counsel to be employed in the defense of such legal action shall be
within Nortel's sole discretion. Such indemnity shall not apply in the
event the Hardware(s) have been modified by Purchaser, have been
utilized in a manner other than as specified by Nortel or are used or
located outside the Territory. The indemnity provided herein shall not
extend to any legal action based upon any infringement or alleged
infringement of any patent, trademark or copyright by Vendor Items, or
by the combination of any Hardware furnished by Nortel with other
equipment not furnished by Nortel. Notwithstanding the above, Nortel
shall have no obligation or liability with regard to any patent
infringement suit, claim, or proceeding that may be made or brought
against Purchaser (i) alleging that method of use claims in such patent
are infringed by any service offering and/or by any use by Purchaser of
Hardware furnished hereunder to make such service offering available or
(ii) resulting in a settlement payment, or award of damages, or
accounting of profits, where such settlement, award, or accounting is
based on the revenues or profits earned or other value obtained by
Purchaser from its use of such Hardware and/or is based on the lost
revenues or profits of third parties arising from Purchaser's use of
such Hardware.
8.2 In its defense or settlement of any such claim described in Section 8.1
Nortel may: (a) procure for Purchaser the right to continue using the
Hardware; (b) modify the Hardware or the Hardware manufacturing process
so that the use or manufacturing of the Hardware becomes non-infringing;
(c) replace the Hardware with equivalent Hardware not subject to such
claim; or (d) in the event none of the foregoing is commercially
feasible, refund Purchaser the price paid for such Hardware, and
Purchaser shall return such Hardware to Nortel immediately.
8.3 Independent of any other limitation, in no event shall Nortel be liable
to Purchaser or to parties claiming through or on behalf of Purchaser
for special, incidental, exemplary, consequential or indirect damages or
for loss of anticipated profits pursuant to the indemnities provided in
this Article 8. In no event shall Nortel's liability to Purchaser or its
customers or any other Persons pursuant to Section 8.1 exceed in the
aggregate the monies received by Nortel from Purchaser pursuant to this
Agreement to the date of such claims. The foregoing states the entire
obligation and liability of Nortel with respect to infringement or
violation of any proprietary interest of another Person and claims
thereof.
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<PAGE> 10
8.4 Purchaser, at its expense, shall indemnify, defend and bold harmless
Nortel against any claim based on an allegation that the designs and
information provided by Purchaser in respect of Hardware infringes a
patent, copyright, or trademark of another Person, or violates any trade
secret or other proprietary interest of another Person, and Purchaser
will pay any resulting costs, damages, and attorney's fees finally
awarded against Nortel that are attributable to such claim and will pay
the part of any settlement that is attributable to such claim provided
that: (a) Nortel notifies Purchaser promptly in writing of the claim;
(b) Purchaser is permitted to control the defense or settlement of the
claim; and (c) Nortel cooperates reasonably in such defense or
settlement at Purchaser's expense.
8.5 In its defense or settlement of any such claim described in Section 8.4
Purchaser may: (a) procure for Nortel the right to continue using the
design and information; (b) modify the design and information so that it
is non-infringing; or (c) replace the design and information with an
equivalent design and information not subject to such claim.
8.6 Independent of any other limitation, in no event shall Purchaser be
liable to Nortel or to parties claiming through or on behalf of Nortel
for special, incidental, exemplary, consequential or indirect damages or
for loss of anticipated profits pursuant to the indemnity in Section
8.4.
8.7 Each Party hereto shall indemnify and save the other harmless from any
liabilities, claims or demands (including the costs, expenses and
reasonable attorney's fees on account thereof) that may be made by
anyone for bodily injuries, including death, or damage to tangible
personal property, resulting from the negligence and/or willful
misconduct of that Party, its employees or agents in the performance of
this Agreement. Each Party shall defend the other at the other's request
against any such liability, claim or demand. Each Party shall notify the
other promptly of written claims or demands against such Party of which
the other Party is responsible hereunder.
9. LIMITATION OF LIABILITY
9.1 IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL,
INDIRECT, EXEMPLARY OR CONSEQUENTIAL DAMAGES OR LOSS FOR ANY BREACH OF
THIS AGREEMENT, TORT OR OTHER LEGAL THEORY, INCLUDING NOT LIMITED TO
LOSS OF OPPORTUNITY, USE, INCOME OR PROFIT OR OTHER SUCH CLAIMS ARISING
FROM ANY CAUSE WHATSOEVER. THIS LIMITATION SHALL SURVIVE ANY TERMINATION
OF THIS AGREEMENT. IN NO EVENT SHALL NORTEL BE LIABLE FOR DAMAGES FOR
ANY CAUSE WHATSOEVER IN ANY AMOUNT IN EXCESS OF, IN AGGREGATE, THE
MONIES RECEIVED BY NORTEL FROM PURCHASER PURSUANT TO THIS AGREEMENT TO
THE DATE OF SUCH LIABILITY.
9.2 Any action for breach of this Agreement or to enforce any right
hereunder shall be commenced within two (2) years after the cause of
action occurs or it shall be deemed waived and barred.
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<PAGE> 11
10. FORCE MAJEURE
10.1 Nortel shall not be responsible or liable to Purchaser for any delay or
failure to perform hereunder if such delay or failure results from fire,
explosion, labor dispute, earthquake, casualty or accident, lack or
failure of transportation facilities, epidemic, flood, drought, or by
reason of war, declared or undeclared, revolution, civil commotion, the
act of a public enemy, blockade or embargo, act of God, any inability to
obtain any requisite license, permit or authorization, or by reason of
any law, proclamation, regulation, ordinance, demand, or requirement of
any government or by reason of any other cause whatsoever, whether
similar or dissimilar to those enumerated, beyond the reasonable control
of Nortel. With respect to labor disputes as described above, Nortel
shall not be obligated to accede to any demands being made by employees
or other personnel. All such causes will delay Nortel's performance
hereunder for a period equal to the delay resulting from any such causes
and such additional period as may be reasonably necessary to allow
Nortel to resume its obligations.
11. ACCESS TO PREMISES
11.1 Each Party shall, subject to reasonable notice, have access to the
premises of the other Party in order to perform their respective
obligations under this Agreement. Each Party shall comply with the
general security and safety rules of the other Party, as appropriate,
when in such premises. In addition, each Party acknowledges that its
access to the other Party's premises may be restricted by the host
Party, acting reasonably, in order to preserve the host Party's trade
secrets and obligations of confidentiality to third parties.
12. GENERAL
12.1 Any notices to be given under this Agreement shall be sent by certified
mail, postage prepaid, or by facsimile or hand delivery to the other
Party at the addresses set forth below and to the attention of:
Nortel: Legal notices:
Corporate Secretary
Nortel Networks Corporation
8200 Dixie Road, Suite 100
Brampton, Ontario
L6T 5P6 Canada
Business notices:
Nortel Advanced Components
Nortel Networks Corporation
185 Corkstown Road
Nepean, Ontario
K2H 8V4 Canada
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<PAGE> 12
Stanford Microdevices: Stanford Microdevices
Attn: Jerry Quinnell
Chief Operating Officer
522 Alamnor Ave.
Sunnyvale, CA USA 94086
Fax: (408) 739-0970
12.2 Notices shall be deemed to have been received five (5) Working Days
after mailing if given by mail, one (1) Working Day after sending if
given by facsimile and upon delivery if given by hand. A Party may
change its address for notices by written notice to the other Party in
the manner provided in Section 12.1.
12.3 The failure of a Party to enforce any provision of this Agreement shall
not constitute a waiver of such provision or the right of such Party to
enforce such and every other provision.
12.4 The validity, interpretation and performance of this Agreement, the
rights and obligations arising hereunder and any purchase made hereunder
shall be governed by the laws of the Province of Ontario and the federal
laws of Canada applicable therein, without giving effect to the
principles of conflicts of laws thereof and without reference to the
UNCITRAL Convention on Agreements for the International Sale of Goods.
12.5 Neither Party shall assign this Agreement or any rights hereunder
without the prior written consent of the other Party. Notwithstanding
the foregoing, Nortel may assign this Agreement to any Nortel Affiliate
or manufacturing licensee without the consent of the Purchaser. Nortel
may subcontract any of its obligations under this Agreement, but no such
subcontract shall relieve Nortel of primary responsibility for
performance of its obligations.
12.6 Purchaser shall not export any technical data received from Nortel
pursuant to this Agreement, or release any such technical data with the
knowledge or intent that such technical data will be exported or
transmitted to any country or to foreign nationals of any country,
except in accordance with applicable U.S. and/or Canadian law concerning
the exporting of such technical data Purchaser shall obtain all
authorizations from the U.S. and/or Canadian government in accordance
with applicable law prior to exporting or transmitting any such
technical data as described above.
12.7 A Party shall not release, without the prior written approval of the
other Party, any advertising or other publicity relating to this
Agreement wherein such other Party may reasonably be identified. In
addition, each Party shall take reasonable precautions to keep the
existence of this Agreement confidential so long as this Agreement
remains in effect and for a period of [***] years thereafter, except
as may be otherwise expressly provided in this Agreement or as may be
reasonably required to enforce this Agreement by law.
12.8 Section headings are inserted for convenience only and shall not be used
to interpret this Agreement.
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment requested has been requested with
respect to the omitted portions.
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<PAGE> 13
12.9 All obligations and liabilities which, by their nature, are intended to
survive the expiration or termination of this Agreement shall remain in
effect beyond any expiration or termination.
12.10 The invalidity in whole or in part of any provision of these terms and
conditions shall not void or effect the validity of any other provision
of this Agreement. The Parties hereto agree to substitute any provision
of these terms and conditions which is or shall become invalid by such
provision which in its legal and commercial contents is the most similar
to the invalid provision.
12.11 This Agreement, including the Appendices to it, constitutes the entire
agreement between the Parties on the subject matter hereof and
supersedes prior agreements and communications, written or oral, with
respect thereto. Except for the information which must be set forth in
an Order, Blanket Order or Release in accordance with Articles 1 and 2,
any additional or different term set forth in any Order, Blanket Order
or Release, acknowledgment form, quotation or other document hereafter
issued shall be void. This Agreement may not be modified or any right of
a Party waived, except by means of an amendment, which expressly
references this Agreement and is duly executed by each of the Parties.
12.12 This Agreement is not intended to and shall not constitute, create, give
effect or otherwise recognise a joint venture, partnership, agency
relationship or formal business entity of any kind.
IN WITNESS WHEREOF, the Parties hereto have signed this Agreement by their duly
authorized representatives as of the date first written above.
Nortel Networks Corporation STANFORD MICRODEVICES INC.
By: /s/ Barbara Callaghan By: /s/ Robert M. Van Buskirk
------------------------------- -------------------------------
Print Name: Barbara Callaghan Print Name: Robert M. Van Buskirk
------------------------- ------------------------
Title: VP & GM Microelectronics Title: CEO
------------------------------ -----------------------------
Date: October 12, 1999 Date: 15 September 1999
------------------------------ ------------------------------
By: /s/ D. Wilson By:
------------------------------- -------------------------------
Print Name: D. Wilson Print Name:
------------------------- ------------------------
Title: Sr. Counsel Title:
------------------------------ -----------------------------
Date: 9 Nov 99 Date:
------------------------------ ------------------------------
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<PAGE> 14
APPENDIX A
HARDWARES
[***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment requested has been requested with
respect to the omitted portions.
<PAGE> 15
APPENDIX B
TECHNICAL SPECIFICATIONS
[***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment requested has been requested with
respect to the omitted portions.
<PAGE> 16
APPENDIX C
GENERAL
Shipping Location:
Delivery Location:
Rescheduling Period: 13 weeks
Cancellation Period: 13 weeks
Maximum Delivery Period: 15 weeks
Minimum Order Amount: [***]
Maximum Order Amount: [***]
Release Schedule: [***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment requested has been requested with
respect to the omitted portions.
<PAGE> 17
APPENDIX D
[***]
[***] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment requested has been requested with
respect to the omitted portions.
<PAGE> 18
APPENDIX E
NEW HARDWARE INTRODUCTION PROCESS
Nortel requires a fabrication cycle time of 13 weeks.
<PAGE> 1
EXHIBIT 10.13
STANDARD SUBLEASE
American Industrial Real Estate Association
1. PARTIES. This Sublease, dated, for reference purposes only, September 5,
1997, is made by and between Telesensory, a California corporation (herein
called "Sublessor") and Matrix Micro Assembly Corporation a California
corporation (herein called "Sublessee")
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Santa Clara State of California, commonly known as 522 Almanor and described
as a portion of an approximately 82,544 square foot tilt-up concrete building.
APPROXIMATELY 20,731 RENTABLE SQUARE FEET PER EXHIBIT B CONSISTING OF Said real
property, including the land and all improvements thereon, is hereinafter called
the "Premises"
3.1 TERM. The term of this Sublease shall be for sixty-three (63) months
commencing on October 15, 1997 and ending on January 14, 2003 unless sooner
terminated pursuant to any provision hereof
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if
for any reason Sublessor cannot deliver possession of the Premises to Sublessee
on said date, Sublessor shall not be subject to any liability therefore, nor
shall such failure affect the validity of this Lease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee shall
not be obligated to pay rent until possession of the Premises is tendered to
Sublessee, provided, however, that if Sublessor shall not have delivered
possession of the Premises within sixty (60) days from said commencement date,
Sublessee may, at Sublessee's option, by notice in writing to Sublessor within
ten (10) days thereafter, cancel this Sublease, in which event the parties shall
be discharged from all obligations thereunder. If Sublessee occupies the
Premises prior to said commencement date, such occupancy shall be subject to all
provisions hereof, such occupancy shall not advance the termination date and
Sublessee shall pay rent for such period at the initial monthly rates set forth
below.
See Addendum 1, items A and B.
Rent for any period during the term hereof which is for less than one month
shall be a prorata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Sublessor at the address stated herein or
to such other persons or at such other places as Sublessor may designate in
writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $32,000.00 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease. Sublessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Sublessor may become obligated by reason of
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all or any portion
of said deposit. Sublessee shall within ten (10) days after written demand
therefore deposit cash with Sublessor in an amount sufficient to restore said
deposit to the full amount hereinabove stated and Sublessee's failure to do so
shall be a material breach of this Sublease Sublessor shall not be
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<PAGE> 2
required to keep said deposit separate from its general accounts. If Sublessee
performs all of Sublessee's obligations hereunder, said deposit, or so much
thereof as has not theretofore been applied by Sublessor, shall be returned,
without payment of interest or other increment for its use to Sublessee (or at
Sublessor's option, to the last assignee, if any, of Sublessee's interest
hereunder) at the expiration of the term hereof, and after Sublessee has vacated
the Premises No trust relationship is created herein between Sublessor and
Sublessee with respect to said Security Deposit.
6. USE.
6.1 Use The Premises shall be used and occupied only for as per
paragraph 11A of the Master Lease and for no other purpose
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee will use the
premises, does not violate any applicable building code regulation or ordinance
at the time that this Sublease is executed. In the event that it is determined
?? this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes ordinances,
rules regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises Sublessee shall not use or permit the use of the Premises in any
manner that will tend to create waste or a nuisance or, if there shall be more
than one tenant of the building containing the Premises, which shall tend to
disturb such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the date
of the execution hereof, subject to all applicable zoning, municipal, county and
state laws, ordinances, and regulations governing and regulating the use of the
Premises, and accepts this Sublease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto Sublessee acknowledges that neither
Sublessor nor Sublessor's agents have made any representation or warranty as to
the suitability of the Premises for the conduct of Sublessee's business.
7. MASTER LEASE
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated August 1, 1997 wherein Pace Properties, a
California Limited Partnership is lessor, hereinafter referred to as the "Master
Lessor"
7.2 This Sublease is and shall be at all times subject and subordinate
to the Master Lease
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this Sublease
document shall control over the Master Lease. Therefore, for the purposes of
this Sublease, wherever in the Master Lease the word "Lessor" is used it shall
be deemed to mean the Sublessor herein and wherever in the Master Lease the word
"Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease
Sublessee does hereby expressly assume and agree to perform and comply with for
the benefit of Sublessor and Master Lessor, each and ever obligation of
Sublessor under the Master Lease which are not superceded by provisions of this
Sublease.
(c) American Industrial Real Estate Association 1978
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<PAGE> 3
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Lease
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the rents accruing
under this Sublease. However, if Sublessor shall default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee all rent owing and to be owed under this
Sublease Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor and that Sublessee shall pay such rents
to Master Lessor without any obligation or right to inquire as to whether such
default exists and notwithstanding any notice from or claim from Sublessor to
the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without
the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantor consent to
this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then.
(a) Such consent will not release Sublessor of its obligations or
after the primary liability of Sublessor to pay the rent and perform and comply
with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any
one else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent
to any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
any one else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments ??
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations
under the Master Lease, then Master Lessor and Sublessee shall each attorn to
the other and shall execute such documents as may be required to effectuate that
relationship in which event Master Lessor shall undertake the obligations of
Sublessor under this Sublease from the time of the exercise of said option to
termination of this Sublease but Master Lessor shall
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<PAGE> 4
not be liable for any prepaid rents nor any security deposit paid by Sublessee,
nor shall Master Lessor be liable for any other defaults of the Sublessor under
the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor
at the end of this document shall constitute their consent to the terms of this
Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default Sublessee shall have the right
to cure any default of Sublessor described in any notice of default within ten
days after service of such notice of default on Sublessee. If such default is
cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. BROKERS FEE.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action to
enforce the terms hereof or to declare rights hereunder, the prevailing party in
any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall inure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
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<PAGE> 5
12. ADDITIONAL PROVISIONS. [If there are no additional provisions draw a line
from this point to the next printed word after the space left here If there are
additional provisions place the same here.]
Addendum 1 is attached and made a part of this Sublease and is comprised
of items A through N, Exhibit A, Exhibit B
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION
IS MADE BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR
THE TRANSACTION RELATING THERETO.
Executed at Telesensory, a California corporation
-------------------- -------------------------------------
on 9/29/97 By /s/ Signature Illegible
-------
address 455 North Bernardo Avenue By
------------------------- ---------------------------------------
Mountain View, CA 94086 "Sublessor" (Corporate Seal)
- -----------------------
Executed at Matrix Micro Assembly Corp., a
---------------------- ------------------------------
California Corporation
on 9/26/97 By /s/ Signature Illegible
-------
address 3350 Scott Boulevard, #49 By
------------------------- ---------------------------------------
Santa Clara, CA 95054 "Sublessee" (Corporate Seal)
- ---------------------
Executed at Pace Properties, a California Limited
---------------------- -----------------------------------------
Partnership
on 10-1-97 By
- ------- --------------------------------------
address 1505 Wessex Avenue By /s/ Signature Illegible
------------------
Los Altos, CA 94024 "Master Lessor" (Corporate Seal)
- -------------------
Executed at
---------------------- -----------------------------------------
on
------------------------------ -----------------------------------------
address
------------------------- -----------------------------------------
"Guarantors"
- ---------------------------------
Form 401 778
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St. M-1, Los Angeles, CA 90071 (213)
687-8777.
(c) 1978 - by American Industrial Real Estate Association All rights reserved No
part of these works may be reproduced in any form without permission in writing
5
<PAGE> 6
ADDENDUM 1 TO SUBLEASE
This Addendum 1 shall be attached to and made a part of that certain
Sublease by and between Telesensory Corporation, a California
corporation ("Sublessor") and Matrix Micro Assembly Corporation, a
California corporation ("Sublessee") for that certain Premises located
at 520 Almanor, Sunnyvale, California, dated September 5, 1997, for
reference purposes only.
A. Rent Schedule
The parties acknowledge and understand that the exact measurement
of the demised Premises remains to be determined as provided in
Item 2 of the Sublease, which may not occur until after occupancy
by Sublessee. The parties will initially use twenty thousand
(20,000) square feet as their best approximation of the size of
the demised Premises, but all payments made or due as Rent shall
be adjusted (up or down as the case may be) following the final
determination of the size of the Premises, such adjustments to be
due and payable to Sublessor, or credited to Sublessee, at the
next Rental due date following such determination. Rent payable
by Sublessee to Sublessor for use of the premises shall be due
and payable in advance on the first day of each month, with
appropriate pro-ration for the second the last months of the
tenancy, as follows.
During the first 3 months: $0.80 per square foot.
During the 4th through 15th months: $1.40 per square foot.
During the 16th through 27th months: $1.45 per square foot.
During the 28th through 39th months: $1.50 per square foot.
During the 40th through 51st months: $1.55 per square foot.
During the 52nd through 63rd months: $1.60 per square foot.
B. Sublessee shall pay Sublessor upon the execution hereof
Forty-eight Thousand and 00/100ths Dollars ($48,000.00), which
shall be applied as base rent for the such portion of the rent
due for the first 3-4 months as it will cover, upon determination
of the actual size of the Premises.
C. Sublessee shall, in addition, be liable for the actual cost of
telephone service and any other utilities or services directly
provided or metered to, or for the sole benefit of, the demised
Premises; and a proportionate share (based on square footage) of
all building or yard exterior maintenance (including landscaping
services), commonly-metered utilities (electricity, gas, water)
and those common-area charges and any other cost, taxes, etc.)
for which Sublessor is obligated to reimburse Master Lessor under
the Master Lease. If in Sublessor's sole discretion Sublessee's
use of electrical and or water is in excess of that normally used
for light manufacturing then Landlord may require Sublessee to
install at Sublessee's cost, separate meters in the sublet
premises and to pay their actual use of same.*
D. Condition of Premises - Allowance for Tenant Improvements
Notwithstanding the provisions of item 6.3, Sublessor will, at
its own expense and in conformance with applicable law, construct
a demising wall in the approximate location shown on the attached
Exhibit B, which shall be substantially completed prior to the
occupancy date stated herein. In addition, Sublessor shall
provide Sublessee with an allowance of One Hundred Seventeen
Thousand Five Hundred and 00/100ths Dollars ($117,500.00) for the
purpose of permitting Sublessee to construct its own interior
improvements in the demised premises.
* However, should the Sublessee seperate the power, the Sublessor will provide
the Sublessee with $5,000.00 of the cost of the demising. As part of the
electrical seperation process, the Sublessor hereby gives the Sublessee the
right to remove various electrical transformers and panels in the Sublessor's
space and place them in the Sublessee's space. The Sublessor will have the right
to review and approve the removal of any specific item from its space.
6
<PAGE> 7
TENANT IMPROVEMENTS SHALL BE HANDLED AS PER PARAGRAPH 13.
ALTERATIONS. Any such improvements for which such Landlord's
agreement cannot be obtained shall be deemed special and unique
to Sublessee's occupancy and use, shall not be paid for out of
the allowance provided by Sublessor, and shall be removed at
Sublessee's expense at the termination of its tenancy, if
required by either Sublessor or Master Lessor. Sublessee or
Sublessee's general contractor shall be required prior to
commencement of construction to post a performance bond in the
amount of the tenant improvement contract to be performed by
Sublessee's contractor. Sublessee shall provide conditional and
unconditional lien releases from all contractors, subcontractors
and material suppliers in accordance with CC section 3262 and
shall provide certificates of completion for work for which
payment is requested. Upon receipt of these, Sublessor shall pay
these approved costs and invoices within ten (10) days of receipt
until the improvement allowance is used.
The stage of completion of any such Sublessee improvements shall
not be a factor deemed to cause a delay in delivery of possession
pursuant to item 3.2 of the Sublease.
E. Parking. Sublessee shall be entitled to a proportionate number of
unassigned parking spaces on the premises as relate to the area
of the demised premises as a portion of the whole premises, to be
located in reasonable proximity to the various entrances to the
demised premises, and SUBLESSOR SHALL PROVIDE SUBLESSEE SIXTY
(60) PARKING SPACES IN CLOSE PROXIMITY TO THE SUBLET PREMISES
F. Signage. Sublessee shall be entitled to install, at its own
expense and in the vicinity of the demised Premises, such signage
as is permitted by the Master Lease and the City of Sunnyvale. In
any case where such signage is limited by sign area, Sublessee
shall be entitled to its own sign area in the same proportion as
the demised Premises bear to the entire premises at 520 Almanor.
G. Brokerage Fee: Sublessor and Sublessee acknowledge that CPS and
Grubb and Ellis are the only brokers involved in this transaction
and that each shall indemnify the other against any and all
claims of brokers other than CPS and Grubb and Ellis. CPS
represents only the Sublessor and Grubb and Ellis represents only
the Sublessee and neither represents the others' client.
H. After architects determination of the size of the Premises as
outlined in Paragraph 2 of the sublease, the Sublessee's
proportionate share of additional costs and expenses shall be
determined by dividing this determination by 82,544 (e.g. 20,000
/ 82,544 = 24.23%). 25.1% 20,731/82544
I. Sublessee shall not be entitled to share any bonus rent in the
event of a sublease (modification of paragraph 26E Master Lease).
J. Permitted Alterations: Sublessee shall not be allowed to make any
alterations to the Premises without the prior written consent of
Sublessor and master lessor (modification of Paragraph 13F Master
Lease).
K. Holding Over: In the event of a hold over, Sublessee shall pay
Sublessor 120% of the monthly rent payable during the last month
of the term of the Sublease.
7
<PAGE> 8
M. Sublessee shall have an option to extend the term of the Sublease
throughout the remainder of the initial term under the Master
Lease, if written notice is received by Sublessor no earlier than
Two Hundred Ten (210) days, nor later than One Hundred Eighty
(180) days prior to the expiration of the initial Sublease term.
The rent shall be at the then current market for similar
buildings with similar tenant improvements and amenities in the
Sunnyvale area, but in no event less than the last month's rent
payable under the initial Sublease, and shall increase by six
cents ($0.06) per square foot per month at each 12th month
anniversary thereafter.
N. Should Sublessor elect to vacate and sublease the Premises which
it occupies while this Sublease is still in effect, and Sublessee
is not in default under the Sublease, Sublessee shall have a
Right of First Refusal to sublease Sublessor's Premises, subject
to, Master Lessor's approvals as would be required for any
sublessee under the Master Lease.
*except those constructed at Sublessee's expense
8
<PAGE> 9
EXHIBIT "A"
LEASE
BY AND BETWEEN
PACE PROPERTIES, A CALIFORNIA LIMITED PARTNERSHIP
(Landlord)
AND
TELESENSORY CORPORATION, A CALIFORNIA CORPORATION
(Tenant)
For the 82,554 Square Feet Premises at
520 Almanor Avenue, Sunnyvale, CA 94086
APPROVED:
<PAGE> 10
LEASE
Table of Contents
<TABLE>
<CAPTION>
PARAGRAPH PAGE
- --------- ----
<S> <C>
1. PARTIES 1
2. PREMISES 1
3. DEFINITIONS 1
A. Alterations
B. Building
C. (Intentionally Left Out)
D. Commencement Date
E. Common Area
F. HVAC
G. Interest Rate
H. Landlord's Agents
I. Monthly Rent
J. Real Property Taxes
K. Rent
L. Security Deposit
M. Assignment and Sublease
N. Tenant Improvements
O. Tenant Improvements Allowance
P. Tenant's Percentage
Q. Tenant's Personal Property
R. Term
4. LEASE TERM 2
A. Term
B. Alternative Term Provisions
C. Commencement Date Memorandum
D. Tenant Delays
E. Early Entry
F. Termination
5. RENT 3
A. Monthly Rent
B. Adjustments
C. Additional Rent
D. Prorations
6. LATE PAYMENT CHARGES 4
7. SECURITY DEPOSIT 4
8. HOLDING OVER 4
9. TENANT IMPROVEMENTS 4
10. CONDITIONS OF PREMISES 5
11. USE OF THE PREMISES 5
A. Tenant's Use
B. Compliance
12. QUIET ENJOYMENT 6
13. ALTERATIONS 6
A. Permitted Alterations
B. Notice
</TABLE>
i
<PAGE> 11
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations. The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations.
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
default shall occur in the performance of Sublessor's Obligations under the
Master Lease that Sublessor may receive, collect and enjoy the rents accruing
under this Sublease. However, I Sublessor shall default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee all rent owing and to be owed under this
Sublease Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor and that Sublessee shall pay such rents
to Master Lessor without any obligation or right to inquire as to whether such
default exists and notwithstanding any notice from or claim from Sublessor to
the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without
the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantors consent to
this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then
(a) Such consent will not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the rent and perform and comply
with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any
one else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent
to any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
any one else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations
under the Master Lease, then Master Lessor at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said
<PAGE> 12
option to termination of this Sublease but Master Lessor shall not be liable for
any prepaid rents nor any security deposit paid by Sublessee, nor shall Master
Lessor be liable for any other defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor
at the end of this document shall constitute their consent to the terms of this
Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor Master Lessor agrees to deliver to
Sublessee a copy of any such notice of default Sublessee shall have the right to
cure any default of Sublessor described in any notice of default within ten days
after service of such notice of default on Sublessee. If such default is cured
by Sublessee then Sublessee shall have the right of reimbursement and offset
from and against Sublessor.
10. BROKERS FEE.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action to
enforce the terms hereof or to declare rights hereunder, the prevailing party in
any such action on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall inure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
<PAGE> 13
<TABLE>
<CAPTION>
PARAGRAPH PAGE
- --------- ----
<S> <C>
26. ASSIGNMENT AND SUBLETTING 14
A. Landlord's Consent
B. Assignment and Sublease Form
C. No Waiver
D. Information to be Furnished
E. Landlord's Alternatives
F. Sublease or Assignment Profit and Expenses
G. Executed Counterpart
27. DEFAULT 15
A. Tenant's Default
B. Remedies
C. Landlord's Default
28. SUBORDINATION 16
A. Documentation
B. Attornment
29. NOTICES 17
30. ATTORNEYS' FEES 17
31. ESTOPPEL CERTIFICATES 17
32. TRANSFER OF THE PREMISES BY LANDLORD 18
33. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS 18
34. TENANT'S REMEDY 18
35. MORTGAGEE PROTECTION 18
36. BROKERS 18
37. ACCEPTANCE 19
38. RECORDING 19
39. QUITCLAIM 19
40. MODIFICATIONS FOR LENDER 19
41. PARKING 19
42. LEASE CONTINGENCY 19
43. OPTION TO EXTEND TERM 19
44. GENERAL 20
A. Captions
B. Executed Copy
C. Time
D. Separability
E. Choice of Law
F. Gender; Singular, Plural
G. Binding Effect
H. Waiver
I. Entire Agreement
J. Authority
K. Exhibits
TABLE OF EXHIBITS
EXHIBIT A The Premises
EXHIBIT B Work Letter Agreement and Plans
EXHIBIT C Commencement Date Memorandum
</TABLE>
iii
<PAGE> 14
LEASE
1. Parties.
This Lease (the "Lease"), dated, for reference purposes only, August 1,
1997, is entered into by and between Pace Properties ("Landlord"), whose
address is 1505 Wessex Avenue, Los Altos, California, 94024 and
TeleSensory, Corporation, A California Corporation ("Tenant"), whose
address is 455 N Bernardo Avenue, Mountain View, California, 94086.
2. Premises.
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
those certain premises consisting of approximately eighty two thousand five
hundred fifty four (82,554) square feet, as shown in EXHIBIT A (the "Premises")
in that certain building, commonly known as 520 Almanor Avenue in the City of
Sunnyvale, County of Santa Clara, California, 94086, (the "Building") as further
defined in Paragraph 3.B., located on that certain real property consisting of
approximately four and forty-seven hundredths (4.47) acres (the "Property"),
together with a right in common to the Common Area as defined Paragraph 3.E. The
Building and the Property are collectively the Premises.
3. Definitions.
The following terms shall have the following meanings in this Lease:
A. Alterations. Any alterations, additions or improvements made in, on
or about the Building or the Premises after the Commencement Date, including,
but not limited to, lighting, heating, ventilating, air conditioning,
electrical, partitioning, drapery and carpentry installations.
B. Building. That certain concrete tilt-up building on the Premises
consisting of approximately eighty two thousand five hundred fifty four (82,554)
square feet.
C. (Intentionally left blank)
D. Commencement Date. The Commencement Date of this Lease shall be the
first day of the Lease term determined in accordance with Paragraph 4.A. or
4.B., as the case may be.
E. Common Area. All areas and facilities within the Property provided
and designated by Landlord for the general use and convenience of Tenant and
other tenants and occupants of any part of the Property, including, without
limitation, those portions of the Building for the general use and convenience
of all tenants of the Building such as hallways, stairs, elevators, entrances
and exits, rest rooms, appurtenant equipment serving the Building,
fire/sprinkler alarm systems, parking areas, sidewalks, landscaped areas,
service areas, trash disposal facilities, and similar areas and facilities,
subject to the reasonable rules and regulations and changes therein from time to
time promulgated by Landlord governing the use of the Common Area.
F. HVAC. Heating, ventilating and air conditioning.
G. Interest Rate. Ten percent (10%) per annum, however, in no event to
exceed the maximum rate of interest permitted by law.
H. Landlord's Agents. Landlord's authorized agents, partners,
subsidiaries, directors, officers, and employees.
I. Monthly Rent. The rent payable pursuant to Paragraph 5.A., as
adjusted from time to time pursuant to the terms of this Lease.
J. Real Property Taxes. Any form of assessment, license, fee, rent tax,
levy, penalty (if a result of Tenant's delinquency), or tax (other than net
income, estate, succession, inheritance, transfer or franchise taxes), imposed
by any authority having the direct or indirect power to tax, or by any city,
county, state or federal government or any improvement or other district or
division thereof, whether such tax is: (i) determined by the area of the
Premises or any part thereof or the rent and other sums payable hereunder by
Tenant or by other tenants, including, but not limited to, any gross income or
excise tax levied by any of the foregoing authorities with respect to receipt of
such rent or other sums due under this Lease; (ii) upon any legal or equitable
interest of Landlord in the property or
1
<PAGE> 15
the Premises or any part thereof; (iii) upon this transaction or any document to
which Tenant is a party creating or transferring any interest in the Premises;
(iv) levied or assessed in lieu of, in substitution for, or in addition to,
existing or additional taxes against the Premises whether or not now customary
or within the contemplation of the parties; or (v) surcharged against the
parking area.
K. Rent. Monthly Rent plus the Additional Rent defined in Paragraph 5.B.
L. Security Deposit. That amount paid by Tenant pursuant to Paragraph 7.
M. Assignment or Sublease. An Assignment or a Sublease shall be as
defined in California Civil Code Section 1995.020(e).
N. Tenant Improvements. Those certain improvements to the Premises to be
constructed by Landlord pursuant to EXHIBIT B.
O. Tenant Improvements Allowance. The cost allowance provided by
Landlord for the construction of the Tenant Improvements as further described in
EXHIBIT B.
P. Tenant's Percentage. The percentage of the area of the Premises to
the total area of the Building. Tenant's Percentage is agreed to be one hundred
percent (100%) for the purpose of this Lease.
Q. Tenant's Personal Property. Tenant's trade fixtures, furniture,
equipment and other personal property in the Premises.
R. Term. The term of this Lease set forth in Paragraph 4.A., as it may
be extended hereunder pursuant to any options to extend granted herein.
4. Lease Term.
A. Term. The Term shall be a period of eight (8) years and zero
(0) months, beginning on the Commencement Date of August 1, 1997, subject to the
provisions of Paragraph 4.B., and terminating on July 31, 2005, unless sooner
terminated. Tenant agrees that if Landlord, for any reason whatsoever, is unable
to deliver possession of the Premises on the Commencement Date, Landlord shall
not be liable to Tenant for any loss or damage therefrom, nor shall this Lease
be void or voidable except as provided for in paragraph 4.F. In such event, the
Commencement Date, termination date and all other dates of this Lease shall be
extended to conform to the time of Landlord's tender of possession of the
Premises to Tenant and Tenant shall not be obligated to pay Monthly Rent or
other sums due Landlord hereunder until possession of the Premises is tendered
to Tenant.
B. Alternative Term Provisions. If at the date of execution of
this Lease, Landlord and Tenant have agreed that Landlord shall construct or
install any Tenant Improvements to the Premises as set forth in EXHIBIT B the
Commencement Date shall be determined as provided in this Paragraph 4.B., and
the termination date shall be eight (8) years and zero (0) months after the
Commencement Date. The Commencement Date of this Lease shall be the later of the
following:
(i) Ten (10) days after the date Landlord's architect and
general contractor have both certified in writing to Tenant that all work
described in the plans approved by Landlord and Tenant for the Tenant
Improvements to be constructed pursuant to EXHIBIT B has been substantially
completed in accordance with such plans and the permit has been successfully
finaled by the City; or
(ii) sixty (60) days after the execution of the Lease has
passed, but in no event later than,
(iii) The date Tenant commences occupancy of the Premises
for the purpose of conducting Tenant's business as defined in paragraph 11.A.
C. Commencement Date Memorandum. If the Commencement Date is
determined pursuant to Paragraph 4.B. when the actual Commencement Date is
determined, the parties shall execute a Commencement Date Memorandum setting
forth such date in the form shown in EXHIBIT C.
D. Tenant Delays. If the Commencement Date is to be determined
pursuant to Paragraph 4.B. and if the Commencement Date has not occurred on or
before August 1, 1997, due to the fault of Tenant, then, beginning on September
1, 1997 and continuing on the first day of each calendar month thereafter until
the Commencement Date, Tenant shall
2
<PAGE> 16
pay to Landlord the Monthly Rent set forth in Paragraph 5.A. Payments for any
partial month shall be prorated on the basis of a thirty (30) day month. Delays
"due to the fault" of Tenant shall include those caused by:
(i) Tenant's failure to furnish information to Landlord
for the preparation of plans and drawings for the Tenant Improvements in
accordance with EXHIBIT B;
(ii) Tenant's request for special materials, finishes or
installations which are not readily available;
(iii) Tenant's failure to reasonably approve plans and
working drawings in accordance with EXHIBIT B;
(iv) Tenant's changes in plans and/or working drawings
after their approval by Landlord;
(v) Tenant's failure to approve cost estimates if such
approvals are required pursuant to EXHIBIT B;
(vi) Tenant's failure to complete any of its own
improvement work to the extent Tenant delays completion by the City of its final
inspection and approval of the Tenant Improvement Work described in EXHIBIT B;
or
(vii) Interference with Landlord's work caused by Tenant
or by Tenant's contractors or subcontractors.
E. Early Entry. Tenant is permitted to occupy the Premises prior
to the Commencement Date for the purpose of fixturing or any other purpose
permitted by Landlord, such early entry shall be at Tenant's sole risk and
subject to all the terms and provisions hereof, except for the payment of
Monthly Rent which shall commence on the Commencement Date. Landlord shall have
the right to impose such additional conditions on Tenant's early entry as
Landlord shall deem appropriate, and shall further have the right to require
that Tenant execute an early entry agreement containing such conditions prior to
Tenant's early entry.
F. Termination. Either party, at its option, may terminate this
Lease by giving written notice of its election to terminate to the other party
if the Commencement Date has not occurred on or before November 1, 1997 through
no fault of the terminating party. If Landlord is unable to delivery the
Premises for reasons not enumerated in paragraph 4.D. and Tenant elects to
terminate, then monies paid to Landlord by Tenant shall be refunded within ten
(10) days of Landlord's receipt of Tenant's termination notice.
5. Rent.
A. Monthly Rent. Tenant shall pay to Landlord, in lawful money of
the United States, for each calendar month of the Term, Monthly Rent in the
amount of subject to adjustment as provided in Paragraph 5.B., in advance, on
the first day of each calendar month, without abatement, deduction, claim,
offset, prior notice or demand. Landlord hereby acknowledges receipt of Tenant's
payment of Monthly Rent for the first month of the Term in the amount of
One-hundredths Dollars ($ ).
B. Adjustments. On the first day of every twelfth (12) calendar
month of the Term the Monthly Rent shall be adjusted as follows:
<TABLE>
<CAPTION>
Months Monthly Rent
------ ------------
<S> <C>
13-24 $
25-36 $
37-48 $
49-60 $
61-72 $
73-84 $
85-96 $
</TABLE>
C. Additional Rent. All monies required to be paid by Tenant
under this Lease, including, without limitation, Real Property Taxes pursuant to
Paragraph 15., repair and maintenance charges pursuant to Paragraph 17.,
however, the repair and maintenance
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<PAGE> 17
responsibilities of the Tenant will not include the replacement of capital
improvements, and insurance premiums pursuant to Paragraph 22., shall be deemed
Additional Rent.
D. Prorations. If the Commencement Date is not the first (1st)
day of a month, or if the termination date of this Lease is not the last day of
a month, a prorated installment of Monthly Rent based on a thirty (30) day month
shall be paid for the fractional month during which the Lease commences or
terminates.
6. Late Payment Charges.
Tenant acknowledges that late payment by Tenant to Landlord of Rent and other
charges provided for under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of such costs being extremely
difficult or impracticable to fix. Such costs include, but are not limited to,
processing and accounting charges, and late charges that may be imposed on
Landlord by the terms of any encumbrance and notes secured by any encumbrance
covering the Premises, or late charges and penalties due to late payment of Real
Property Taxes due on the Premises. Therefore, if any installment of Rent or any
other charge due from Tenant is not received by Landlord within ten (10) days of
the date when due, Tenant shall pay to Landlord an additional sum equal to five
percent (5%) of the amount overdue as a late charge for every month or portion
thereof that the Rent or other charges remain unpaid. The parties agree that
this late charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of default with respect to the overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies available
to Landlord.
Initials:
/s/ Signature Illegible
- ----------------------- --------------------
Landlord Tenant
7. Security Deposit.
Tenant has deposited with Landlord the sum of ( ) as the Security Deposit for
the full and faithful performance of every provision of this Lease to be
performed by Tenant. If Tenant defaults with respect to any provision of this
Lease, Landlord may apply all or any part of the Security Deposit for the
payment of any Rent or other sum in default, the repair of such damage to the
Premises or the payment of any other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to compensate Landlord for
any other loss or damage which Landlord may suffer by reason of Tenant's default
to the full extent permitted by law. If any portion of the Security Deposit is
so applied, Tenant shall, within ten (10) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount, and Tenant's failure to do so shall be a default
under this Lease. The Security Deposit, at all times during the initial lease
term of the Lease or any extension thereto, shall be equal to the then current
Monthly Rent. The difference in the Security Deposit amount shall be paid by
Tenant on the first day of the month the Monthly Rent increases. Landlord shall
not be required to keep the Security Deposit separate from its general funds,
and Tenant shall not be entitled to interest on the Security Deposit. If Tenant
is not otherwise in default, the Security Deposit or any balance thereof shall
be returned to Tenant within thirty (30) days of termination of the Lease.
8. Holding Over.
If Tenant remains in possession of all or any part of the Premises after the
expiration of the Term, with the express or implied consent of Landlord, such
tenancy shall be month-to-month only and shall not constitute a renewal or
extension for any further term. In such event, Monthly Rent shall be increased
to an amount equal to one hundred twenty percent (120%) of the Monthly Rent
payable during the last month of the Term, and any other sums due hereunder
shall be payable in the amount and at the times specified in this Lease. Such
month-to-month tenancy shall be subject to every other term, condition, and
covenant contained herein.
9. Tenant Improvements.
If Tenant Improvements are to be constructed, within the Premises by Landlord,
Landlord agrees to construct such Tenant Improvements pursuant to the terms of
EXHIBIT B. All improvements constructed by Landlord pursuant to Exhibit B shall
be the sole property of Landlord and Tenant shall have no responsibility to
remove the same at the termination of the Lease or any extension thereof.
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<PAGE> 18
10. Condition of Premises.
Landlord has agreed to construct Tenant Improvements and deliver the Premises in
accordance with Exhibit B, and within ten (10) days after Tenant has received
written notice from Landlord that substantial completion of the Tenant
Improvements has occurred, Tenant shall conduct a walk through inspection of the
Premises with Landlord and complete a punch-list of items needing additional
work by Landlord. Other than the items specified in the punch-list, by taking
possession of the Premises, Tenant shall be deemed to have accepted the Premises
in good, clean and completed condition and repair, subject to all applicable
laws, codes and ordinances except for latent defects not discoverable without
destructive investigation. The punch-list to be prepared by Tenant shall not
include any damage to the Premises caused by Tenant's move-in, which damage
shall be repaired or corrected by Tenant, at its-expense. Tenant acknowledges
that neither Landlord nor its Agents have made any representations or warranties
as to the suitability or fitness of the Premises for the conduct of Tenant's
business or for any other purpose, nor has Landlord or its Agents agreed to
undertake any Alterations or construct any Tenant Improvements to the Premises
except as expressly provided in this Lease. If Tenant fails to submit a
punchlist to Landlord within such ten (10) day period, it shall be deemed that
there are no items needing additional work or repair. Landlord's contractor
shall complete all reasonable punch-list items within thirty (30) days after the
walk through inspection or as soon as practicable thereafter. Upon completion of
such punch-list items, Tenant shall approve such completed items in writing to
Landlord. If Tenant fails to approve such items within seven (7) days of
completion, such items shall be deemed approved by Tenant.
11. Use of the Premises.
A. Tenant's Use. Tenant shall use the Premises solely for the
general office, sales, marketing, electronic manufacturing, assembly and test,
research and development, shipping and receiving purposes and related legal
purposes and shall not use the Premises for any other purpose without obtaining
the prior written consent of Landlord.
B. Compliance.
(i) Tenant shall not use the Premises or suffer or permit
anything to be done in or about the Premises which will in any way conflict with
any law, statute, zoning restriction, ordinance or governmental law, rule,
regulation or requirement of duly constituted public authorities now in force or
which may hereafter be in force, or the requirements of the Board of Fire
Underwriters or other similar body now or hereafter constituted relating to or
affecting the condition, use or occupancy of the Premises. Tenant shall not
commit any public or private nuisance or any other act or thing which might or
would disturb the quiet enjoyment of any other tenant of Landlord or any
occupant of nearby property. Tenant shall place no loads upon the floors, walls
or ceilings in excess of the maximum designed load determined by Landlord or
which endanger the structure; nor place any harmful liquids in the drainage
systems; nor dump or store waste materials or refuse or allow such to remain
outside the Building proper, except in the enclosed trash areas provided. Tenant
shall not store or permit to be stored or otherwise placed any other material of
any nature whatsoever outside the Building.
(ii) In particular, Tenant, at its sole cost, shall comply
with all laws, ordinances, restrictions, and regulations relating to the
storage, release, generation, manufacture, treatment, transportation, use, and
disposal of hazardous, toxic or radioactive matter, including those materials
that may be hazardous to the public safety and health and thwart protection of
the environment and as may be further defined as any hazardous or toxic
substance, material, or waste that is or becomes regulated by the United States,
the State of California, or any local government authority having jurisdiction
over the Premises. Hazardous or Toxic Material includes: (a) any hazardous
substance as that term is defined in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (CERCLA) (42 United States Code sections
9601-9675); (b) Hazardous Waste as that term is defined in the Resource
Conservation and Recovery Act of 1976 (RCRA) (42 United States Code sections
6901-6992k); (c) Any pollutant, contaminant, or hazardous, dangerous, or toxic
chemical, material, or substance, within the meaning of any other applicable
federal, state, or local law, regulation, ordinance, or requirement (including
consent decrees and administrative orders imposing liability or standards of
conduct concerning any hazardous, dangerous, or toxic waste, substance, or
material, now or hereafter in effect); (d) Petroleum products; (e) Radioactive
material, including any source, special nuclear, or byproduct material as
defined in 42 United States Code sections 2011-2297g-4; (f) Asbestos in any form
or condition; and (g) Polychlorinated biphenyls (PCBs) and substances or
compounds containing PCBs and as they may be amended from time to time
(collectively "Toxic Materials"). If Tenant does or has knowledge of the
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<PAGE> 19
storage, release, generation, manufacture, treatment, transportation, use, and
disposal of any Toxic Materials, Tenant shall notify Landlord in writing at
least ten (10) days prior to their first appearance on the Premises and Tenant's
failure to do so shall be a default under the Lease. Tenant shall immediately
notify landlord in writing and provide copies upon receipt of all written
complaints, claims, citations, demands, inquiries, reports, or notices relating
to the condition of the Premises or compliance with environmental laws. Tenant
shall be solely responsible for and shall defend, indemnify and hold Landlord
and its Agents harmless from and against all claims, costs and liabilities,
including attorneys' fees and costs, arising out of or in connection with its
storage, use and disposal of Toxic Materials. Tenant shall further be solely
responsible for and shall defend, indemnify and hold Landlord and its Agents
harmless from and against any all claims, costs, and liabilities, including
attorneys' fees and costs, arising out of or in connection with a Phase I
Environmental Study, the removal, clean-up and restoration work and materials
necessary to return the Premises and any other property of whatever nature to
their condition existing prior to the appearance of the Toxic Materials on the
Premises. Tenant's obligations hereunder shall survive the termination of this
Lease.
12. Quiet Enjoyment.
Landlord covenants that Tenant, upon performing the terms, conditions
and covenants of this Lease, shall have quiet and peaceful possession of the
Premises as against any person claiming the same by, through or under Landlord.
13. Alterations
A. Permitted Alterations. After the Commencement Date, Tenant
shall not make or permit any Alterations in, on or about the Premises, except
for non structural Alterations not exceeding Five Thousand Dollars ($5,000.00)
in cost, without the prior written consent of Landlord, and according to plans
and specifications approved in writing by Landlord, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing Tenant shall not, without
the prior written consent of Landlord, make any:
(i) Alterations to the exterior of the Building;
(ii) Alterations to and penetrations of the roof of the
Building; and
(iii) Alterations visible from outside the Premises,
including the Common Area, to which Landlord may withhold Landlord's consent on
wholly esthetic grounds.
All Alterations shall be installed at Tenant's sole expense, in compliance with
all applicable laws, by a licensed contractor, shall be done in a good and
workmanlike manner conforming in quality and design with the Premises existing
as of the Commencement Date, and shall not diminish the value of either the
Building or the Premises. All Alterations made by Tenant shall be and become the
property of Landlord upon installation and shall not be deemed Tenant's Personal
Property; provided, however, that Landlord may, at its option, require that
Tenant, at Tenant's expense, within ninety (90) days of the termination of the
Lease remove any or all non structural Alterations installed by Tenant and
return the Premises to their condition as of the Commencement Date of this
Lease, normal wear and tear excepted and subject to the provisions of Paragraph
24. Within the last four months of the Lease Term or any agreed extension
thereof, Tenant may request in writing that Landlord identify in writing those
modifications that Landlord has the right to demand the removal of by Tenant.
Landlord shall respond within sixty (60) days of receipt of such request,
advising Tenant in writing as to which of such modifications Landlord wishes to
have removed, so that Tenant may have the opportunity to remove them prior to
expiration of the Lease Term. If Tenant gives this written request to Landlord
within the time provided, then Tenant shall be relieved of any obligation to
remove any other modifications not specified for removal. Notwithstanding any
other provision of this Lease, Tenant shall be solely responsible for the
maintenance and repair of any and all Alterations made by it to the Premises.
B. Notice. Tenant shall give Landlord written notice of Tenant's
intention to perform work on the Premises which might result in any claim of
lien at least twenty (20) days prior to the commencement of such work to enable
Landlord to post and record a Notice of Non responsibility or other notice
deemed proper before the commencement of any such work. If Tenant fails to
remove any lien filed against the Premises in connection with any work performed
or claimed to have been performed by or at the direction of Tenant within ten
(10) days from the date of filing, then Landlord may do so at Tenant's expense
and Tenant's reimbursement to Landlord for such amount shall be deemed
Additional Rent. Such reimbursement shall include all sums disbursed, incurred
or
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<PAGE> 20
deposited by Landlord, including Landlord's costs, expenses and reasonable
attorneys' fees with interest thereon at the Interest Rate.
14. Surrender of the Premises.
Upon the expiration or earlier termination of the Term, Tenant shall surrender
the Premises to Landlord in its condition existing as of the Commencement Date,
normal wear and tear and fire or other casualty excepted, with all interior
walls repaired if marked or damaged, the HVAC equipment serviced within ninety
(90) of termination and repaired by a reputable and licensed service firm as
needed, and all floors cleaned, all to the reasonable satisfaction of Landlord.
In the event Tenant has used, stored, manufactured, or transported toxic
substances in Tenant's manufacturing process as defined by Federal and State Law
or local ordinances in or about the Premises during the term of this Lease or
any extension thereof, Landlord shall conduct a Phase I Environmental Study in
order to determine if such toxic substances have caused any deleterious effect
on the Premises. The cost of the Phase I Environmental Study shall be split
between Landlord and Tenant on a 50/50 basis. Tenant shall, at Tenant's sole
expense, continue with any recommended investigations and studies and mitigate
any problems as prescribed in the Phase I or subsequent reports. Tenant shall
remove from the Premises all of Tenant's Alterations required to be removed
pursuant to Paragraph 13., and all Tenant's Personal Property and repair any
damage and perform any restoration work caused by such removal. If Tenant fails
to remove such Alterations and Tenant's Personal Property, and such failure
continues after the termination of this Lease, Landlord may retain such property
and all rights of Tenant with respect to it shall cease, or Landlord may place
all or any portion of such property in public storage for Tenant's account.
Tenant shall be liable to Landlord for costs of removal of any such Alterations
and Tenant's Personal Property and storage and transportation costs of same, and
the cost of repairing and restoring the Premises, together with interest at the
Interest Rate from the date of expenditure by Landlord.
15. Real Property Taxes.
A. Payment by Tenant. On or before April 1 and December 1 of each
calendar year during the Term, Tenant shall pay to Landlord, as Additional Rent,
Tenant's Percentage of all Real Property Taxes as set forth on the County
assessor's tax statement for the Property. Landlord shall give Tenant at least
fifteen (15) days' prior written notice of the amount so due. Upon Landlord's
receipt of the Real Property Tax payment from Tenant and other tenants of the
Property, Landlord shall pay the taxes to the County. If Tenant fails to pay
Tenant's Percentage of the Real Property Taxes on or before April 1 and December
1, respectively, Tenant shall pay to Landlord any penalty incurred by such late
payment. Tenant shall pay Tenant's Percentage of any Real Property Tax not
included within the County tax assessor's tax statement within ten (10) days
after being billed for same by Landlord. If Tenant shall fail to pay any Real
Property Tax payment on time, such overdue amount shall bear interest at the
Interest Rate until paid. The foregoing dates are based on the dates established
by the County as the dates on which Real Property Taxes become delinquent if not
paid. If such delinquency dates change, the dates on which Tenant must pay
Tenant's Percentage of such taxes shall be at least ten (10) days prior to the
delinquency dates.
B. New Taxes. Tenant and Landlord acknowledge that Proposition 13
was adopted by the voters of the State of California in the June, 1978 election
and that assessments, taxes, fees, levies and charges may be imposed by
governmental agencies for such purposes as fire protection, street, sidewalk,
road, utility construction and maintenance, refuse removal and for other
governmental services which may formerly have been provided without charge to
property owners or occupants. It is the intention of the parties that all new
and increased assessments, taxes, fees, levies and charges due to Proposition 13
or any other cause are to be included within the definition of Real Property
Taxes for purposes of this Lease.
C. Separate Parcel. Any obligation on the part of Tenant to pay
all Real Property Taxes shall be conditioned upon the Property being taxed as a
separate parcel. If the Property is not assessed as a separate parcel, then
Landlord shall equitably apportion the Real Property Taxes assessed against the
real property which includes the Property, and Tenant shall pay Tenant's
Percentage of the amount of Real Property Taxes apportioned to the Property.
D. Tax on Improvements. Tenant shall pay any increase in Real
Property Taxes resulting from any and all Alterations and Tenant Improvements of
any kind whatsoever placed in, on or about the Premises for the benefit of, at
the request of, or by Tenant.
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<PAGE> 21
E. Proration. Tenant's liability to pay Real Property Taxes shall
be prorated on the basis of a 365-day year to account for any fractional portion
of a fiscal tax year included at the commencement or expiration of the Term.
With respect to any assessments which may be levied against or upon the
Property, or which under the laws then in force may be evidenced by improvements
or other bonds or may be paid in annual installments, only the amount of such
annual installment (with appropriate proration for any partial year) and
interest due thereon shall be included within the computation of the annual Real
Property Taxes levied against the Premises.
F. Payment on Expiration of Term. If this Lease terminates on a
date earlier than the end of a fiscal tax year, Landlord shall deliver to Tenant
a statement setting forth the amount of Real Property Taxes to be paid by Tenant
adjusted to the date of termination which shall be paid within five (5) days of
such receipt.
G. Personal Property Taxes. Tenant shall pay prior to delinquency
all taxes assessed or levied against Tenant's Personal Property in, on or about
the Premises or elsewhere. When possible, Tenant shall cause its Personal
Property to be assessed and billed separately from the real or personal property
of Landlord. If Landlord shall receive any such tax bills or notices of
assessment or reassessment in connection with Tenant's Personal Property, it
shall immediately forward such bills to Tenant.
H. Failure to Pay. Tenant's failure to pay any of the charges
required to be paid under this paragraph shall constitute a default under this
Lease.
I. Reassessment. In the event of any reassessment of the Premises
or any portion thereof, including in connection with any improvements performed
by Landlord for Tenant or by Tenant for itself (with Landlord's consent), other
than the minimum permitted annual reassessments permitted by Proposition 13, for
which landlord is provided with a Notice of Reassessment by the County Assessor,
Landlord shall notify Tenant of said Notice in a timely manner, and Tenant shall
have the right, at its sole expense and with knowledge of and communication with
Landlord, to protest or appeal such reassessment. Landlord shall cooperate with
Tenant in executing documents as may be required in protesting a reassessment.
16. Utilities and Services.
Tenant shall be responsible for and shall pay promptly all charges for
water, gas, electricity, telephone, refuse pickup, janitorial service and all
other utilities, materials and services furnished directly to or used by Tenant
in, on or about the Premises during the Term, together with any taxes thereon.
Landlord shall not be liable in damages or otherwise for any failure or
interruption of any utility service or other service furnished to the Premises,
except that resulting from the willful misconduct of Landlord. No such failure
or interruption shall entitle Tenant to terminate this Lease or withhold rent or
other sums due hereunder.
17. Repair and Maintenance.
A. Building.
(i) Landlord's Obligations. Landlord shall keep in good
order, condition and repair the structural parts of the Building, which
structural parts include only the foundation, exterior walls (excluding the
interior of all walls and the exterior and interior of all windows, doors, plate
glass, showcases and interior ceiling), and subflooring of the Premises, except
for any damage thereto caused by the negligence or willful acts or omissions of
Tenant or of Tenant's agents, employees or invitees, or by reason of the failure
of Tenant to perform or comply with any terms, conditions or covenants in this
Lease, or caused by Alterations made by Tenant or by Tenant's agents, employees
or contractors. It is an express condition precedent to all obligations of
Landlord to repair and maintain that Tenant shall have notified Landlord in
writing of the need for such repairs or maintenance.
(ii) Tenant's Obligations. Tenant shall at all times and
at its own expense clean, keep and maintain in good, safe and sanitary order,
condition and repair every part of the Building which is not within Landlord's
obligation pursuant to Paragraph 17.A.(i). Tenant's repair and maintenance
obligations shall include, without limitation, all plumbing and sewage
facilities within the Premises, fixtures, interior walls, floors, ceilings,
windows, store front, doors, entrances, plate glass, showcases, skylights, all
electrical facilities and equipment, including lighting fixtures, lamps, fans
and any exhaust equipment and systems, any automatic fire extinguisher equipment
within the Premises, electrical motors and all other appliances and equipment of
every kind and nature located in,
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<PAGE> 22
upon or about the Premises. All glass, both interior and exterior, is at the
sole risk of Tenant, and any broken glass shall promptly be replaced by Tenant
at Tenant's expense with glass of the same kind, size and quality. Tenant shall
obtain HVAC systems preventive maintenance contracts with bi-monthly service,
which shall be subject to the reasonable approval of Landlord and paid for by
Tenant, and which shall provide for and include replacement of filters, oiling
and lubricating of machinery, parts replacement, adjustment of drive belts, oil
changes and other preventive maintenance. Tenant shall have the benefit of all
warranties available to Landlord regarding the equipment in such HVAC systems.
B. Common Area.
(i) Landlord's Obligations. Landlord shall maintain the
Common Area including those portions of the Building within the Common Area,
including the exterior walls, (excluding the interior of all walls and the
exterior and interior of all windows, doors, ceiling and plateglass), and the
roof of the Building. The manner in which the Common Area shall be maintained
and the expenditures therefor shall be at the sole discretion of Landlord.
Landlord shall at all times have exclusive control of the Common Area and may at
any time temporarily close any part thereof, exclude and restrain anyone from
any part thereof, except the bona fide customers, employees and invitees of
Tenant who use the Common Area in accordance with the rules and regulations as
Landlord may from time to time promulgate, and may change the configuration or
location of the Common Area. In exercising any such rights, Landlord shall make
a reasonable effort to minimize any disruption of Tenant's business. Landlord
shall have the right to re configure the parking area and ingress to and egress
from the parking area, and to modify the directional flow of traffic of the
parking area.
(ii) Tenant to Pay Common Area Expenses. Tenant shall pay,
as Additional Rent, Tenant's Percentage of all reasonable costs and expenses as
may be paid or incurred by Landlord in maintaining, operating and repairing the
Common Area (the "Common Area Expenses") during the Term. The Common Area
Expenses may include, without limitation, the cost of any policies of insurance
covering the Common Area, and the cost of labor, materials, supplies and
services used or consumed in operating, maintaining, and repairing the Common
Area including, without limitation, the following:
(1) Maintaining and repairing landscaping and sprinkler
systems;
(2) Maintaining and repairing concrete walkways and paved
parking areas;
(3) Maintaining and repairing signs and site lighting; and
(4) Pest control, janitorial and sweeping services.
(iii) Monthly Payments. From and after the Commencement
Date, Tenant shall to Landlord on the first day of each calendar month of the
Term an amount estimated by Landlord to be Tenant's Percentage of the monthly
Common Area Expenses. The foregoing estimated monthly charge may be adjusted by
Landlord at the end of any calendar quarter on the basis of Landlord's
experience and reasonably anticipated costs. Any such adjustment shall be
effective as of the calendar month next succeeding receipt by Tenant of written
notice of such adjustment.
(iv) Accounting. Within one hundred twenty (120) days
following the end of each calendar year Landlord shall furnish Tenant a
statement of the actual Common Area Expenses for the calendar year and the
payments made by Tenant with respect to such period. If Tenant's payments for
the Common Area Expenses do not equal the amount of the actual Common Area
Expenses, Tenant shall pay Landlord the deficiency within ten (10) days after
receipt of such statement. If Tenant's payments exceed the actual Common Area
Expenses, Landlord shall either offset the excess against the Common Area
Expenses next thereafter to become due to Landlord, or shall refund the amount
of the overpayments to Tenant, in cash, as Landlord shall elect. There shall be
appropriate adjustments of the Common Area Expenses as of the Commencement Date
and expiration of the Term. Upon request, Tenant shall have the right to receive
copies of and to examine the actual invoices and other supporting documentation
associated with such Common Area Expenses, to verify their validity hereunder.
C. Waiver. Tenant waives the provisions of Sections 1941 and 1942
of the California Civil Code and any similar or successor law regarding Tenant's
right to make repairs and deduct the expenses of such repairs from the Rent due
under this Lease.
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<PAGE> 23
D. Compliance with Governmental Regulations. Tenant shall, at its
own cost and expense, promptly and properly observe and comply with, including
the making by Tenant of any Alteration to the Premises, all present and future
orders, regulations, directions, rules, laws, ordinances, and requirements of
all governmental authorities (including, without limitation state, municipal,
county and federal governments and their departments, bureaus, boards and
officials) arising from the use or occupancy of, or applicable to, the Premises
or privileges appurtenant to or in connection with the enjoyment of the
Premises.
E. Failure to Pay. Failure of Tenant to pay any of the charges
required to be paid under this paragraph shall constitute a default under this
Lease.
18. Fixtures.
Tenant shall, at its own expense, provide, install and maintain in good
condition all its Personal Property required in the conduct of its business in
the Premises.
19. Liens.
Tenant shall keep the Premises free from any liens arising out of any
work performed, materials furnished or obligations incurred by or on behalf of
Tenant and hereby indemnifies and holds Landlord and its Agents harmless from
all liability and cost, including attorneys' fees and costs, in connection with
or arising out of any such lien or claim of lien. Tenant shall cause any such
lien imposed to be released of record by payment or posting of a proper bond
acceptable to Landlord within ten (10) days after the earlier of imposition of
the lien or written request by Landlord. Tenant shall give Landlord written
notice of Tenant's intention to perform work on the Premises which might result
in any claim of lien at least twenty (20) days prior to the commencement of such
work to enable Landlord to post and record a Notice of Non responsibility or
other notice deemed proper before the commencement of any such work. If Tenant
fails to so remove said lien within the prescribed ten (10) day period, then
Landlord may do so at Tenant's expense and Tenant's reimbursement to Landlord
for such amounts shall be deemed Additional Rent. Such reimbursement shall
include all sums disbursed, incurred or deposited by Landlord including
Landlord's costs, expenses and reasonable attorneys' fees with interest thereon
at the Interest Rate.
20. Landlord's Right to Enter the Premises.
Tenant shall permit Landlord and its Agents to enter the Premises at all
reasonable times with reasonable notice, except for emergencies in which case no
notice shall be required, to inspect the same, to post Notices of Non
responsibility and similar notices and "For Sale" signs, to show the Premises to
interested parties such as prospective lenders and purchasers, to make necessary
Alterations or repairs, to discharge Tenant's obligations hereunder when Tenant
has failed to do so within a reasonable time after written notice from Landlord,
and at any reasonable time within one hundred and eighty (180) days prior to the
expiration of the Term, to place upon the Premises ordinary "For Lease" signs
and to show the Premises to prospective tenants. The above rights are subject to
reasonable security regulations of Tenant, and to the requirement that Landlord
shall at all times act in a manner to cause the least possible interference with
Tenant's business.
21. Signs.
Landlord shall provide space for Tenant's identification sign over the main
entrance and on an exterior monument sign in the Common Area. Tenant shall have
no right to maintain a Tenant identification sign in any other location in, on
or about the Building or the Premises and shall not display or erect any other
Tenant identification sign, display or other advertising material that is
visible from the exterior of the Building. The size, design, color and other
physical aspects of the Tenant identification sign shall be subject to the
Landlord's written approval prior to installation, which shall not be
unreasonably withheld, the CC&R's, and any appropriate municipal or other
governmental approvals. The cost of the sign, its installation, maintenance and
removal expense shall be Tenant's sole expense. If Tenant fails to maintain its
sign, or, if Tenant fails to remove its sign upon termination of this Lease,
Landlord may do so at Tenant's expense and Tenant's reimbursement to Landlord
for such amounts shall be deemed Additional Rent. Such reimbursement shall
include all sums disbursed, incurred or deposited by Landlord including
Landlord's costs, expenses and reasonable attorneys' fees with interest thereon
at the Interest Rate.
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22. Insurance.
A. Indemnification. Tenant hereby agrees to defend, indemnify and
hold harmless Landlord and its Agents from and against any and all damage, loss,
liability or expense including, without limitation, attorneys' fees and legal
costs suffered directly or by reason of any claim, suit or judgment brought by
or in favor of any person or persons for damage, loss or expense due to, but not
limited to, bodily injury and property damage sustained by such person or
persons which arises out of, is occasioned by or in any way attributable to the
use or occupancy of the Property or any part thereof and adjacent areas by the
Tenant, the acts or omissions of the Tenant, its agents, employees or any
contractors brought onto the Premises by the Tenant, except to the extent caused
by the sole negligence or willful misconduct of Landlord or its Agents. Tenant
agrees that the obligations assumed herein shall survive this Lease.
B. Tenant's Insurance. Tenant agrees to maintain in full force
and effect at all times during the Term, at its own expense, for the protection
of Tenant and Landlord, as their interests may appear, policies of insurance
issued by a responsible carrier or carriers acceptable to Landlord which afford
the following coverages:
(i) Worker's compensation - Statutory limits.
(ii) Employer's liability - Not less than One Hundred
Thousand and no/100ths Dollars ($100,000.00).
(iii) Comprehensive general liability insurance including
blanket contractual liability broad form property damage, personal injury,
completed operations, products liability, in an amount not less than Three
Million and no/100ths Dollars ($3,000,000.00) combined single limit for both
bodily injury and property damage and fire damage legal in an amount not less
than one hundred thousand ($100,000.00) naming Landlord and its Agents as
additional insureds.
(iv) "All Risk" property insurance (including, without
limitation, vandalism, malicious mischief, inflation endorsement, sprinkler
leakage endorsement, and boiler and machinery coverage) on Tenant's Personal
Property located on or in the Premises, and any Alterations constructed or
installed on the Premises by Tenant. Such insurance shall be in the full amount
of the replacement cost, as the same may from time to time increase as a result
of inflation or otherwise, and shall be in a form providing coverage comparable
to the coverage provided in the standard ISO All-Risk form. As long as this
Lease is in effect, the proceeds of such policy shall be used for the repair and
replacement of such items so insured. Landlord shall have no interest in the
insurance proceeds on Tenant's Personal Property.
(v) Boiler and machinery insurance including but not
limited to steam pipes, pressure pipes, condensation return pipes and other
pressure vessels and HVAC equipment in an amount satisfactory to Landlord.
C. Premises Insurance. During the Term Landlord shall maintain
"All Risk" property insurance (including, at Landlord's option, earthquake
coverage, inflation endorsement, sprinkler leakage endorsement, and boiler and
machinery coverage) on the Premises, general liability for the Premises and
Common Area, excluding coverage of all Tenant's Personal Property located on or
in the Premises, but including the any Tenant Improvements. In the event
Landlord opts to insure the Premises for earthquake coverage, then, in the event
of a claim, Landlord shall be responsible for the payment of the deductible of
such insurance. Tenant's cost for earthquake insurance shall not exceed ten
thousand dollars ($10,000.00) per year. All such insurance shall also include
insurance against loss of rents and/or abatement of rent on an "All Risk" basis,
including, at Landlord's option, earthquake, in an amount equal to the Monthly
Rent and Additional Rent, and any other sums payable under the Lease, for a
period of at least twelve (12) months commencing on the date of loss. Such
insurance shall name Landlord and its Agents as named insureds and include a
lender's loss payable endorsement in favor of Landlord's lender (Form 438 BFU
Endorsement). Tenant shall reimburse Landlord for Tenant's Percentage of
Landlord's annual cost of said insurance as Additional Rent, monthly on the
first day of each calendar month of the Term, prorated for any partial month, or
on such other periodic basis as Landlord shall elect. If the Premises insurance
premiums are increased after the Commencement Date due to an increase in premium
rates, due to an increase in the valuation of the Building or its replacement
cost, or due to Tenant's use of the Premises, Tenant shall pay such increase
within ten (10) days of notice of such increase.
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D. Certificates. Tenant shall deliver to Landlord at least thirty
(30) days prior to the time such insurance is first required to be carried by
Tenant, and thereafter at least thirty (30) days prior to expiration of each
such policy, certificates of insurance evidencing the above coverage with limits
not less than those specified above. The certificates shall expressly provide
that the interest of Landlord therein shall not be affected by any breach of
Tenant of any policy provision for which such certificates evidence coverage.
Further, all certificates shall expressly provide that no less than ten (10)
days' or the greatest period of time typically provided by insurance carriers
prior written notice shall be given Landlord in the event of cancellation of the
coverages evidenced by such certificates.
E. Co-Insurer. If, on account of the failure of Tenant to comply
with the foregoing provisions, Landlord is adjudged a co-insurer by its
insurance carrier, then, any loss or damage Landlord shall sustain by reason
thereof, including attorneys' fees and costs, shall be borne by Tenant and shall
be immediately paid by Tenant upon receipt of a bill therefor and evidence of
such loss.
F. No Limitation of Liability. Landlord and its Agents make no
representation that the limits of liability specified to be carried by Tenant
under this Lease are adequate to protect Tenant. If Tenant believes that any
such insurance coverage is insufficient, Tenant shall provide, at its own
expense, such additional insurance as Tenant deems adequate.
G. Insurance Requirements. All such insurance shall be in a form
satisfactory to Landlord and shall be carried with companies that have a general
policy holder's rating of not less than "A-" and a financial rating of not less
than Class "X" in the most current edition of Best's Insurance Reports; shall
provide that such policies shall not be subject to material alteration which
results in a material reduction of coverage or cancellation except after at
least thirty (30) days' prior written notice and ten (10) days for non-pay
cancellations or the maximum period insurance carriers provide to Landlord; The
policy or policies, or duly executed certificates for them, shall be deposited
with Landlord prior to the Commencement Date, and upon renewal of such policies,
not less than thirty (30) days prior to the expiration of the term of such
coverage. If Tenant fails to procure and maintain the insurance required
hereunder, Landlord may, but shall not be required to, order such insurance at
Tenant's expense and Tenant's reimbursement to Landlord for such amounts shall
be deemed Additional Rent. Such reimbursement shall include all sums disbursed,
incurred or deposited by Landlord including Landlord's costs, expenses and
reasonable attorneys' fees with interest thereon at the Interest Rate.
H. Landlord's Disclaimer. Landlord and its Agents shall not be
liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, glass, tile or sheet rock, steam, gas, electricity,
water or rain which may leak from any part of the Premises, or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
whatsoever, unless caused by or due to the sole negligence or willful acts of
Landlord. Tenant shall give prompt written notice to Landlord in case of a
casualty, accident or repair needed in the Premises.
I. Failure to Pay. The failure of Tenant to obtain and pay for
any insurance required to be obtained and paid for by it hereunder shall be
deemed a default under this Lease.
23. Waiver of Subrogation.
Landlord and Tenant each hereby waive all rights of recovery against the
other on account of loss and damage occasioned to such waiving party for its
property or the property of others under its control to the extent that such
loss or damage is insured against under any insurance policies which may be in
force at the time of such loss or damage. Tenant and Landlord shall, upon
obtaining policies of insurance required hereunder, give notice to the insurance
carrier that the foregoing mutual waiver of subrogation is contained in this
Lease and Tenant and Landlord shall cause each insurance policy obtained by such
party to provide that the insurance company waives all right of recovery by way
of subrogation against either Landlord or Tenant in connection with any damage
covered by such policy.
24. Damage or Destruction.
A. Landlord's Obligation to Rebuild. If the Premises or the
Building is damaged or destroyed, Landlord shall promptly and diligently repair
the same unless it has the right to terminate this Lease as provided herein and
it elects to so terminate.
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B. Landlord's Right to Terminate. Landlord shall have the right
to terminate this Lease in the event any of the following events occurs:
(i) Insurance proceeds are not available to pay one
hundred percent (100%) of the cost of such repair, excluding the deductible for
which Tenant shall be responsible (deductible shall not exceed $2,000.00 per
occurrence except for earthquake insurance as provided for in paragraph 22.C.);
(ii) The Premises or the Building cannot, with reasonable
diligence, be fully repaired by Landlord within one hundred twenty (120) days
after the date of the damage or destruction; or
(iii) The Premises or Building cannot be safely repaired
because of the presence of hazardous factors, including, but not limited to,
earthquake faults, radiation, chemical waste and other similar dangers.
If Landlord elects to terminate this Lease, Landlord may give Tenant written
notice of its election to terminate within thirty (30) days after such damage or
destruction, and this Lease shall terminate fifteen (15) days after the date
Tenant receives such notice. If Landlord elects not to terminate the Lease,
Landlord shall promptly, following the date of such damage or destruction,
commence the process of obtaining necessary permits and approvals, and shall
commence repair of the Premises or the Building as soon as practicable and
thereafter prosecute the same diligently to completion, in which event this
Lease will continue in full force and effect. All insurance proceeds from
insurance under Paragraph 22., excluding proceeds for trade fixtures, equipment
and other personal property of Tenant, shall be disbursed and paid to Landlord.
Tenant shall be required to pay to Landlord the amount of any deductible payable
in connection with any insured casualties, unless the casualty was caused by the
sole negligence or willful misconduct of Landlord.
C. Limited Obligation to Repair. Landlord's obligation, should it
elect or be obligated to repair or rebuild, shall be limited to the basic
Premises and the Tenant Improvements-existing at the time of such damage or
destruction.
D. Abatement of Rent. Rent shall be temporarily abated
proportionately, but only to the extent of any proceeds received by Landlord
from loss of rent and/or rental abatement insurance described in Paragraph
22.C., during any period when, by reason of such damage or destruction, Landlord
reasonably determines that there is substantial interference with Tenant's use
of the Building, having regard to the extent to which Tenant may be required to
discontinue Tenant's use of the Building. Such abatement shall commence upon
such damage or destruction and end upon substantial completion by Landlord-of
the repair or reconstruction which Landlord is obligated or undertakes to do.
Tenant shall not be entitled to any compensation or damages from Landlord for
loss of the use of the Premises, damage to Tenant's Personal Property or any
inconvenience occasioned by such damage, repair or restoration. Tenant hereby
waives the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the California Civil Code, and the provisions of any similar
law hereinafter enacted.
E. Damage Near End of Term. Anything herein to the contrary
notwithstanding, If the Premises or the Building is destroyed or damaged during
the last twenty-four (24) months of the Term, then Landlord may, at its option,
cancel and terminate this Lease as of the date of the occurrence of such damage.
If Landlord does not elect to so terminate this Lease, the repair of such damage
shall be governed by Paragraphs 24.A. or 24.B., as the case may be. If this
Lease is terminated, Landlord may keep all the insurance proceeds resulting from
such damage, except for those proceeds payable under policies obtained by Tenant
which specifically insure Tenant's Personal Property.
F. Replacement Cost. The determination in good faith by Landlord
of the estimated cost of repair of any damage, of the replacement cost, or of
the time period required for repair shall be conclusive for the purposes of this
paragraph.
25. Condemnation.
A. Total Taking Termination. If title to all of the Property or
so much thereof is taken for any public or quasi-public use under any statute or
by right of eminent domain so that reconstruction of the Property will not, in
Landlord's and Tenant's mutual opinion, result in the Property being reasonably
suitable for Tenant's continued occupancy for the uses and purposes permitted by
this Lease, this Lease shall terminate as of the date that possession of the
Property or part thereof be taken.
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B. Partial Taking. If any part of the Premises is taken and the
remaining part is reasonably suitable for Tenant's continued occupancy for the
purposes and uses permitted by this Lease, this Lease shall, as to the part so
taken, terminate as of the date that possession of such part of the Premises is
taken. The Rent and other sums payable hereunder shall be reduced in the same
proportion that the floor area of the portion of the Premises so taken (less any
addition thereto by reason of any reconstruction) bears to the original floor
area of the Premises. Landlord shall, at its own cost and expense, make all
necessary repairs or alterations to the Premises so as to make the portion of
the Premises not taken a complete architectural unit. Such work shall not,
however, exceed the scope of the work done by Landlord in originally
constructing the Premises. Rent and other sums payable hereunder shall be
temporarily abated during such restoration proportionately in the degree to
which Tenant's use of Premises is impaired.
C. No Apportionment of Award. No award for any partial or entire
taking shall be apportioned. Tenant assigns to Landlord its interest in any
award which may be made in such taking or condemnation, together with any and
all rights of Tenant arising in or to the same or any part thereof. Nothing
contained herein shall be deemed to give Landlord any interest in or require
Tenant to assign to Landlord any separate award made to Tenant for the taking of
Tenant's Personal Property, for the interruption of Tenant's business, or its
moving costs, or for the loss of its goodwill.
D. Temporary Taking. No temporary taking of the Premises shall
terminate this Lease or give Tenant any right to any abatement of Rent. Any
award made to Tenant by reason of such temporary taking shall belong entirely to
Tenant and Landlord shall not be entitled to share therein. Each party agrees to
execute and deliver to the other all instruments that may be required to
effectuate the provisions of this paragraph.
E. Sale Under Threat of Condemnation. A sale by Landlord to any
authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for all purposes of this paragraph.
26. Assignment and Subletting.
A. Landlord's Consent. Tenant shall not enter into an Assignment
or Sublease without Landlord's prior written consent, which consent shall not be
unreasonably withheld. Any attempted or purported Assignment or Sublease without
Landlord's prior written consent shall be void and confer no rights upon any
third person and, at Landlord's election, shall terminate this Lease.
B. Assignment or Sublease Form. Each Assignment or Sublease to
which Landlord has consented shall be by an instrument in writing in a form
satisfactory to Landlord, and shall be executed by Tenant and Subtenant. Each
Subtenant shall agree in writing, for the benefit of Landlord, to assume, to be
bound by, and to perform the terms, conditions and covenants of this Lease to be
performed by Tenant. Notwithstanding anything contained herein, Tenant shall not
be released from personal liability for the performance of each term, condition
and covenant of this Lease by reason of Landlord's consent to an Assignment or
Sublease unless Landlord specifically grants such release in writing.
C. No Waiver. Consent by Landlord to one such Assignment or
Sublease shall not be deemed to be a consent to any subsequent Assignment or
Sublease.
D. Information to be Furnished. If Tenant desires at any time to
Assign or Sublease the Premises or any portion thereof, it shall first notify
Landlord of its desire to do so and shall submit in writing to Landlord: (i) the
name of the proposed Subtenant; (ii) the nature of the proposed Subtenant's
business to be carried on in the Premises; (iii) the terms and provisions of the
proposed Assignment or Sublease and a copy of the proposed Assignment or
Sublease form containing a description of the subject premises; and (iv) such
financial information, including financial statements, as Landlord may
reasonably request concerning the proposed Subtenant.
E. Landlord's Alternatives. At any time within ten (10) days
after Landlord's receipt of the information specified in Paragraph 26.D.,
Landlord may, by written notice to Tenant, elect: (i) to consent to the
Assignment or Sublease by Tenant; or (ii) to refuse its consent to the
Assignment or Sublease.
If Landlord fails to elect any of the alternatives set forth in Paragraph
26.E.(i) and (ii) above within the ten (10) day period, it shall be deemed that
Landlord has refused its consent to the Assignment or Sublease.
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If Landlord consents to the Assignment or Sublease, Tenant may thereafter enter
into a valid Assignment or Sublease of the Premises or portion thereof, upon the
terms and conditions and with the proposed Subtenant set forth in the
information furnished by Tenant to Landlord pursuant to Paragraph 26.D.,
subject, however, upon the condition that any excess of the Subrent (Profit)
over the Rent required to be paid by Tenant hereunder for that pro rata portion
of the building shall be split on a 50/50 basis between Landlord and Tenant. Any
such Profit to be paid to Landlord pursuant hereto shall be payable to Landlord
as and with the Monthly Rent payable to Landlord hereunder pursuant to Paragraph
5.A.
F. Sublease or Assignment Profit and Expenses. Prior to splitting
the Profit as prescribed in the above paragraph, Tenant may deduct the amount of
Tenant's cash expenses in connection with Assignment or Sublease. Expenses that
may be deducted include tenant improvements, commissions paid, marketing and
legal fees as commercially typical.
G. Executed Counterpart. No Assignment or Sublease shall be valid
nor shall any Subtenant take possession of the Premises until an executed
counterpart of the Assignment or Sublease agreement has been delivered to
Landlord.
27. Default.
A. Tenant's Default. At the option of Landlord, a default under
this Lease by Tenant shall exist if any of the following events shall occur:
(i) If Tenant shall have failed to pay Rent or any other
sum required to be paid hereunder when due; provided, however, that Tenant may
cure said default at any time prior to a termination of this Lease by Landlord
by paying all Rent and other expenses or charges then due together with interest
at the Interest Rate from the due date through the date of payment; or
(ii) If Tenant shall have failed to perform any term,
covenant or condition of this Lease except those requiring the payment of money,
and Tenant shall have failed to cure such breach within fifteen (15) days after
written notice from Landlord where such breach could reasonably be cured within
such fifteen (15) day period; provided, however, that where such failure could
not reasonably be cured within the fifteen (15) day period, that Tenant shall
not be in default if it has commenced such performance within the fifteen (15)
day period and diligently thereafter prosecutes the same to completion; or
(iii) If Tenant shall have assigned its assets for the
benefit of its creditors; or
(iv) If the sequestration or attachment of or execution on
any material part of Tenant's Personal Property essential to the conduct of
Tenant's business shall have occurred, and Tenant shall have failed to obtain a
return or release of such Personal Property within thirty (30) days thereafter,
or prior to sale pursuant to such sequestration, attachment or levy, whichever
is earlier; or
(v) If Tenant shall have failed to continuously or
uninterruptedly conduct its business in the Premises, or shall have abandoned or
vacated the Premises; or
(vi) If a court shall have made or entered any decree or
order other than under the bankruptcy laws of the United States adjudging Tenant
to be insolvent; or approving as properly filed a petition seeking
reorganization of Tenant; or directing the winding up or liquidation of Tenant
and such decree or order shall have continued for a period of thirty (30) days;
or
(vii) If Tenant shall have failed to comply with the
provisions of Paragraphs 28.
and 31.
B. Remedies. Upon a default, Landlord shall have the following
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, to which Landlord may resort cumulatively or
in the alternative:
(i) Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effects as long as
Landlord does not terminate this Lease, and Landlord shall have the right to
collect Rent when due.
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(ii) Landlord may terminate Tenant's right to possession
of the Premises at any time by giving written notice to that effect, and relet
the Premises or any part thereof. Tenant shall be liable immediately to Landlord
for all costs Landlord incurs in reletting the Premises or any part thereof,
including, without limitation, broker's commissions, expenses of cleaning and
redecorating the Premises required by the reletting and like costs. Reletting
may be for a period shorter or longer than the remaining term of this Lease. 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. On
termination, Landlord has the right to remove all Tenant's Personal Property and
store same at Tenant's cost and to recover from Tenant as damages:
(a) The worth at the time of award of unpaid Rent and
other sums due and payable which had been earned at the time of termination;
plus
(b) The worth at the time of award of the amount by which
the unpaid Rent and other sums due and payable which would have been payable
after termination until the time of award exceeds the amount of such Rent loss
that Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which
the unpaid Rent and other sums due and payable for the balance of the Term after
the time of award exceeds the amount of such Rent loss that Tenant proves could
be reasonably avoided; plus
(d) Any other amount necessary which is to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease, or which, in the ordinary course of
things, would be likely to result therefrom, including, without limitation, any
costs or expenses incurred by Landlord: (i) in retaking possession of the
Premises; (ii) in maintaining, repairing, preserving, restoring, replacing,
cleaning, altering or rehabilitating the Premises or any portion thereof,
including such acts for reletting to a new tenant or tenants; (iii) for leasing
commissions; or (iv) for any other costs necessary or appropriate to relet the
Premises; plus
(e) At Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by the laws
of the State of California.
The "worth at the time of award" of the amounts referred
to in Paragraphs 27.B.(ii)(a) and 27.B.(ii)(b) is computed by allowing interest
at the Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award" of
the amount referred to in Paragraph 27.B.(ii)(c) is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, 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.
(iii) Landlord may, with or without terminating this
Lease, enter the Premises and remove all persons and property from the Premises;
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant. No re-entry or taking possession of
the Premises by Landlord pursuant to this paragraph shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given to Tenant.
C. Landlord's Default. Landlord shall not be deemed to be in
default in the performance of any obligation required to be performed by it
hereunder unless and until it has failed to perform such obligation within
thirty (30) days after receipt of written notice by Tenant to Landlord
specifying the nature of such default; provided, however, that if the nature of
Landlord's obligation is such that more than thirty (30) days are required for
its performance, then Landlord shall not be deemed to be in default if it shall
commence such performance within such thirty (30) day period and thereafter
diligently prosecute the same to completion.
28. Subordination.
A. Documentation. This Lease is subject and subordinate to ground
and underlying leases, mortgages and deeds of trust (collectively
"Encumbrances") which now affect the Premises, to the CC&R's and to all
renewals, modifications, consolidations,
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replacements and extensions thereof; provided, however, if the holder or holders
of any such Encumbrance ("Holder") shall require that this Lease to be prior and
superior thereto, within seven (7) days of written request of Landlord to
Tenant, Tenant shall execute, have acknowledged and deliver any and all
documents or instruments, in the form presented to Tenant, which Landlord or
Holder deems necessary or desirable for such purposes. Landlord shall have the
right to cause this Lease to be and become and remain subject and subordinate to
any and all Encumbrances which are now or may hereafter be executed covering the
Premises or any renewals, modifications, consolidations, replacements or
extensions thereof, for the full amount of all advances made or to be made
thereunder and without regard to the time or character of such advances,
together with interest thereon and subject to all the terms and provisions
thereof; provided only, that in the event of termination of any such lease or
upon the foreclosure of any such mortgage or deed of trust, so long as Tenant is
not in default, Holder shall enter into a recognition and attornment agreement
with Tenant as long as Tenant shall pay the Rent and observe and perform all the
provisions of this Lease to be observed and performed by Tenant. Within ten (10)
days after Landlord's written request, Tenant shall execute any and all
documents required by Landlord or the Holder required to effectuate such
subordination to make this Lease subordinate to any lien of the Encumbrance. If
Tenant fails to do so, such failure shall constitute an irrevocable appointment
of Landlord as Tenant's attorney-in-fact and to act in Tenant's name, place and
stead.
B. Attornment. Notwithstanding anything to the contrary set forth
in this paragraph, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Premises at any sale or other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
Encumbrance.
29. Notices.
Any notice or demand required or desired to be given under this Lease
shall be in writing and shall be personally served or in lieu of personal
service may be given by mail. If given by mail, such notice shall be deemed to
have been given when seventy-two (72) hours have elapsed from the time when such
notice was deposited in the United States mail, registered or certified, and
postage prepaid, addressed to the party to be served. At the date of execution
of this Lease, the addresses of Landlord and Tenant are as set forth in
Paragraph 1. After the Commencement Date, the address of Tenant shall be the
address of the Premises. Either party may change its address by giving notice of
same in accordance with this paragraph.
30. Attorneys' Fees.
If either party brings any action or legal proceeding for damages for an
alleged breach of any provision of this Lease, to recover rent, or other sums
due, to terminate the tenancy of the Premises or to enforce, protect or
establish any term, condition or covenant of this Lease or right of either
party, the prevailing party shall be entitled to recover as a part of such
action or proceedings, or in a separate action brought for that purpose,
reasonable attorneys' fees and costs.
Notwithstanding the foregoing and in addition thereto, Landlord shall be
entitled to immediate receipt from Tenant for each breach hereof of such
reasonable attorneys' fees, but not less than Fifty and no/100ths Dollars
($50.00), as may be incurred in connection with each notice or demand delivered
to Tenant pursuant to Paragraph 29. Tenant agrees that such sums constitute
reimbursement to Landlord only of the reasonable costs to Landlord of the
preparation and delivery of each notice caused by Tenant's breach hereunder.
31. Estoppel Certificates.
Tenant shall within seven (7) days following written request by
Landlord:
(i) Execute and deliver to Landlord any documents,
including estoppel certificates, in the form prepared by Landlord (a) certifying
that this Lease is unmodified and in full force and effect or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect and the date to which the Rent and other
charges are paid in advance, if any, and (b) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord, or, if
there are uncured defaults on the part of the Landlord, stating the nature of
such uncured defaults, and (c) evidencing the status of the Lease as may be
required either by a lender making a loan to Landlord to be secured by deed of
trust or mortgage covering the Premises or a purchaser of the Premises from
Landlord.
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Tenant's failure to deliver an estoppel certificate within seven (7) days after
delivery of Landlord's written request therefor shall be conclusive upon Tenant
(a) that this Lease is in full force and effect, without modification except as
may be represented by Landlord, (b) that there are now no uncured defaults in
Landlord's performance and (c) that no Rent has been paid in advance.
If Tenant fails to so deliver a requested estoppel certificate within the
prescribed time, such failure shall constitute an irrevocable appointment of
Landlord as Tenant's attorney-in-fact to act in Tenant's name, place and stead
to execute such estoppel certificate.
(ii) Deliver to Landlord the current financial statements
of Tenant, and financial statements of the two (2) years prior to the current
financial statements year, with an opinion of a certified public accountant,
including a balance sheet and profit and loss statement for the most recent
prior year, all prepared in accordance with generally accepted accounting
principles consistently applied.
32. Transfer of the Premises by Landlord.
In the event of any conveyance of the Premises and assignment by
Landlord of this Lease, Landlord shall be and is hereby entirely released from
all liability under any and all of its covenants and obligations contained in or
derived from this Lease occurring after the date of such conveyance and
assignment.
33. Landlord's Right to Perform Tenant's Covenants.
If Tenant shall at any time fail to make any payment or perform any
other act on its part to be made or performed under this Lease, Landlord may,
but shall not be obligated to and without waiving or releasing Tenant from any
obligation of Tenant under this Lease, make such payment or perform such other
act to the extent Landlord may deem desirable, and in connection therewith, pay
expenses and employ counsel. All sums so paid by Landlord and all penalties,
interest and costs in connection therewith shall be due and payable by Tenant on
the next day after any such payment by Landlord, together with interest thereon
at the Interest Rate from such date to the date of payment thereof by Tenant to
Landlord, plus collection costs and attorneys' fees. Landlord shall have the
same rights and remedies for the nonpayment thereof as in the case of default in
the payment of Rent.
34. Tenant's Remedy.
If Landlord shall fail to perform any covenant, term, or condition of
this Lease upon Landlord's part to be performed, Tenant shall be required to
deliver to Landlord written notice of the same. If, as a consequence of such
default, Tenant shall recover a money judgment against Landlord, such judgment
shall be satisfied only out of the proceeds of sale received upon execution of
such judgment and levied thereon against the right, title and interest of
Landlord in the Premises and out of Rent or other income from such property
receivable by Landlord or out of consideration received by Landlord from the
sale or other disposition of all or any part of Landlord's right, title or
interest in the Premises, and neither Landlord nor its Agents shall be liable
for any deficiency.
35. Mortgagee Protection.
In the event of any default on the part of Landlord, Tenant will give
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgagee of a mortgage covering the Premises, 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.
36. Brokers.
Tenant warrants and represents that it has had no dealings with any real
estate broker or agent in connection with the negotiation of this Lease, except
for CPS representing Tenant and JMI Commercial representing Landlord, and that
it knows of no other real estate broker or agent who is or might be entitled to
a commission in connection with this Lease. Tenant agrees to indemnify and hold
harmless Landlord and its Agents harmless from and against any and all
liabilities or expenses, including attorneys' fees and costs, arising out of or
in connection with claims made by any other broker or individual for commissions
or fees resulting from Tenant's execution of this Lease if such claim arises
because of alleged action, contract, or commitment made by Tenant.
18
<PAGE> 32
37. Acceptance.
Delivery of this Lease, duly executed by Tenant, constitutes an offer to
lease the Premises, and under no circumstances shall such delivery be deemed to
create an option or reservation to lease the Premises for the benefit of Tenant.
This Lease shall only become effective and binding upon full execution hereof by
Landlord and delivery of a signed copy to Tenant. Upon acceptance of Tenant's
offer to lease under the terms hereof and receipt by Landlord of the Security
Deposit in connection with Tenant's submission of said offer, Landlord shall be
entitled to retain such deposit and apply same to damages, costs and expenses
incurred by Landlord if Tenant fails to occupy the Premises. If Landlord
declines said offer, any such deposit shall be returned to Tenant.
38. Recording.
Neither party shall record this Lease nor a short form memorandum
thereof.
39. Quitclaim.
Upon any termination of this Lease, Tenant shall, at Landlord's request,
execute, have acknowledged and deliver to Landlord a quitclaim deed of the
Premises.
40. Modifications for Lender.
If, in connection with obtaining financing for the Premises or any
portion thereof, Landlord's lender shall request reasonable modification 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 adversely affect Tenant's rights hereunder.
41. Parking.
Tenant shall have the right to park in the Building's parking facilities
of the Building upon terms and conditions as may from time to time be
established by Landlord. Tenant agrees not to overburden the parking facilities
and agrees to cooperate with Landlord in the use of the parking facilities.
42. Lease Contingency.
It is understood by both the Landlord and Tenant that this Lease is
expressly conditioned upon the successful completion and execution by all
parties to a termination agreement for a Lease between the Landlord and Steven
Sherman, HLS Duplication, et al as Tenant and Nimbus Corporation as a Subtenant.
Said termination agreement shall be completed and executed within ten (10)
working days of the Agreement Date. If a termination agreement has not been
completed, executed, and a valid copy delivered to Tenant within the time
provided, either party to this Lease may terminate the Lease and the Tenant
shall be refunded all monies paid to Landlord, and neither party shall have any
further obligation to the other.
43. Option to Extend Term.
Providing Lessee is not in default with any of the terms, provisions, or
conditions of this Lease, Lessee shall have the right to extend the term of this
Lease for one additional three year period following the expiration of the
original term, by giving written notice of Lessee's intent to exercise the
option to Lessor at least 120 days prior to the expiration of the original term
or 120 days prior to the expiration of the then extended term. At the beginning
of the extended term, the Monthly Base Rent shall be adjusted to reflect 95% of
the then prevailing market rent at the time each option is exercised.
The parties shall have thirty (30) days after Lessor receives the option
notice in which to agree on Monthly Base Rent during the extended term. If the
parties agree on the Monthly Base Rent for the extended term during that period,
they shall immediately execute an Addendum to this Lease stating the Monthly
Base Rent.
If the parties are unable to agree on the Fair market rent for the
extended term within that period, then within ten (10) days after the expiration
of that period each party, at its cost and by giving notice to the other party,
shall appoint a real estate appraiser with at least 5 years' full time
commercial appraisal experience in the area in which the Premises are located to
appraise and set the fair market rent for the Premises. If a party does not
appoint an appraiser within ten (10) days after the other party has given notice
of the name of its appraiser, the single appraiser appointed shall be the sole
appraiser and shall set the fair market rent for the Premises. If the two
appraisers are appointed by the parties as stated in
19
<PAGE> 33
this paragraph, they shall meet promptly and attempt to set the fair market rent
for the Premises. If they are unable to agree within thirty (30) days after the
second appraiser has been appointed, they shall attempt to elect a third
appraiser meeting the qualifications stated in this paragraph within ten (10)
days after the last day the two appraisers are given to set the fair market rent
for the Premises. If they are unable to agree on the third appraiser, either of
the parties to this Lease by giving ten (10) days' notice to the other party can
apply to the American Arbitration Association for the purpose of selecting the
third appraiser. Each of the parties shall bear one half of the cost of
appointing the third appraiser and of paying the third appraiser's fee. The
third appraiser, however selected, shall be a person who has not previously
acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser, a
majority of the appraisers shall set the fair market rent for the Premises. If a
majority of the appraisers are unable to do so within the stipulated period of
time, the appraisal which is neither highest nor lowest shall be the fair market
rent for the Premises.
If a fair market rent is established by appraisal as provided above, the
appraiser(s) shall so notify the parties and 95% of the agreed fair market rent
for the extended term shall be set forth in an Addendum and attached to this
Lease.
44. General.
A. Captions. The captions and headings used in this Lease are for
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
B. Executed Copy. Any fully executed copy of this Lease shall be
deemed an original for all purposes.
C. Time. Time is of the essence for the performance of each term,
condition and covenant of this Lease.
D. Separability. In case any one or more of the provisions
contained herein, except for the payment of Rent, shall for any reason be held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision of this
Lease, but this Lease shall be construed as if such invalid, illegal or
unenforceable provision had not been contained herein.
E. Choice of Law. This Lease shall be construed and enforced in
accordance with the laws of the State of California. The language in all parts
of this Lease shall in all cases be construed as a whole according to its fair
meaning and not strictly for or against either Landlord or Tenant.
F. Gender: Singular, Plural. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural.
G. Binding Effect. The covenants and agreement contained in this
Lease shall be binding on the parties hereto and on their respective successors
and assigns to the extent this Lease is assignable.
H. Waiver. The waiver by Landlord of any breach of any term,
condition or covenant, of this Lease shall not be deemed to be a waiver of such
provision or any subsequent breach of the same or any other term, condition or
covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord
shall not be deemed to be a waiver of any preceding breach at the time of
acceptance of such payment. No covenant, term or condition of this Lease shall
be deemed to have been waived by Landlord unless such waiver is in writing
signed by Landlord.
I. Entire Agreement. This Lease is the entire agreement between
the parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.
J. Authority. If Tenant is a corporation or a partnership, each
individual executing this Lease on behalf of said corporation or partnership, as
the case may be, represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said entity in accordance with its corporate
bylaws, statement of partnership or certificate of limited partnership, as the
case may be, and that this Lease is binding upon said entity in accordance with
its terms. Landlord, at its option, may require a copy of such
20
<PAGE> 34
written authorization to enter into this Lease. The failure of Tenant to deliver
the same to Landlord within seven (7) days of Landlord's request therefor shall
be deemed a default under this Lease.
K. Exhibits. All exhibits, amendments, riders and addendums
attached hereto are hereby incorporated herein and made a part hereof. THIS
LEASE is effective as of the date the last signatory necessary to execute the
Lease shall have executed this Lease.
TENANT: TeleSensory, Corporation, a California
Corporation
Dated: 7-7-97
- ------
/s/ Signature Illegible
-----------------------------------------------
By: Its:
By: Yakov G. Soloveychik
------------------------
Sr. VP & General Manager BPD TSC
Its: -----------------------------------------------
LANDLORD: Pace Properties, a California Limited
Partnership
Dated 7-7-97
-----------------------------------------------
By: Its: General Partner
-----------------------------------------------
/s/ Signature Illegible
-----------------------------------------------
By:
Its: -----------------------------------------------
Dated -----------------------------------------------
By: Its: General Partner
-----------------------------------------------
By:
-----------------------------------------------
Its:
-----------------------------------------------
21
<PAGE> 35
[EXHIBIT OMITTED]
<PAGE> 36
EXHIBIT B
Work Letter Agreement
In connection with the Tenant Improvements to be installed on the Premises
reference in paragraph 9. of the Lease, the parties hereby agree as follows:
1. Major Improvements
1.1 Landlord shall retain the services of an architect for the completion of
final working architectural and engineering plans and specifications for
the Tenant Improvements to be constructed on the Premises in accordance
with paragraph 9. of the lease ("Final Plans and Specifications").
Tenant shall cooperate diligently with the architect, and shall furnish
(within five (5) business days following the execution of the Lease set
forth in the Lease), all information required by the architect for
completion of the Final Plans and Specifications. Landlord and Tenant
shall indicate their approval of the Final Plans and Specifications by
initialing them within ten (10) business days of the execution of the
Lease set forth in the Lease and attaching them hereto as Exhibit B-1.
Either party shall have the right to terminate this Lease upon written
notice to the other party, in the event the Final Plans and
Specifications are not approved by Tenant and Landlord in writing within
the time frame provided. Upon completion of Final Plans and
Specifications and approval thereof by Landlord and Tenant, Landlord
shall commence with said work.
1.2. Identified area of approximately 50'x110' to be walled in, have dropped
ceiling added with office lighting, finished floor equivalent to other
office areas on premises, and air conditioning and electrical.
1.3. Electrical to include electric duplex outlets at 12' intervals on entire
perimeter, approximately 12" from ground level.
1.4. The Landlord shall complete, in a good and workmanlike manner and in
accordance with all building ordinances and codes, construction of the
Tenant Improvements at Landlord's sole expense excepting any
improvements that Tenant may require as a result of modifying the use of
the Premises (i.e.: additional office build out) which shall be Tenant's
sole expense. In no event shall the Tenant Improvements include any
installation of any trade fixtures, equipment, furniture, furnishings,
telephone equipment, alarm equipment or other personal property to be
used in the Premises by Tenant.
1.5. No revisions to the approved Final Plans and Specifications shall be
made by either Landlord or Tenant unless approved in writing by both
parties. Any work desired by Tenant in addition to the Final Plans and
Specifications and which is approved in writing by both parties shall be
paid by Tenant within five (5) days of being presented a completed
invoice or progress payment invoices for such work by the Landlord. Any
additional construction and improvement work mandated by governmental
authorities persuant to the Final Plans and Specifications shall also be
paid by Tenant within five (5) days of being presented an invoice for
such work by Landlord except that work required to the exterior of the
building or within the landscaping and parking areas shall be the sole
responsibility of the Landlord. If any such mandated work in any way
alters or in addition to the original Plans and Specification and the
parties cannot agree to such alterations and/or additions, the Landlord
shall have sole and exclusive authority to construct and complete such
mandated work and its obligations under paragraph 9. of the Lease The
Tenant shall be responsible for the payment thereof as set forth in this
paragraph 1.5.
2. Painting
2.1. Interior office walls to be cleaned, patched and painted to good
commercial standards.
2.2. Four (4) gallons each of any major color used in such interior
repainting are to be left for Tenant for use in maintaining premises in
good condition.
3. Suspended ceilings
3.1. All missing, damaged, water-stained or dirty panels to be replaced.
3.2. Bent, damaged or dirty t-bar to be cleaned or replaced as appropriate.
4. Carpeting
4.1. All carpeted areas to be stretched and cleaned.
Exhibit B - 1
<PAGE> 37
4.2. Any areas displaying noticeable wear, color fading (as demonstrated by
gross disparities in color between different areas) or other damage or
disrepair requires replacement with best-match color and comparable
grade of carpeting.
5. Tiled floors
5.1. Missing or damaged tiles to be replaced, including where cracked or
uneven (may require smoothing floor underneath if reasonably and
economically feasible).
5.2. Floors to be thoroughly cleaned.
5.3. Anti-skid finish to be applied (not a "high gloss wax," which is deemed
too slippery for safety purposes).
6. Concrete floors
6.1. Bolts protruding from concrete floors are to be removed and/or brought
down to smooth floor level by filing.
6.2. All concrete floors are to be cleaned, patched as needed, and sealed to
good industrial standards.
7. Lighting
7.1. All light bulbs to be operating (i.e., burnt-out bulbs are to be
replaced).
7.2. Bulbs in "yellow room" to be replaced with ordinary cool-white
fluorescent.
8. HVAC and Space Heaters
8.1. System is to be inspected, serviced and cleaned.
8.2. Any damaged or missing grills, grates, ductwork, and filters, etc. is to
be repaired or replaced as needed, including specific damage noted near
far end of warehouse area.
8.3. Ceiling inlets and returns are to be cleaned where there is accumulation
of dirt and debris.
8.4. All thermostats and space heaters to be repaired as needed to bring to
good working order.
9. Structural Matters
9.1. Roof: all leaks to be fixed to good quality prior to occupancy. Landlord
shall, notwithstanding any damage caused by or protrusions made by
Tenant, repair any leaks to the roof as soon as possible after the first
appreciable rain fall within the first year of the Lease.
9.2. All "mid-floor" non-structural (non-load-bearing) columns, pipes of any
type, pedestal-type electrical service, and the like are to be removed.
9.3. All PVC piping for water or other fluids is to be removed.
9.4. Rack and pallet near "chiller area" may be left in place on premises, at
no additional cost to Tenant, but if so, Tenant must be advised of this
at time of Lease Execution. If left in place, the racks shall be the
property of the Landlord.
9.5. All other rack and pallet, including associated sprinkler systems (main
warehouse area) are to be removed. However, Tenant will permit them to
be left in place at no cost to Tenant, and will itself pay for any
needed moving or removal, provided that (a) Removal thereof by Landlord
is not required at termination of lease; and (b) Tenant is free to
relocate, remove, discard or otherwise dispose of such items, if done in
a workmanlike manner and with permits if required; and (c) Tenant is
advised of intention to leave such items at time of execution of the
Lease.
9.6. The "chiller" equipment within the Premises must be removed in its
entirety, including all associated piping and wiring (back to the
nearest junction box), and including the pedestal on which the pumps and
tanks are mounted, except that related equipment on the roof shall be
left in place, with no further liability or expense to the Tenant or
Nimbus in connection with such equipment.
Exhibit B - 2
<PAGE> 38
10. Signage
10.1. "Nimbus" name in plastic sign over entryway and in monument near street
to be removed, but leaving frame in place and in good serviceable
condition so that Tenant can later insert its own name at its own
expense.
10.2. "Nimbus" name identification to be removed from entry door(s) and other
locations as appropriate.
10.3. Office signage which references specific employee names, departments,
etc., and file holders and other accessories affixed to walls, are to be
removed preparatory to patching and repairing any damage caused by their
removal.
11. Rest Rooms
11.1. Accepted in "as is" condition, subject to operability and freedom from
leaks for all fixtures (see next item).
11.2. All toilets, sinks and other plumbing fixtures are to be operable, with
no observed leaks whether on or off, or when flushed. All partitions in
rest rooms are to be properly secured to the walls.
11.3. Existing rest rooms are to be adequate for premises for "normal
occupancy." Any additional work on rest rooms (including handicapped
access and additional fixtures) necessitated by Tenant's subdivision of
premises for purposes of subleasing and/or due to the additional build
out of office space is to be done at Tenant's expense, with permits, in
a good workmanlike manner. Any and all modifications to the Premises,
prior to commencement of work, shall have Landlord's written permission,
which shall not unreasonably be withheld.
12. Compressors and Compressed Air Supply
12.1. The smaller compressor near the loading dock is to remain with the
premises, as Landlord's Property.
12.2. In all situations where a compressed air outlet "hangs" in the middle of
a workspace (away from walls), including where there are non-structural
support columns to which they are affixed, the piping is to be "backed
up" so that it is concealed above the false ceiling, and such support
columns are to be removed.
12.3. In all situations where a compressed air outlet is affixed to a wall or
structural support member, generally with a valve at that point, the
piping is to be left in place, but with no additional piping extending
away from the wall.
12.4. The compressor system is to be checked and confirmed to hold pressure to
customary commercial standards.
13. Electrical apparatus and wiring
13.1. The three motion-sensitive electrically-operated doors on the premises
are to remain, and are to be confirmed as being in good working order.
13.2. Electrical drop cords removed by the former tenant are to be left on
premises for possible use by Tenant but shall remain the property of
Landlord.
13.3. Currently-installed drop cords and communication wires are to remain in
place.
13.4. All electrical junction boxes and outlet boxes which are securely
mounted to an existing wall or other fixture of the Premises are to
remain in place, and to be repaired where necessary.
13.5. Existing safety (emergency) lighting to remain in place, unless
relocation is required in connection with build-out.
14. "Wet Room"
14.1. Shower and eye bath are to be left in place.
14.2. All equipment, pedestals, the concrete barrier in the north east corner
and the sump are to be removed, and the floor returned to smooth
concrete surface condition with proper rebar reinforcement where needed,
with a similar sealing as exists on the balance of floor in the wet
room.
14.3. Wall-mounted fresh water piping to be left in place to the valve only.
Exhibit B - 3
<PAGE> 39
14.4. Vent hood and associated ducting to be removed.
14.5. All PVC piping and existing ductwork and exhaust systems to be removed
in the wet room and all ceiling areas throughout.
14.6. Room to be well-ventilated which should generally be at ceiling level
(one duct now reaches to floor level) with proper registers and/or
covers over.
14.7. Room to be thoroughly cleansed of any noxious or potentially-harmful
chemicals, so that Tenant's use is unimpaired.
15. Miscellaneous
15.1. The large space recently opened in the wall between the printing room
and the warehouse is to be closed up, with appearance to match the
surrounding walls. The floor to ceiling wall in the center of the
building shall be re-sheet rocked, tapped, and painted where damaged.
All walls damaged shall be properly patched and repaired as needed.
15.2. Drawings and plans for the premises' electrical and HVAC systems are to
be provided for Tenant's use.
15.3. A clearly-marked and labeled set of keys is to be provided for all
exterior and interior keyed doors, with additional copies where readily
available, including for keyed electrical panels.
15.4. Lessor is to provide a copy of recent (within one year) Fire Department
inspection of the sprinkler system, or to arrange for such inspection
prior to occupancy.
15.5. All roll-up doors and dock levelers are to be repaired as needed based
on prior damage, and ensured to be in operating status.
15.6. Existing window blinds as observed during walk-through to be cleaned and
remain with premises. In at least two observed cases, repair or
replacement is required.
15.7. The exterior of the premises is to be cleared of all debris, pallets,
construction materials, and the like.
15.8. The exterior small fenced storage areas at the rear of the property,
against the back property line, are to be cleared of contents and the
fencing and gates shall be repaired.
15.9. Internal chain link fencing currently installed is to be left in place.
15.10. All provisions herein related to removal or capping of existing
equipment, plumbing or piping shall be subject to recommendations or
requirements provided by a qualified hazardous materials engineer or
equivalent, or governmental authority, and any such requirements shall
supersede any other provisions in this Exhibit.
16. Cafeteria
16.1. Tenant shall have Landlord's permission to install additional cafeteria
equipment in the employee cafeteria area, to meet its needs, subject to
obtaining any and all permits and doing all work in a good workmanlike
manner. This lease is not subject to Tenant obtaining permission for the
installation of the same. If any modification to the Premises is
required, then Tenant shall, prior to commencing with the work, obtain
Landlord's written permission, which shall not be unreasonably withheld.
Exhibit B - 4
<PAGE> 40
16.2. Tenant customarily licenses a non-employee vendor to operate its
cafeteria, for use by its own employees only. This is not to be deemed a
sublease of the premises.
TENANT: TeleSensory, Corporation, a California
Corporation
Dated: 7-7-97
-----------------------------------------------
By: Its: /s/ Signature Illegible
-----------------------------------------------
By: Yakov G. Soloveychil VP & General Manager
BPD TS
-----------------------------------------------
Its: -----------------------------------------------
LANDLORD: Pace Properties, A California Limited
Partnership
Dated 7-7-97
-----------------------------------------------
By: Its: General Partner
-----------------------------------------------
By: /s/ Signature Illegible
-----------------------------------------------
Its: -----------------------------------------------
Dated -----------------------------------------------
By: Its: General Partner
-----------------------------------------------
By:
-----------------------------------------------
Its: -----------------------------------------------
Exhibit B - 5
<PAGE> 1
EXHIBIT 10.15
OFFICE LEASE
BASIC DEFINITIONS AND LEASE PROVISIONS
(Office)
A. The following list sets out certain defined terms and
certain financial and other information pertaining to the lease:
1. "Date of Lease": May 26,1998
2. "Landlord": Aetna Life Insurance Company
3. Landlord's address: 12001 N. Central Expressway, Suite
650, Dallas, TX. 75243
Contact: Allegis Realty Investors, LLC, Agent
Telephone: (972) 437-9778 Facsimile: (972) 783-2329
4. "Tenant": Stanford Microdevices, Inc.
5. Tenant's address: 522 Almanor Ave., Sunny Vale, CA 94086
Contact: Greg Baker
Telephone: (972) 669-0340 Facsimile: (972) 669-8150
6. Tenant's trade name: Stanford Microdevices, Inc.
7. "Building": Landlord's property located in the City of
Richardson, Dallas County, Texas, which property is described or shown on
Exhibit "A", attached to the Lease.
8. "Premises": A unit in the Building containing
approximately 2,889 square feet in rentable area (measured by calculating
lengths and widths to the exterior of outside walls and to the center of
interior walls, without deduction for any columns or projections necessary to
the building, and, if applicable, a proportionate share of any common areas
located on the floor(s) on which the Premises is located and a proportionate
share of any of the Building's public areas, management office, engineer's
office, and mechanical spaces, e.g., service areas housing communications, HVAC,
plumbing, fire protection and elevator equipment), being known as 1202 E.
Arapaho, Suite 102 and being described or shown on Exhibit "B", attached to the
Lease. With regard to Exhibit "B", the parties agree that the exhibit is
attached solely for the purpose of locating the Building and the Premises within
the Building and that no representation, warranty, or covenant is to be implied
by any other information shown on the exhibit (i.e., any information as to
buildings, tenants or prospective tenants, etc. is subject to change at any
time). Should a party desire to measure the square footage of the Premises, it
must do so at the time of construction of any leasehold improvements prior to
the Commencement Date, or if no leasehold improvements are to be constructed,
then prior to the Commencement Date. If such measurement reflects a different
number, then, subject to the other party's verification of the number, the
parties agree to make adjustments based on such measurement. In the event of a
dispute regarding the method of calculation, the parties agree that the
standards for measurement set by the Building Owners and Managers Association
("BOMA") shall govern and control. If no measurement is made prior to the
Commencement Date, then the parties to this Lease will be deemed to have
accepted the number contained herein as the square footage of rentable area of
the Premises throughout the Lease Term, subject to adjustment only for any
subsequent additions or deletions of space.
9. "Commencement Date": If Tenant is to perform the
construction of leasehold improvements, then the Commencement Date shall be as
set forth in Section 9. a. In all other instances
a. The earlier of (i) ________________days after the Premises are
delivered to Tenant (as defined in Exhibit "E" attached to this
lease), it being Landlord's estimate that the premises will be
delivered to Tenant on or before __________________, 19_; or (ii)
____, 19 ___.
<PAGE> 2
b. July 1, 1998, subject to extension for any delay other than a
Tenant Delay (as defined in Exhibit "E").
10. "Lease Term": Commencing on the Commencement Date and
continuing for 36 months after the Commencement Date; provided that if the
Commencement Date is a date other than the first day of a calendar month, then
the Lease Term shall be extended so that it expires at the end of the calendar
month following the expiration of the months noted herein.
Stanford Microdevices, Inc
Office Lease 1
Version 97.1 (TX)
<PAGE> 3
11. "Base Rental": The total Base Rental for the Lease Term is
$123,504.75, payable as follows:
<TABLE>
<CAPTION>
Month(s) Amount per s.f. Amount per year Amount per month
<S> <C> <C> <C> <C>
1-12 $14.00 $40,446.00 $3,370.50
13-24 $14.25 $41,168.25 $3,430.69
25-36 $14.50 $41,890.50 $3,490.75
</TABLE>
12. "Base Expense Stop": An amount equal to actual operating
expenses incurred during the calendar year 1998.
13. "Tenant's Pro Rata Share": 4.24%, which is the percentage
obtained by dividing (a) the square footage of rentable area of the Premises
(2,889 sf) by (b) the square footage of rentable area of the Building (68,063
sf).
14. "Prepaid Rental": $3,370.50, being an estimate of the Base
Rental, for the 1 month of the Lease Term, such prepaid rental being due and
payable upon execution of this Lease.
15. "Security Deposit": $3,490.75, such Security Deposit being
due and payable upon execution of this Lease.
16. "Permitted Use": General Office in connection with
tenant's business operations only and for no other use or purpose. Tenant
acknowledges that the above specification of a "Permitted Use" means only that
Landlord has no objection to the specified use and does not include any
representation or warranty by Landlord that such specified use complies with
applicable laws and/or requires special governmental permits.
17. "Rent" or "rental": All amounts due from Tenant to
Landlord under Section 4.5 of the Lease), are deemed to be "rent" or "rental".
18. "Brokers": Insignia/ESG of Texas, Inc. and Henry S. Miller
Commercial
B. The foregoing Basic Lease Information is incorporated into and
made a part of the lease. If any conflict exists between any Basic Lease
Information and the Lease, then the Lease shall control.
IN WITNESS WHEREOF, Landlord and Tenant have entered into and executed
this Lease on the Date of the Lease written above.
LANDLORD: TENANT:
AETNA LIFE INSURANCE COMPANY STANFORD MICRODEVICES, INC.
By: Allegis Realty Investors, LLC, By: /s/ Signature Illegible
Its Investment Advisor and Agent
Printed Name: S.D. Ocampo
------------
By: /s/ Signature Illegible Title: ??
------------------------------------- ---
Joseph E. Gaukler, Sr. Vice President
Stanford Microdevices, Inc
Office Lease 2
Version 97.1 (TX)
<PAGE> 4
LEASE AGREEMENT
This LEASE AGREEMENT (the "Lease") is entered into as of the Date of the
Lease between AETNA LIFE INSURANCE COMPANY ("Landlord") and STANFORD
MICRODEVICES, INC. ("Tenant").
ARTICLE 1
BASIC DEFINITIONS AND LEASE PROVISIONS
1.1 The definitions and basic provisions set forth in the Basic
Definitions and Lease Provisions executed by Landlord and Tenant, and attached
hereto, are incorporated herein by reference for all purposes.
ARTICLE 2
LEASE GRANT
2.1 Subject to the terms and conditions of this Lease, Landlord leases
to Tenant, and Tenant leases from Landlord, the Premises for the Lease Term.
2.2 In addition, Tenant is granted the non-exclusive right to use in
common with the other tenants and occupants the parking and other common areas
of the Building, as such may be modified from time to time by Landlord. The
grant herein provided shall not include any easement for light or air.
ARTICLE 3
DELIVERY OF THE PREMISES; LEASE TERM
3.1 The Lease Term shall be for the period of time specified in the
Basic Definitions and Lease Provisions, beginning on the Commencement Date, as
such date may be adjusted herein, and expiring on the Expiration Date. If this
Lease is executed before the Premises become vacant, or otherwise available, or
if any present tenant or occupant of the Premises holds over, and Landlord
cannot acquire possession of the Premises to deliver to Tenant, or if Landlord
is obligated to construct leasehold improvements in the Premises under the
provisions of Exhibit "E", but is unable to complete the leasehold improvements
by the Commencement Date due to an unavoidable delay, as defined in Exhibit "E",
then Landlord shall not be deemed to be in default hereunder, and Tenant agrees
to accept possession on such date as Landlord is able to deliver possession and
the Commencement Date shall be postponed accordingly. Thereafter, this Lease
shall continue for the full number of months set forth in the Lease Term. Except
for a postponement of the Commencement Date, this Lease shall not be affected by
any failure to deliver possession as a result of an event noted above and Tenant
shall have no claim for damages against Landlord as a result thereof, all of
which claims are hereby waived and released by Tenant.
3.2 If Tenant takes possession of the Premises prior to the Commencement
Date for any reason, then such possession shall be subject to all the terms and
conditions of the Lease and Tenant shall pay Base Rental and other rent to
Landlord on a per diem basis for each day of occupancy prior to the Commencement
Date at the rate payable for the first month of the Lease Term. Tenant shall
not, however, be obligated to pay Base Rental and other rent to Landlord prior
to the Commencement Date if such early occupancy is only for the purpose of
constructing leasehold improvements if Tenant is required to do so under the
provisions of Exhibit "E".
3.3 By taking possession of the Premises, it shall be conclusive
evidence that Tenant has inspected the Premises (and has sufficient knowledge
and expertise to make such inspection or has caused the Premises to be inspected
on its behalf by one or more persons with such knowledge and expertise), that
Tenant has accepted the Premises and Building as being in good and satisfactory
condition, suitable for the purposes herein intended and that the same comply
fully with Landlord's covenants and obligations under the Lease with respect to
the construction of leasehold improvements, except for any punchlist items
agreed to in writing by Landlord and Tenant, if Landlord performed the
construction of leasehold improvements. Tenant acknowledges and agrees that
Landlord has made no representation or warranty, express or implied, as to the
habitability, suitability, quality, condition or fitness of the Premises or
Building, and Tenant waives, to the extent permitted by applicable law, any
defects in the Premises or Building and any claims arising therefrom, save and
except those arising from any construction or repair obligations of
<PAGE> 5
Landlord expressly provided for in the Lease.
3.4 Following the Commencement Date, Landlord shall prepare a
Commencement Date Letter in the form attached hereto as Exhibit "F" setting
forth the Commencement Date, Expiration Date, and confirming Tenant's acceptance
of the Premises and that Landlord has performed all of its obligations with
respect to delivery of the Premises, except as to any punchlist items previously
specified in writing and related to any construction performed by Landlord.
Tenant shall execute and deliver the Commencement Date Letter to Landlord within
ten (10) days after delivery by Landlord.
ARTICLE 4
RENT
4.1 Tenant promises and agrees to pay Landlord at Landlord's address set
forth in the Lease, or such other address as Landlord may provide to Tenant, the
Base Rental and all other rent charged under this
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Version 97.1 (TX)
<PAGE> 6
Lease without deduction or set off, for each month of the entire Lease Term. The
first monthly installment of Base Rental shall be payable by Tenant to Landlord
contemporaneously with the execution of the Lease, and thereafter, a monthly
installment of Base Rental, as may be adjusted in accordance with the provisions
of the Lease, shall be due and payable, in advance, without notice or demand on
or before the first day of each succeeding calendar month during the Lease Term.
The Base Rental for any fractional month at the beginning or end of the Lease
Term shall be prorated.
4.2 The Base Rental is determined, in part, on Landlord's estimate of
Basic Costs incurred by Landlord each year in connection with its ownership,
operation and management of the Building. In the event that the Basic Costs
increase, or are estimated by Landlord to increase, above the levels charged to
Landlord on the Date of the Lease, Landlord shall charge to Tenant and Tenant
agrees to pay as additional rental Tenant's Pro Rata Share of any such increases
in Basic Costs in accordance with the provisions of Exhibit "C".
4.3 The Security Deposit shall be paid to Landlord contemporaneously
with the execution of the Lease. Landlord shall hold the Security Deposit
without liability for interest and as security for the performance by Tenant of
Tenant's covenants and obligations under the Lease, it being expressly
understood that such deposit shall not be considered an advance payment of
rental or a measure of Landlord's damages in case of default by Tenant. Upon the
occurrence of any Event of Default by Tenant, Landlord may, from time to time,
without prejudice to any other remedy, use the Security Deposit to the extent
necessary to make good any arrearage of rent and any other damage, injury,
expense or liability caused to Landlord by such Event of Default. Following any
such application of the Security Deposit, Tenant shall pay to Landlord on demand
the amount so applied in order to restore the Security Deposit to its original
amount. If Tenant is not then in default of this Lease, any remaining balance of
the Security Deposit shall be returned by Landlord to Tenant upon termination of
the Lease. If Landlord transfers its interest in the Premises during the Lease
Term, Landlord may assign the Security Deposit to the transferee and thereafter
shall have no further liability for the return of the Security Deposit.
4.4 Tenant hereby acknowledges that late payment to Landlord of rent due
hereunder will cause Landlord to incur costs and inconvenience not contemplated
by the Lease, the exact amount of which will be extremely difficult to
ascertain. If any rent due from Tenant is not received by Landlord or Landlord's
designated agent within ten (10) days after its due date, then Tenant shall pay
to Landlord as a late charge ten percent (10%) of such overdue amount, plus any
attorney's fees incurred by Landlord by reason of Tenant's failure to pay rent
when due hereunder. The parties hereby agree that such late charges represent a
fair and reasonable estimate of the cost that Landlord will incur by reason of
Tenant's late payment. Landlord's acceptance of such late charges shall not
constitute a waiver of Tenant's default with respect to such overdue amount or
estop Landlord from exercising any of the other rights and remedies granted
hereunder.
4.5 All payments required of Tenant under the Lease shall bear interest,
beginning on the day after the due date until paid at the lesser of Twenty-One
percent (21%) per annum or the maximum lawful rate ("Default Interest"). In no
event, however, shall the charges permitted under this paragraph or elsewhere in
the Lease, to the extent the same are considered to be interest under applicable
law, exceed the maximum lawful rate of interest.
4.6 No payment by Tenant or receipt by Landlord of a lesser amount than
the rent due under this lease shall be deemed to be other than on account of the
earliest rent due hereunder, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment as rent 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 to pursue any other
remedy provided in this lease or at law or in equity.
ARTICLE 5
SERVICES
5.1 Provided no Event of Default exists, Landlord shall use all
reasonable efforts to furnish to Tenant the following services: (i) water (hot
and cold) at those points of supply provided for general use of tenants of the
Building; (ii) heated and refrigerated air conditioning ("HVAC") as appropriate,
during Normal Business Hours (which shall be on generally accepted business days
from 12:00am to 11:59pm, Monday through Sunday), and at such temperatures and in
such amounts as are reasonably considered by Landlord to be standard; (iii)
janitorial service comparable to that provided in other office buildingson
business days (if Tenant's use or floor covering or other leasehold improvements
require special services, then Tenant shall, at Landlord's option, either retain
another cleaning contractor to perform such services [with Landlord's reasonable
approval] or pay the
<PAGE> 7
additional cost reasonably determined by Landlord attributable to the special
services, as additional rent) and such window washing as may from time to time
in Landlord's judgment be reasonably required; (iv) if a multi-floor building,
then elevators for ingress and egress to the floor on which the Premises are
located, in common with other tenants, provided that Landlord may reasonably
limit the number of elevators in operation at times other than during customary
business hours and on holidays; (v) replacement of Building-standard light bulbs
and fluorescent tubes; and (vi) electrical current other than for lighting or
equipment requiring more than 110 volts, or other than for lighting or equipment
with electrical energy consumption that exceeds normal office usage as
reasonably determined by Landlord. If Tenant desires any HVAC service after
Normal Business Hours, such service shall be supplied to Tenant upon the written
request of Tenant delivered to Landlord before 3 p.m. on the business day before
the service is to be provided, and Tenant shall pay to Landlord the cost of such
service with the next due installment of monthly rent after Landlord has
delivered to Tenant an invoice therefor.
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Version 97.1 (TX)
<PAGE> 8
5.2 Tenant shall not install any electrical equipment requiring special
wiring or voltage in excess of 110 volts or otherwise exceeding Building
capacity unless approved in advance by Landlord. If approved, Landlord shall use
reasonable efforts to furnish electrical current for such lighting or equipment
through the then-existing feeders and risers serving the Building and the
Premises, and Tenant shall pay to Landlord the cost of such service with the
next due installment(s) of monthly rent after Landlord has delivered to Tenant
an invoice therefor. Landlord may determine the amount of such additional
consumption and potential consumption by either or both: (i) a survey of
Tenant's potential usage of electricity and that of standard or average tenant
usage of electricity in the Building performed by a reputable consultant
selected by Landlord and paid for by Tenant; or (ii) a separate meter in the
Premises installed, maintained, and read by Landlord, at Tenant's expense. In no
event will the use of electricity in the Premises exceed the capacity of
existing feeders and risers to or wiring in the Premises. If additional risers
or wiring are required to meet Tenant's excess electrical requirements,
Landlord, it's reasonable judgment, may elect to permit same at the sole cost
and expense of Tenant, provided such additional feeders, risers or wirings shall
not cause permanent damage or injury to the Building or the Premises, cause or
create a dangerous or hazardous condition, entail excessive or unreasonable
alterations, repairs, or expenses, or interfere with or disturb other tenants of
the Building. If Tenant uses machines or equipment in the Premises which affect
the standard temperature otherwise maintained by the air conditioning system,
Landlord may install supplemental air conditioning units or other supplemental
equipment in the Premises, and the cost thereof, including the cost of
installation, operation, use, and maintenance, shall be paid by Tenant to
Landlord with the next due installment of rent after Landlord has delivered to
Tenant an invoice therefor.
5.3 Landlord's obligation to furnish services under Section 5.1 shall be
subject to the rules and regulations of the supplier of such services and
governmental rules and regulations. Landlord may, upon not less than thirty (30)
days' prior written notice to Tenant, discontinue any such service to the
Premises, provided Landlord first arranges for a direct connection thereof
through the supplier of such service. Tenant shall, however, be responsible for
contracting with the supplier of such service and for paying all deposits for,
and costs relating to, such service.
5.4 Failure to any extent to furnish any service described above or any
stoppage or interruption of those services resulting from any cause shall not
render Landlord liable in any respect for damages, nor be construed as an
eviction of Tenant or work an abatement of rent, nor relieve Tenant from
fulfillment of any covenant or agreement contained in the Lease.
ARTICLE 6
USE
6.1 Tenant shall use the Premises only for the Permitted Use unless
Landlord consents to another use such consent not be unreasonably withheld.
Tenant will not occupy or use the Premises, or permit any portion of the
Premises to be occupied or used, for any business or purpose other than the
Permitted Use or for any use or purpose which is unlawful or deemed to be
disreputable in any manner, or dangerous to life, limb or property, or
extrahazardous on account of fire, nor permit anything to be done which will in
any way increase the premiums for insurance coverage on the Building or contents
therein, or invalidate any insurance coverage on the Building. Tenant will
conduct its business and control its agents, employees and invitees in such a
manner as not to create any nuisance, nor interfere with, annoy or disturb other
tenants or Landlord, in the management of the Building. Tenant will not commit
waste and will maintain the Premises in a clean, healthful and safe condition
and will comply with all laws, ordinances, orders, rules and regulations (state,
federal, municipal, insurance and other agencies or bodies having any
jurisdiction thereof) with reference to the use, condition or occupancy of the
Premises, including, without limitation, all environmental, health and safety
laws and the Americans with Disabilities Act. Tenant will secure at its own
expense all permits and licenses required for the transaction of business from
the Premises in accordance with the Permitted Use. Tenant will receive or take
delivery of goods or merchandise and will remove all garbage and trash only in
the manner and areas reasonably prescribed by Landlord from time to time. Tenant
will not display or sell merchandise outside the exterior walls and doorways of
the Premises and may not use such areas for storage. Tenant will not keep any
substance or carry on or permit any operation which might emit offensive odors
or conditions into other parts of the Building or use any apparatus which might
make undue noise or vibrations in the Building. Tenant further agrees not to
install any exterior lighting, amplifiers or similar devices or use in or about
the Premises an advertising medium which may be heard or seen outside the
Premises, such as flashing lights, searchlights, loudspeakers, phonographs or
radio broadcasts.
6.2 Tenant will, and will cause all its employees, agents, contractors
and invitees
<PAGE> 9
to, comply fully with all reasonable rules and regulations of the Building
adopted by Landlord from time to time. A copy of the rules and regulations for
the Building, existing on the Date of the Lease, are attached hereto as Exhibit
"D". Landlord shall at all times have the right to change such rules and
regulations or to promulgate other rules and regulations in such reasonable
manner as may be deemed advisable for the safety, care, or cleanliness of the
Building or Premises, and for the preservation of good order therein, all of
which rules and regulations, changes and amendments will be forwarded to Tenant
in writing and shall be carried out and observed by Tenant, provided such rules
and regulations are not in conflict with the terms of this lease.
ARTICLE 7
SIGNAGE
7.1 Tenant shall not install any signs, window or door lettering or
advertising media of any type in, on or about the Premises or any part thereof,
except for such tenant identification information as Landlord permits to be
included or shown on any directory maintained in the front lobby of the Building
and adjacent to
Stanford Microdevices, Inc
Office Lease 5
Version 97.1 (TX)
<PAGE> 10
the access door or doors to the Premises or such other items as Landlord
approves. Should Landlord agree in writing to any of the foregoing items, Tenant
agrees to maintain same in good condition and repair at all times.
ARTICLE 8
COMMON AREAS
8.1 The use and occupation by Tenant of the Premises shall include the
use in common with others entitled thereto of the common areas. The term "common
areas" shall mean those portions of the Building intended for the common use of
all tenants including, among other facilities, the parking areas, service roads,
loading facilities, sidewalks, and such other facilities as may be designated by
Landlord from time to time as common areas, subject, however, to the terms and
conditions of this Lease and to the rules and regulations governing the use of
the common areas as prescribed from time to time by Landlord. Landlord shall
have the right from time to time to change the area, level, location and
arrangement of the common areas.
8.2 The common areas shall at all times be subject to the exclusive
control and management of Landlord. Landlord shall police the common areas and
maintain them in good condition and repair throughout the Lease Term.
8.3 All common areas and facilities, which Tenant may be permitted to
use are to be used under a revocable license, and if such areas are diminished,
Landlord shall not be subject to any liability nor shall Tenant be entitled to
any compensation or diminution or abatement of rent, nor shall the diminution of
such areas be deemed constructive or actual eviction.
8.4 In accordance with the provisions of Exhibit "H", Tenant shall have
the right to park in the parking areas in common with other tenants of the
Building upon such terms and conditions established by Landlord at any time
during the Lease Term, including the imposition of a reasonable parking charge
if required by governmental authority or as otherwise provided for in the Lease.
Tenant agrees not to overburden the parking areas and agrees to cooperate with
Landlord and the other tenants in use of the parking areas. Landlord reserves
the right in its absolute discretion to determine whether the parking areas are
becoming overburdened and to allocate and assign parking spaces among Tenant and
other tenants, and to reconfigure the parking areas and modify the existing
ingress to and egress from the parking areas as Landlord shall deem appropriate.
ARTICLE 9
ALTERATIONS
9.1 Any leasehold improvements to the Premises contemplated by Landlord
and Tenant to be made prior to the commencement of the Lease Term shall be
performed in accordance with the provisions of Exhibit "E".
9.2 Other than any leasehold improvements to be made under Section 9.1,
Tenant shall not make, or allow to be made, any alterations, additions or
improvements to the Premises without the prior written approval of Landlord,
which approval shall not be unreasonably withheld. All alterations, additions or
improvements installed on the Premises by either party, including, without
limitation, fixtures, but excluding readily movable trade fixtures, shall become
the property of Landlord at the expiration of the Lease Term, unless Landlord
requests their removal, in which event, Tenant shall remove any such
alterations, additions or improvements and restore the Premises to its original
condition, reasonable wear and tear excepted, at Tenant's expense.
9.3 Prior to commencing any construction work on the Premises, Tenant
must furnish to Landlord adequate plans and specifications for the written
approval of Landlord. Once approved, Tenant shall not modify the plans and
specifications without, again, obtaining the written approval of Landlord.
Landlord's approval of the plans and specifications shall not be deemed to be a
representation by Landlord that such plans and specifications comply with
applicable insurance requirements, building codes, ordinances, laws or
regulations.
9.4 All construction work shall be performed only by Landlord or by
contractors and subcontractors approved in writing by Landlord, which approval
shall not be unreasonably withheld. If Landlord does not perform the
construction work, then Tenant shall cause all of its contractors and
subcontractors to procure and maintain insurance coverage against such risks and
in such amounts as Landlord may reasonably require and with such companies
<PAGE> 11
as Landlord may reasonably approve, which approval shall not be unreasonably
withheld. Landlord may also require Tenant to furnish a payment and performance
bond, reasonably satisfactory to Landlord in an amount covering the cost of the
construction work, and/or require Tenant to obtain a waiver and release of liens
from all contractors and subcontractors prior to commencement of the
construction work. Tenant agrees to indemnify Landlord and hold Landlord
harmless against any loss, liability or damage resulting from any such
construction work performed by Tenant or on Tenant's behalf.
9.5 All construction work by, or on behalf of, Tenant must be performed
in a good and workmanlike manner in accordance with the approved plans and
specifications, lien-free, and in compliance with all governmental laws and
requirements. Tenant shall only utilize new materials of a quality that is equal
or better than the quality of those materials already on the Premises.
Stanford Microdevices, Inc
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Version 97.1 (TX)
<PAGE> 12
9.6 Tenant shall not permit any mechanic's liens to be filed against the
Premises or the Building for any work performed, materials furnished, or
obligation incurred by or at the request of Tenant, including, but not limited
to, any work performed, materials furnished, or obligations incurred by or at
the request of Tenant for construction performed under the provisions of Exhibit
"E". If such a lien is filed, then Tenant shall, within ten (10) days after
Landlord has delivered notice of the filing to Tenant, either pay the amount of
the lien or diligently contest such lien, in which event, Tenant shall deliver
to Landlord a bond or other security reasonably satisfactory to Landlord. If
Tenant fails to timely take either such action, then Landlord may, at its
election, pay the lien claim without inquiry as to the validity thereof, and any
amounts so paid, plus Landlord's expenses and an administrative fee equal to
fifteen percent (15%) of the amount paid, shall be paid by Tenant to Landlord as
additional rental within ten (10) days after Landlord has delivered to Tenant an
invoice therefor. No work which Landlord permits Tenant to perform in the
Premises shall be deemed to be for the immediate use or benefit of Landlord so
that no mechanics or other lien shall be allowed against the estate of Landlord
by reason of its consent to such work.
ARTICLE 10
REPAIRS
10.1 Landlord shall not be required to make any repairs or replacements
of any kind or character on the Premises during the Lease Term except repairs to
the exterior walls, corridors, window, roof and other structural elements and
equipment of the Building, except when such repairs are caused by fire or other
casualty, in which event, the provisions of Article 13 shall govern and control.
Landlord shall not be responsible for termite, or other insect, or vermin
eradication. Subject to the provisions of any waiver contained in Section 12.2,
Landlord shall not be required to make any repairs occasioned by the acts or
negligence of Tenant, its agents, employees, contractors and invitees. Tenant
shall give immediate written notice to Landlord of the need for repairs or
corrections and Landlord shall have a reasonable time to make such repairs or
corrections. Landlord's liability hereunder shall be limited to the cost of such
repairs or corrections. Tenant waives the provisions of any law permitting
Tenant the right to make repairs and deduct the expense of such repairs from the
rent due under the lease.
10.2 Landlord may, at its option and at the cost and expense of Tenant,
repair or replace any damage or injury done to the Building or any part thereof,
caused by Tenant, its agents, employees, contractors or invitees. Tenant shall
pay such costs, plus an administrative fee equal to Ten percent (10%) of the
costs, to Landlord on the next date an installment of Base Rental is due
following notice from Landlord of the costs. Tenant further agrees throughout
the Lease Term to maintain and keep the interior of the Premises in good repair
and condition at Tenant's expense.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1 Tenant shall not, without the prior written consent of Landlord
(which Landlord may grant or deny in its sole reasonable discretion), (i)
advertise that any portion of the Premises is available for lease, (ii) assign,
transfer, or encumber this Lease or any estate or interest herein, whether
directly or by operation of law, (iii) permit any other entity to become Tenant
hereunder by merger, consolidation, or other reorganization (iv) if Tenant is an
entity other than a corporation whose stock is publicly traded, permit the
transfer of an ownership interest in Tenant so as to result in a change in the
current control of Tenant, (v) sublet any portion of the Premises, (vi) grant
any license, concession, or other right of occupancy of any portion of the
Premises, or (vii) permit the use of the Premises by any parties other than
Tenant (any of the events listed in Sections 11.1(ii) through 11.1(vii) being a
"Transfer"). If Tenant requests Landlord's consent to a Transfer, then Tenant
shall provide Landlord with a written description of all terms and conditions of
the proposed Transfer, copies of the proposed documentation, and the following
information about the proposed transferee: name and address; reasonably
satisfactory information about its business and business history; its proposed
use of the Premises; banking, financial, and other credit information; and
general references sufficient to enable Landlord to determine the proposed
transferee's creditworthiness and character. Tenant shall reimburse Landlord for
its attorneys' fees and other expenses incurred in connection with considering
any request for its consent to a Transfer. If Landlord consents to a proposed
Transfer, then the proposed transferee shall deliver to Landlord a written
agreement whereby it expressly assumes the obligations of Tenant hereunder;
however, any transferee of less than all of the space in the Premises shall be
liable only for the obligations under this Lease that are properly allocable to
the space subject to the Transfer, and only to the extent of the rent it has
agreed to pay Tenant
<PAGE> 13
therefor. Landlord's consent to a Transfer shall not release Tenant from
performing its obligations under this Lease, but rather Tenant and its
transferee shall be jointly and severally liable therefor. Landlord's consent to
any Transfer shall not waive Landlord's rights as to any subsequent Transfers.
If an Event of Default occurs while the Premises or any part thereof are subject
to a Transfer, then Landlord, in addition to its other remedies, may collect
directly from such transferee all rents becoming due to Tenant and apply such
rents against Base Rental and other amounts due under this Lease. Tenant
authorizes its transferees to make payments of rent directly to Landlord upon
receipt of notice from Landlord to do so.
11.2 Landlord may, by written notice, within thirty (30) days after
submission of Tenant's written request for Landlord's consent to a Transfer,
cancel this Lease (or, as to a subletting or assignment, cancel as to the
portion of the Premises proposed to be sublet or assigned) as of the date the
proposed Transfer was to be effective. If Landlord cancels this Lease as to any
portion of the Premises, then this Lease shall cease for such portion of the
Premises and Tenant shall pay to Landlord all Base Rental and other amounts
accrued through the cancellation date relating to the portion of the Premises
covered by the proposed Transfer and all brokerage commissions paid or payable
by Landlord in connection with this Lease that are allocable to such portion of
the
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<PAGE> 14
Premises. Thereafter, Landlord may lease such portion of the Premises to the
prospective transferee (or to any other person) without liability to Tenant.
11.3 Tenant shall pay to Landlord, immediately upon receipt thereof, all
compensation received by Tenant for a Transfer that exceeds the Base Rental and
other amounts due under the Lease, excluding any amount due under this Section
11.3 and allocable to the portion of the Premises covered thereby.
11.4 Landlord may sell, transfer, assign or convey all or any part of
its interest in the Building and the Lease and, in the event Landlord assigns
its interest in this Lease, Landlord shall be released from any further
obligation and liabilities hereunder, and Tenant agrees to attorn and look
solely to Landlord's successor-in-interest for performance of such obligation.
ARTICLE 12
INSURANCE; WAIVERS; SUBROGATION; INDEMNITY
12.1 Tenant shall at its expense procure and maintain throughout the
Lease Term the following insurance policies: (i) commercial general liability
insurance in amounts of not less than $1,000,000 per occurrence, combined single
limit, or such other amounts as Landlord may from time to time reasonably
require, insuring Tenant, Landlord and Landlord's agents against all liability
for injury to or death of a person or persons or damage to property arising from
the use and occupancy of the Premises, (ii) contractual liability insurance
coverage sufficient to cover Tenant's indemnity obligations hereunder, (iii)
casualty insurance, including "all risks" and fire and extended coverage
insurance covering the full value of Tenant's leasehold improvements, personal
property and other property (including the property of others), located in or on
the Premises, (iv) workman's compensation insurance, containing a waiver of
subrogation endorsement reasonably acceptable to Landlord, (v) comprehensive
automobile liability insurance, insuring Tenant, Landlord and Landlord's agents,
(vi) business interruption insurance, and (vii) such other insurance and in such
amounts as Landlord may reasonably require from time to time. Tenant's insurance
shall provide primary coverage to Landlord when any policy issued to Landlord
provides duplicate or similar coverage, and in such circumstance, Landlord's
policy will be excess over Tenant's policy. Tenant shall furnish certificates of
insurance and such other evidence satisfactory to Landlord of the maintenance of
all insurance coverages required hereunder prior to the Commencement Date, and
Tenant shall obtain a written obligation on the part of each insurance company
to notify Landlord at least thirty (30) days before cancellation or a material
change of any such insurance. All such insurance policies shall name Landlord as
additional insured or loss payee, as applicable, and otherwise shall be in form,
and issued by companies, reasonably satisfactory to Landlord and with
deductibles reasonably satisfactory to Landlord. Tenant's failure to maintain
any insurance hereunder shall constitute an Event of Default without any written
notice required of Landlord and, in such event, Landlord shall have the right,
but not the obligation, to purchase any insurance that has lapsed. Should
Landlord elect to purchase insurance on behalf of Tenant, then Tenant shall
reimburse to Landlord the cost of such insurance and an administrative fee of
fifteen percent (15%) of the amount of the premium within ten (10) days of the
date of the notice from Landlord seeking the reimbursement. The policy limits of
any insurance required to be carried by Tenant shall not limit the liability of
Tenant under this Lease.
12.2 Landlord shall not be liable to Tenant or those claiming by,
through, or under Tenant for any injury to or death of any person or persons or
the damage to or theft, destruction, loss, or loss of use of any property or
inconvenience (a "Loss") caused by casualty, theft, fire, third parties, or any
other matter (including Losses arising through repair or alteration of any part
of the Premises, or failure to make repairs, or from any other cause),
regardless of whether the negligence of any party caused such Loss in whole or
in part. Landlord and Tenant waive any claim each might have against the other
for any damage to or theft, destruction, loss, or loss of use of any property,
to the extent the same is covered under any insurance policy that covers the
Building, the Premises, Landlord's or Tenant's fixtures, personal property,
leasehold improvements, or business, or, in the case of Tenant's waiver, is
required to be insured against under the terms of the Lease, regardless that the
negligence or fault of the other party caused such loss; however, the waiver
shall not apply to the portion of any damage which is not reimbursed by the
damaged party's insurance by reason of the deductible in such party's insurance
coverage, or apply to any coinsurance penalty which Landlord might sustain. Each
party shall cause its insurance carrier to endorse all applicable policies
waiving the carrier's rights of recovery under subrogation or otherwise against
the other party.
12.3 Subject to the provisions of Section 12.2, Tenant shall defend,
indemnify, and hold harmless Landlord and its employees and agents from and
against all claims, demands, liabilities, causes of action, suits, judgments,
and expenses (including attorneys' fees)
<PAGE> 15
for any Loss arising from an occurrence on the Premises or caused by or
resulting from the condition of the Premises, or from the acts or omissions of
Tenant or Tenant's employees, agents, contractors or invitees, or from Tenant's
failure to perform any of its obligations under this Lease (other than a Loss
arising from the gross negligence or willful misconduct of Landlord or its
employees or agents), even though caused or alleged to be caused by the joint,
comparative, or concurrent negligence or fault of Landlord or its employees and
agents, and even though any such claim, cause of action, or suit is based upon
or alleged to be based upon the strict liability of Landlord or its employees
and agents, provided that this indemnity shall not apply to the gross negligence
or willful misconduct of Landlord or its employees or agents. THIS INDEMNITY
PROVISION IS INTENDED TO INDEMNIFY LANDLORD AND ITS EMPLOYEES AND AGENTS AGAINST
THE CONSEQUENCES OF THEIR OWN NEGLIGENCE OR FAULT (BUT NOT THE GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF LANDLORD OR ITS EMPLOYEES OR AGENTS) AS PROVIDED ABOVE
WHEN LANDLORD OR ITS EMPLOYEES AND AGENTS ARE JOINTLY, COMPARATIVELY, OR
CONCURRENTLY NEGLIGENT WITH TENANT.
12.4 Tenant shall not use, and shall not permit any subtenant, licensee,
concessionaire, employee, agent or invitee (hereinafter collectively "Tenant's
Representatives") to use, any portion of the Premises or
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Building, for the placement, storage, manufacture, disposal or handling of any
hazardous materials (hereinafter defined) unless Tenant complies with all
applicable environmental laws (federal, state or local), including, but not
limited to those for obtaining proper permits. In the event Tenant or Tenant's
Representatives desire to use or place hazardous materials on the Premises it
shall notify Landlord in writing thirty (30) days prior to such proposed use or
placement, and provide the names of the hazardous materials, procedures to
insure compliance with the applicable environmental law and such other
information as Landlord may reasonably request.
In the event Tenant or Tenant's Representatives places, releases or
discovers any hazardous materials on the Premises or Building in violation of
applicable environmental laws, Tenant shall immediately notify Landlord of such
fact in writing within twenty-four (24) hours of the placement, release or
discovery. Tenant shall not attempt any removal, abatement or remediation of
those hazardous materials on the Premises in violation of applicable
environmental laws, without obtaining the additional written consent of
Landlord, which consent may be specifically conditioned on Landlord's right to
approve the scope, timing and techniques of any such work and the appointment of
all contractors, engineers, inspectors and consultants in connection with any
such work. Tenant shall be responsible for the cost of any removal, abatement
and remediation work of any hazardous materials placed, stored, manufactured,
disposed of or handled by Tenant or Tenant's Representatives on the Premises or
any other portion of the Building and for the cost of any removal, abatement or
remediation of any hazardous materials which might be disturbed or released as a
result of any remodeling or construction in the Premises by Tenant or Tenant's
Representatives. Such costs shall include, without limitation, the cost of any
supervision by Landlord, its employees or agents, in connection with such work.
Tenant shall comply with all environmental laws in connection with any such
removal.
Tenant shall indemnify Landlord, its shareholders, directors, officers,
employees and agents and hold them harmless, from and against any loss, damage
(including, without limitation, a loss in value of the Building or damages due
to restrictions on marketing contaminated space), cost, liability or expense
(including reasonable attorneys' fees and expenses and court costs) arising out
of the placement, storage, use, manufacture, disposal, handling, removal,
abatement or remediation of any hazardous materials by Tenant or Tenant's
Representatives on the Premises or Building, or any removal, abatement or
remediation of any hazardous materials required hereunder to be performed or
paid for by Tenant, with respect to any portion of the Premises or the Building,
or arising out of any breach by Tenant of its obligations under this paragraph.
The term "hazardous materials" as used herein shall mean (i) any
"hazardous waste" as defined by the Resource Conservation and Recovery Act of
1976 (42 U.S.C. Section 6901 et seq.), as amended from time to time, and
regulations promulgated thereunder; (ii) any "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
(42 U.S.C. Section 9601, et seq.), as amended from time to time, and regulations
promulgated thereunder; (iii)'asbestos or polychlorinated biphenyls; (iv) any
substance the presence of which on the Building or on the Premises is prohibited
or regulated by any federal, state or local law, regulation, code or rule; and
(v) any other substance which requires special handling or notification of any
federal, state or local governmental entity in its collection, storage,
treatment, or disposal.
12.5 The indemnification provisions contained in Article 12 shall
survive the termination of this Lease.
ARTICLE 13
FIRE AND CASUALTY
13.1 If the Premises or or Building or any part thereof shall be
materially damaged by fire or other casualty, Tenant shall give prompt written
notice thereof to Landlord and Landlord may, at its option, terminate this Lease
by notifying Tenant in writing of such termination within sixty (60) days after
the date of such damage, in which event the rent hereunder shall be abated as of
the date of such damage. If Landlord does not elect to terminate this Lease,
Landlord shall as soon as reasonably practical after the date of such damage
commence to repair and restore the Building with reasonable diligence (except
that Landlord shall not be responsible for delays outside its control) to
substantially the same condition in which it was immediately prior to the
happening of the casualty, except that Landlord shall not be required to
rebuild, repair or replace any part of Tenant's leasehold improvements (except
to the extent originally paid by Landlord), furniture, furnishings or fixtures
and equipment removable by Tenant under the provisions of this Lease, and the
Lease Term will be extended by the period of time equal to the time to repair
and restore the damage. Tenant agrees to rebuild and restore any leasehold
improvements to the extent not required of Landlord. Tenant shall commence any
such work upon written notice from Landlord. Any insurance which may be carried
by Landlord or Tenant against loss or damage
<PAGE> 17
to the Building or to the Premises shall be for the sole benefit of the party
carrying such insurance and under its sole control.
13.2 Landlord shall not be liable for any inconvenience or annoyance to
Tenant or injury to the business of Tenant resulting in any way from such damage
or the repair thereof. Subject to the provisions of the remainder of this
paragragh, Landlord shall allow Tenant a fair diminution of rent during the time
and to the extent the Premises are unfit for occupancy. The diminution of rent
shall expire on the date Landlord delivers the Premises to Tenant ready for
occupancy (if Landlord originally provided the leasehold improvements) or (ii)
on the date following an equivalent time allowed Tenant for the construction of
leasehold improvements after Landlord delivered the Premises to Tenant ready for
Tenant to rebuild its leasehold improvements, as contemplated in Exhibit "E" (if
Tenant originally provided the leasehold improvements). If the Premises or any
other portion of the Building is damaged by fire or other casualty
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resulting from the fault or negligence of Tenant or any of Tenant's agents,
employees or invitees, the rent hereunder shall not be diminished during the
repair of such damage and Tenant shall be liable to Landlord for the cost and
expense of the repair and restoration of the Building caused thereby to the
extent such costs and expenses are not covered by insurance proceeds.
ARTICLE 14
CONDEMNATION
14.1 If all of the Building should be taken for any public or
quasi-public use under any governmental law, ordinance or regulation or by right
of eminent domain or by private purchase in lieu thereof, this Lease shall
terminate and the rent shall be abated during the unexpired portion of the Lease
Term, effective on the date physical possession is taken by the condemning
authority, and Tenant shall have no claim against Landlord for the value of any
unexpired Lease Term.
14.2 In the event a portion but not all of the Building shall be taken
for any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain, by private sale in lieu thereof and
the partial taking or condemnation shall render the Building unsuitable for
continued operation, then Landlord shall have the option, in its sole
discretion, of terminating this Lease or, at Landlord's sole risk and expense,
restoring and reconstructing the Building to the extent necessary to make same
reasonably tenantable. Should Landlord not elect to terminate this Lease, then
Landlord shall restore the Premises and the Lease shall continue in full force
and effect with the rent payable during the unexpired portion of this Lease
being adjusted to such an extent as may be fair and reasonable under the
circumstances, and Tenant shall have no claim against Landlord for the value of
any interrupted portion of this Lease.
14.3 Landlord shall be entitled to receive all of the compensation
awarded upon a condemnation (or the proceeds of a private sale in lieu thereof)
of all or any part of the Building or the Premises, including any award for the
value of any unexpired Lease Term, and Tenant hereby assigns to Landlord and
expressly waives all claim to any such compensation. However, Tenant reserves
for itself any separate award made for relocation cost or loss of any of
Tenant's trade fixtures, provided no such award shall diminish the amount that
would otherwise be awarded to Landlord.
ARTICLE 15
SUBORDINATION, ATTORNMENT, ESTOPPEL
15.1 This Lease shall be subordinate to any deed of trust, mortgage, or
other security instrument (a "Mortgage"), or any ground lease, master lease, or
primary lease (a "Primary Lease"), that now or hereafter covers all or any part
of the Premises (the mortgagee under any Mortgage or the lessor under any
Primary Lease is referred to herein as "Landlord's Mortgagee"), including any
modifications, renewals or extensions of such Mortgage or Primary Lease.
Notwithstanding the foregoing, Tenant agrees that any such Landlord's Mortgagee
shall have the right at any time to subordinate such Mortgage or Primary Lease
to this Lease on such terms and subject to such conditions as Landlord's
Mortgagee may deem appropriate in its discretion. Tenant agrees upon demand to
execute such further instruments subordinating this Lease or attorning to the
Landlord's Mortgagee as Landlord may request. In the event that Tenant should
fail to execute any subordination or other agreement required by this paragraph,
promptly as requested, Tenant hereby irrevocably constitutes Landlord as its
attorney in fact to execute such instrument in Tenant's name, place and stead,
it being agreed that such power is one coupled with an interest.
15.2 Tenant shall attorn to any party succeeding to Landlord's interest
in the Premises, whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, termination of lease, or otherwise, upon such party's request,
and shall execute such agreements confirming such attornment as such party may
reasonably request.
15.3 Tenant shall not seek to enforce any remedy it may have for any
default on the part of the Landlord without first giving written notice by
certified mail, return receipt requested, specifying the default in reasonable
detail, to any Landlord's Mortgagee whose address has been given in writing to
Tenant, and affording such Landlord's Mortgagee a reasonable opportunity to
perform Landlord's obligations hereunder.
15.4 Tenant agrees that, within ten (10) days of written request by
Landlord, it will execute and deliver to such persons as Landlord shall request
a statement in recordable form certifying that this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as so modified), stating the dates to which rent and other
charges payable under this Lease have
<PAGE> 19
been paid, stating that Landlord is not in default hereunder (or if Tenant
alleges a default stating the nature of such alleged default) and further
stating such other matters as Landlord shall reasonably require.
ARTICLE 16
EVENTS OF DEFAULT
16.1 The following shall be deemed to be Events of Default by Tenant
under this Lease:
(a) Tenant shall fail to pay any installment of Base Rental or any other
rent or monetary sum when due under the provisions of the Lease, and such
failure shall continue for a period of Five (5) days after written notice from
Landlord to tenant.
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(b) Tenant shall fail to comply with any term, provision or covenant of
this lease, other than the payment of a monetary sum, and such failure shall not
be cured within Twenty (20) days after written notice thereof to Tenant.
(c) Tenant or any guarantor of Tenant's obligations under this Lease
shall become insolvent, or shall make a transfer in fraud of creditors, or shall
make an assignment for the benefit of creditors.
(d) Tenant or any guarantor of Tenant's obligations under this Lease
shall file a petition under any state or federal bankruptcy or other insolvency
statutes or Tenant or any guarantor of Tenant's obligations under this Lease
shall be adjudged bankrupt or insolvent in proceeding filed against Tenant or
guarantor thereunder and such adjudication shall not be vacated or set aside
within thirty (30) days.
(e) A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant or any guarantor of the obligations of Tenant under
this Lease and such receivership shall not be terminated or stayed within thirty
(30) days.
(f) Tenant shall do or permit to be done anything which creates a lien
upon the Premises or upon all or any part of the Building.
(g) Tenant shall desert or vacate any substantial portion of the
premises.
ARTICLE 17
REMEDIES
17.1 Upon the occurrence of an Event of Default, Landlord shall have the
option to pursue any one or more of the following remedies without any notice or
demand whatsoever, except if required by applicable law:
(a) Terminate this Lease in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
damages, enter upon and take possession and expel or remove Tenant and any other
person who may be occupying said Premises or any part thereof by any lawful
means without being liable for prosecution or any claim for damages therefor,
and Tenant agrees to pay to Landlord, as hereinafter set forth in Section 17.2,
on demand the amount of all loss and damage which Landlord may suffer by reason
of such termination, whether through inability to relet the Premises on
satisfactory terms or otherwise.
(b) Terminate Tenant's right to possession of the Premises, but not the
Lease, in which event Tenant shall immediately surrender the Premises to
Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any
other remedy which it may have for possession or damages, enter upon and take
possession of the Premises and expel or remove Tenant and any other person who
may be occupying the Premises or any part thereof by any lawful means without
being liable for prosecution or any claim for damages therefor and Tenant agrees
to pay to Landlord, as hereinafter set forth in Section 17.2, on demand the
amount of all loss and damage which Landlord may suffer by reason of such
termination, whether through inability to relet the Premises on satisfactory
terms or otherwise.
(c) Enter upon the Premises, by any lawful means without terminating the
Lease or Tenant's right to possession and without being liable for prosecution
or any claim for damages therefor, and do whatever Tenant is obligated to do
under the provisions of this Lease, and Tenant agrees to reimburse Landlord on
demand for any expenses which Landlord may incur in thus effecting compliance
with Tenant's obligations under this Lease, plus an administrative fee equal to
fifteen percent (15%) of any expenses incurred by Landlord, and Tenant further
agrees that Landlord shall not be liable for any damages resulting to the Tenant
for such action.
(d) Not to re-enter the Premises or terminate the Lease, but to allow
Tenant to remain in possession of the Premises, and bring suit against Tenant to
collect the monthly rents and other charges provided in this Lease as they
accrue. Landlord shall have a right to allow such deficiencies of monthly rents
and other charges provided in this Lease to accumulate and to bring an action on
several or all of the accrued deficiencies at one time. Any such suit shall not
prejudice in any way the right of Landlord to bring a similar action for any
subsequent deficiency or deficiencies.
Tenant agrees that any re-entry into the Premises under the provisions
of subpart (b) of this Section shall not be deemed a termination of the Lease or
an acceptance of the surrender thereof, unless Landlord shall have notified
Tenant in writing that it has so elected to terminate the Lease. Tenant also
agrees that any notice pursuant to an action
<PAGE> 21
for forcible detainer or eviction shall not be deemed to be a termination of the
Lease unless Landlord shall have also notified Tenant in writing that it has so
elected to terminate the Lease. Any election of the remedy provided in subpart
(b) of this Section shall not preclude the subsequent election by Landlord of
the remedy under subpart (a) of this Section.
Should Landlord elect to re-enter the Premises under the provisions of
subparts (a) or (b), Landlord shall make reasonable efforts to relet the
Premises. Nothing herein, however, shall prohibit Landlord from leasing any
other vacant space in the Building before leasing the Premises, or from using
its business judgment in respect to the releasing of the Premises. In this
regard, Landlord shall not be required to relet the Premises in part, rather
than a whole, or for a rental rate less than the rental rate then being offered
to prospective tenants for other space in the Building.
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17.2 Should Landlord at any time terminate this Lease or Tenant's right
to possession for an Event of Default, Landlord shall recover from Tenant, and
Tenant shall be liable and pay to Landlord, as damages a sum equal to the
following:
(i) the unpaid monthly rents and other charges provided in this Lease
and which accrued prior to the date of termination;
(ii) an amount equal to the following:
(A) Until Landlord is able, through reasonable efforts, to
relet the Premises under terms satisfactory to Landlord, in its
sole discretion, Tenant shall pay to Landlord on or before the
first day of each calendar month, the monthly rentals and other
charges provided in this Lease. If and after the Premises have
been relet by Landlord, Tenant shall pay to Landlord on the
twentieth (20th) day of each calendar month the difference
between the monthly rentals and other charges provided in this
Lease for such calendar month and that actually collected by
Landlord for such month. If it is necessary for Landlord to bring
suit in order to collect any deficiency, Landlord shall have a
right to allow such deficiencies to accumulate and to bring an
action on several or all of the accrued deficiencies at one time.
Any such suit shall not prejudice in any way the right of
Landlord to bring a similar action for any subsequent deficiency
or deficiencies. Any amount collected by Landlord from subsequent
tenants for any calendar month in excess of the monthly rentals
and other charges provided in this Lease, shall be credited to
Tenant, first, in reduction of Tenant's liability for any
calendar month for which the amount collected by Landlord will be
less than the monthly rentals and other charges provided in this
Lease and, then, against Tenant's liability for any other damages
of Landlord hereunder, and Tenant shall have no right to any
excess other than the above-described credits; and
(B) When Landlord desires, Landlord may demand a final
settlement, in which event, Landlord shall have a right to, and
Tenant hereby agrees to pay, the difference between (1) the total
monthly rents and other charges provided in this Lease for the
remainder of the Lease Term, and (2) the fair rental value of the
Premises for such period (determined as of the time of the final
settlement) such difference discounted to present value using the
prime rate published in the Wall Street Journal for the region in
which the Building is located on the date of the final
settlement; and
(iii) all other damages which Landlord may demonstrate it incurred,
including, without limitation, any and all costs of retaking the
Premises, costs of maintaining and preserving the Premises after
such retaking, and costs of reletting the Premises, such as costs
to repair or restore the Premises and to pay leasing commissions.
If Landlord elects to exercise the remedy prescribed in Section 17.2(ii)
(A) above, this election shall not prejudice Landlord's right at any time
thereafter to cancel said election in favor of the remedy prescribed in Section
17.2(ii) (B) above.
As used in Article 17, the phrase "the monthly rentals and other charges
provided in this Lease" shall mean the monthly amount of Base Rental plus the
monthly amount of Tenant's Pro Rata Share of Excess Basic Costs. If Landlord
demands a final settlement, then Landlord shall have the right to estimate
Tenant's Pro Rata share of Excess Basic Costs for the remainder of the Lease
Term.
Any past due monthly rents and other charges provided in this Lease
shall bear interest at the Default Interest rate, defined elsewhere in the
Lease.
17.3 Upon the occurrence of an Event of Default, Landlord may alter all
locks and security devices at the Premises and will not be obligated to return
the key to Tenant if Landlord has elected either to terminate this Lease under
Section 17.1(a) or permanently repossess the Premises under Section 17.1(b). If
Landlord alters all locks and security devices at the Premises because of an
Event of Default without electing either to terminate this Lease or permanently
repossess the Premises, then Landlord shall return the key to Tenant only during
the regular business hours of Landlord's property manager and only in the event
Tenant has paid the rent or otherwise performed the obligations necessary to
cure the Event of Default and, further, Tenant provides reasonable assurances to
Landlord evidencing Tenant's ability to perform its remaining obligations under
this Lease. In the event Landlord alters the locks and the keys are not returned
to Tenant, then, upon the prior written request of Tenant accompanied by such
releases and waivers as Landlord may require, Landlord, at its option, may (i)
escort Tenant to the Premises to retrieve
<PAGE> 23
personal belongings and other property not subject to Landlord's lien and
security interest, or (ii) obtain from Tenant a list of such personal belongings
and personal property and advise Tenant of a time and place where such items
will be made available to Tenant. If Landlord elects the latter option, then
Tenant shall reimburse to Landlord the cost of moving and/or storing the items
prior to Landlord's making same available to Tenant.
17.4 Should Landlord re-enter and take possession of the Premises,
Landlord may, with respect to any and all furniture, fixtures, equipment and
other personal property located on the Premises, exercise one or more of the
following rights: (i) sell the personal property pursuant to any lien retained
by Landlord; (ii) remove the personal property from the Premises (without the
necessity of obtaining a distress warrant, writ of sequestration or other legal
process) and place same in storage and, in such event, Tenant shall be liable to
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Landlord for reasonable costs incurred by Landlord in connection with such
removal and storage and shall indemnify and hold Landlord harmless from all
loss, damage, cost, expense and liability in connection with such removal and
storage; or (iii) dispose of any of the personal property. Should Landlord elect
to dispose of any of the personal property, whether or not such personal
property was first placed in storage, Landlord shall give Tenant written notice
at Tenant's last known address advising Tenant that Landlord will dispose of the
personal property unless Tenant retrieves same within Ten (10) days from the
date of the notice and pays to Landlord any reasonable costs incurred for
storage and/or removal. Landlord shall also have the right to relinquish
possession of all or any portion of such personal property to any person
claiming to be entitled to possession thereof who presents to Landlord a copy of
any instrument represented to Landlord by such person to grant such person the
right to take possession of such personal property, without the necessity on the
part of Landlord to inquire into the authenticity of the copy of the instrument
or of Tenant's or Tenant's predecessor's signature thereon and without the
necessity of Landlord's making any nature of investigation or inquiry as to the
validity of the factual or legal basis upon which such person purports to act;
and Tenant agrees to indemnify and hold Landlord harmless from all cost,
expense, loss, damage and liability incident to Landlord's relinquishment of
possession of all or any portion of such furniture, fixtures, equipment of other
personal property to the person. The rights of Landlord herein stated shall be
in addition to any and all other rights which Landlord has or may hereafter have
a law or in equity, and Tenant stipulates and agrees that the rights herein
granted Landlord are commercially reasonable. Tenant knowingly and irrevocably
waives any claims it may have against Landlord arising from Landlord's removal
and storage of Tenant's personal property in accordance with the provisions of
this paragraph.
17.5 No re-entry or taking possession of the Premises by Landlord shall
be construed as an election on its part to terminate this Lease, unless a
written notice of such intention shall be given to Tenant. Notwithstanding any
such re-entry or taking possession of the Premises, Landlord may at any time
thereafter elect to terminate this Lease by reason of the Event of Default.
Pursuit of any of the remedies set forth in Article 17 shall not preclude
pursuit of any of the other remedies in Article 17 or any others provided in
this Lease or any other remedies provided by law or in equity. The specific
remedies to which Landlord may resort under this Lease are cumulative and are
not intended to be exclusive of any other remedies to which Landlord may be
lawfully entitled in case of a breach or threatened breach of the Lease. In
addition to any other remedies provided in the Lease, Landlord shall be entitled
to seek injunctive relief to restrain any violation or threatened violation of
the covenants, conditions or provisions of this lease or to compel specific
performance. The pursuit of any remedy provided in this Lease shall not
constitute a forfeiture or waiver of any rent due to Landlord under this Lease
or of any damages accruing to Landlord by reason of the violation of any of the
terms, provisions and covenants contained in this Lease. Landlord's acceptance
of rent following an Event of Default hereunder shall not be construed as
Landlord's waiver of such Event of Default unless such waiver is expressly
stated in writing signed by Landlord. No waiver by Landlord of any violation or
breach of the terms, provisions, and covenants of the Lease shall be deemed or
construed to constitute a waiver of any other violation or breach of any of the
terms, provisions, and covenants of the Lease. No consent by Landlord to any act
of Tenant under this Lease shall be deemed to waive or render unnecessary
consent to any subsequent or similar act. Forbearance by Landlord to enforce one
or more of the remedies herein provided upon an Event of Default shall not be
deemed or construed to constitute a waiver of any other violation or Event of
Default.
17.6 Landlord and Tenant hereby irrevocably waive, to the extent
permitted by law, any right to trial by jury in any lawsuit, action, proceeding,
or counterclaim brought by either party hereto against the other on any matter
arising out of or connected with this Lease, the acts or omissions of Landlord
or Tenant in connection with this Lease, or Tenant's occupancy and use of the
Premises and the Building.
17.7 Tenant shall not for any reason withhold or reduce Tenant's
required payments of rent and other charges provided in this Lease, it being
agreed that the obligations of Landlord under this Lease are independent of
Tenant's obligations except as may be otherwise expressly provided. The
immediately preceding sentence shall not be deemed to deny Tenant the pursuit of
all rights granted it under this Lease or at law; however, at the direction of
Landlord, Tenant's claims in this regard shall be litigated in proceedings
different from any litigation involving rent claims or other claims by Landlord
against Tenant (i.e., each party may proceed to a separate judgment without
consideration, counterclaim or offset as to the claims asserted by the other
party).
17.8 In the event of any default described in subsection (d) of Section
16.1 of this Lease, any assumption and assignment must conform with the
requirements of the Bankruptcy Code which provides, in part, that the Landlord
must be provided with adequate assurance of the following: (i) that the proposed
assignee has sources to pay monthly rents and any
<PAGE> 25
other charges due under this Lease; (ii) that the financial condition and
operating performance of any proposed assignee and its guarantors, if any, shall
be similar to the financial condition and operating performance of Tenant and
its guarantors, if any, as of the date of execution of this Lease; (iii) that
any percentage rent due under this Lease will not decline substantially; (iv)
that any assumption or assignment is subject to all of the provisions of this
Lease (including, but not limited to, restrictions as to use) and will not
breach any such provision contained in any other Lease, financing agreement or
other agreement relating to the Building; and (v) that any assumption or
assignment will not disrupt any tenant mix or balance in the Building.
(a) In order to provide Landlord with the assurance contemplated by the
Bankruptcy Code, Tenant must fulfill the following obligations, in addition to
any other reasonable obligations that Landlord may require, before any
assumption of this Lease is effective: (i) all defaults under subsection (a) of
Section 16.1 of this Lease must be cured within Twenty (20) days after the date
of assumption; (ii) all other defaults under Section 16.1 of this Lease other
than under subsection (d) of Section 16.1 must be cured within ten (10) days
after the date of assumption; (iii) all actual monetary losses incurred by
Landlord (including, but not
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limited to, reasonable attorneys' fees) must be paid to Landlord within ten (10)
days after the date of assumption; and (iv) Landlord must receive within ten
(10) days after the date of assumption a Security Deposit in the amount of six
(6) months Base Rental (using the Base Rental in effect for the first full month
immediately following the assumption) and an advance prepayment of Base Rental
in the amount of three (3) months Base Rental (using the Base Rental in effect
for the first full month immediately following the assumption), both sums to be
held by Landlord in accordance with the other provisions of this Lease,
including, without limitation, Section 4.3, and deemed to be rent under this
Lease for the purposes of the Bankruptcy Code as amended and from time to time
in effect.
(b) In the event this Lease is assumed in accordance with the
requirements of the Bankruptcy Code and this Lease, and is subsequently
assigned, then, in addition to any other reasonable obligations that Landlord
may require and in order to provide Landlord with the assurances contemplated by
the Bankruptcy Code, Landlord shall be provided with the following: (i) a
financial statement of the proposed assignee prepared in accordance with
generally accepted accounting principles consistently applied, though on a cash
basis, which reveals a net worth in an amount sufficient, in Landlord's
reasonable judgment, to assure the future performance by the proposed assignee
of Tenant's obligations under this Lease; or (ii) a written guaranty by one or
more guarantors with financial ability sufficient to assure the future
performance of Tenant's obligations under this lease, such guaranty to be in
form and content satisfactory to Landlord and to cover the performance of all of
Tenant's obligations under this Lease.
ARTICLE 18
LANDLORD'S DEFAULT
18.1 Landlord shall be in default under the Lease if Landlord has not
begun and pursued with reasonable diligence the cure of any failure of Landlord
to meet its obligations under the Lease within thirty (30) days of the receipt
by Landlord of written notice from Tenant of the alleged failure to perform.
Tenant hereby waives any right to terminate or rescind this Lease as a result of
Landlord's default as to any covenant or agreement contained in this Lease or as
a result of the breach of any promise or inducement hereof, whether in this
Lease or elsewhere and Tenant hereby agrees that Tenant's sole remedies for
default hereunder and for breach of any promise or inducement shall be limited
to a suit for damages and/or injunctive relief. In addition, Tenant hereby
covenants that, prior to the exercise of any such remedies, it will give the
mortgagees holding mortgages on the project notice and a reasonable time to cure
any default by Landlord.
18.2 The liability of Landlord to Tenant and Tenant to Landlord for any
default by Landlord under the terms of this Lease shall be limited to Tenant's
or Landlord's actual direct, but not consequential, damages therefor. Tenant
agrees to look solely to the estate and interest of Landlord in the Building for
the collection of any judgment or other judicial process requiring the payment
of money by Landlord in the event of a default or breach by Landlord with
respect to this Lease, and no other assets of Landlord shall be subject to levy
of execution or other procedures for the satisfaction of Tenant's rights.. This
section shall not be deemed to limit or deny any remedies which Tenant may have
in the event of default by Landlord hereunder which do not involve the personal
liability of Landlord.
ARTICLE 19
LANDLORD'S CONTRACTUAL LIEN
19.1 Landlord shall have, at all times, a valid security interest in and
upon the present and future receivables of Tenant and all goods, wares,
equipment, fixtures, furniture, improvements and other personal property of
Tenant presently or which may hereafter be situated on the Premises, and all
proceeds therefrom, and such property shall not be removed therefrom without the
consent of Landlord until all arrearage in rent as well as any and all other
sums of money then due to Landlord hereunder shall first have been paid and
discharged and all the covenants, agreements and conditions hereof have been
fully complied with and performed by Tenant. This contractual lien is in
addition to any and all liens in favor of Landlord and arising under law or
otherwise and is given to secure payment of all rent and other sums of money
becoming due under the Lease from Tenant and to secure payment of any damages or
loss which Landlord may suffer by reason of the breach by Tenant of any
covenant, agreement or condition contained herein and shall survive any
termination of this Lease by reason of a default by Tenant. Upon the occurrence
of any Event of Default by Tenant, Landlord may, in addition to any other
remedies provided herein, enter upon the Premises and take possession of any and
all goods, wares, equipment, fixtures, furniture, improvements and other
personal property of Tenant situated on the Premises, without liability for
trespass or conversion, store same (on or off the Premises or Project) and sell
the same at public or private sale, with or without having such property at the
sale, after giving Tenant reasonable notice of the time and place of any
<PAGE> 27
public sale or of the time after which any private sale is to be made, at which
sale the Landlord or its assigns may purchase unless otherwise prohibited by
law. Without intending to exclude any other manner of giving Tenant reasonable
notice, the requirement of reasonable notice shall be met if such notice is
given in the manner prescribed in this Lease at least five (5) days before the
time of sale unless otherwise required by law. The proceeds from any such
disposition, less any and all expenses connected with the taking of possession,
holding and selling of the property (including reasonable attorneys' fees and
other expenses), shall be applied as a credit against the indebtedness secured
by the security interest granted in this section. Any surplus shall be paid to
Tenant or as otherwise required by law; and the Tenant shall pay any
deficiencies forthwith. Upon request by Landlord, Tenant agrees to execute and
deliver to Landlord within ten (10) days of such request a financing statement
in form sufficient to perfect the security interest of Landlord in the
aforementioned property and proceeds thereof under the provisions of the Uniform
Commercial Code in force in the State of Texas. Landlord may also file a copy of
this Lease to perfect its interest in the personal property of Tenant described
above. Notwithstanding
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the foregoing, Lessor hereby agrees to subordinate it's contractual and
statutory lein to the lein of any party providing financing to, or who leases to
lessee, any equipment or personal property within the premises (and agrees to
execute a written subordination of same in form reasonably acceptable to
Lessor).
ARTICLE 20
SURRENDER OF PREMISES; HOLDING OVER
20.1 No act by Landlord shall be deemed an acceptance of a surrender of
the Premises, and no agreement to accept a surrender of the Premises shall be
valid unless the same is made in writing and signed by Landlord. At the
expiration or termination of this Lease, Tenant shall deliver to Landlord the
Premises "broom-clean" and with all improvements located thereon in good repair
and condition, reasonable wear and tear and condemnation and fire or other
casualty damage not caused by Tenant excepted, and shall deliver to Landlord all
keys to the Premises. Provided that Tenant has performed all of its obligations
hereunder, Tenant may remove all unattached trade fixtures, furniture, and
personal property placed in the Premises by Tenant (but Tenant shall not remove
any such item which was paid for, in whole or in part, by Landlord).
Additionally, Tenant shall remove such alterations, additions, improvements,
trade fixtures, equipment, wiring, and furniture as Landlord may request. Tenant
shall repair all damage caused by such removal. All items not so removed within
five (5) days of the expiration or termination of the lease shall be deemed to
have been abandoned by Tenant and may be appropriated, sold, stored, destroyed,
or otherwise disposed of by Landlord at any time, thereafter, without notice to
Tenant and without any obligation to account for such items. If Landlord incurs
any cost in the storage or removal of any such items, Tenant shall pay to
Landlord on demand any and all such charges. The provisions of this paragraph
shall survive the expiration or termination of the Lease.
20.2 If Tenant, or any party under Tenant claiming rights to the Lease,
fails to vacate the Premises at the end of the Lease Term, then such possession
shall be an unlawful detainer (Landlord reserving the right to seek an eviction
or removal), no tenancy shall be created, and Tenant shall pay each day during
any holdover period a daily Base Rental equal to the greater of (a) one
thirtieth (1/30th) of one hundred fifty percent (150%) of the monthly Base
Rental payable during the last month of the Lease Term, or (b) the prevailing
rental rate for similar space in the Building, plus, Tenant shall pay any
additional rental due under the other provisions of this Lease during any such
holdover period. In addition to payment of rent, Tenant shall pay to Landlord
all other damages to which Landlord may be entitled as a result of Tenant's
holding over.
ARTICLE 21
RIGHT OF ACCESS
21.1 Upon reasonable prior notice to tenant, Landlord or Landlord's
representatives shall have the right to enter into and upon the Premises at any
and all reasonable times (i) to inspect, clean or make repairs or alterations or
additions to the Premises as Landlord may deem necessary (but without any
obligation to do so, except as expressly provided elsewhere in the Lease), or
(ii) to show the Premises to prospective tenants, purchasers or lenders; and
Tenant shall not be entitled to any abatement or reduction of rent by reason
thereof, nor shall any such entry be deemed to be an actual or constructive
eviction, unless such entry unreasonably interferes with tenant's use.
ARTICLE 22
SUBSTITUTION SPACE
22.1 From time to time during the Term, Landlord may substitute for the
Premises other space that has an area at least equal to that of the Premises and
is located in the Building or in any other comparable building managed by
Landlord or an affiliate of Landlord (the "Substitution Space").
22.2 If Landlord exercises such right by giving Tenant notice thereof
("Substitution Notice") at least sixty (60) days before the effective date of
such substitution, then (i) the description of the Premises shall be replaced by
the description of the Substitution Space; and (ii) all of the terms and
conditions of this Lease shall apply to the Substitution Space except that (A)
if the then unexpired balance of the Lease Term shall be less than one (1) year,
then the Lease Term shall be extended so that it shall be one (1) year from the
Substitution Commencement Date (defined below), and (B) if the Substitution
Space contains more square footage than the Premises, then the Base Rental then
in effect shall be increased proportionately (provided that such increase shall
not exceed 105% of the Base Rental due for the Premises) and shall be subject to
adjustment as herein provided. The effective date of such substitution (the
"Substitution Commencement Date") shall be the date specified in the
Substitution Notice or, if Landlord is required to
<PAGE> 29
perform tenant finish work to the Substitution Space under this Article, then
the date on which Landlord substantially completes such tenant finish work. If
Landlord is delayed in performing the tenant finish work by Tenant's actions
(either by Tenant's change in the plans and specifications for such work or
otherwise), then the Substitution Commencement Date shall not be extended and
Tenant shall pay rent for the Substitution Space beginning on the date specified
in the Substitution Notice.
22.3 Tenant may either accept possession of the Substitution Space in
its "as is" condition as of the Substitution Commencement Date or require
Landlord to alter the Substitution Space in the same manner as the Premises were
altered or were to be altered. Tenant shall deliver to Landlord written notice
of its election within ten (10) days after the Substitution Notice has been
delivered to Tenant. If Tenant fails to timely deliver notice of its election or
if an Event of Default then exists, then Tenant shall be deemed to have elected
to accept possession of the Substitution Space in its "as is" condition. If
Tenant timely elects to require Landlord to alter the Substitution Space, then
(i) notwithstanding Section 22.2, if the then unexpired balance of the Term is
less
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than three (3) years, then the Term shall be extended so that it continues for
three (3) years from the Substitution Commencement Date, and (ii) Tenant shall
continue to occupy the Premises (upon all of the terms of this Lease) until the
Substitution Commencement Date.
22.4 Tenant shall move from the Premises into the Substitution' Space
and shall surrender possession of the Premises as provided in Section 20.1 by
the Substitution Commencement Date. If Tenant occupies the Premises after the
Substitution Commencement Date, then Tenant's occupancy of the Premises shall be
a tenancy-at-will (and, without limiting all other rights and remedies available
to Landlord, including instituting a forcible detainer suit), Tenant shall pay
Base Rental for the Premises as provided in Section 20.2 and all other rent due
therefor until such occupancy ends; such amounts shall be in addition to the
rent due for the Substitution Space.
22.5 If Landlord exercises its substitution right, then Landlord shall
reimburse Tenant for Tenant's reasonable out-of-pocket expenses for moving
Tenant's furniture, equipment, supplies and telephone equipment from the
Premises to the Substitution Space and for reprinting Tenant's stationery of the
same quality and quantity of Tenant's stationery supply on hand immediately
prior to Landlord's notice to Tenant of the exercise of this relocation right.
If the Substitution Space contains more square footage than the Premises, and if
the Premises were carpeted, Landlord shall supply and install and equal amount
of carpeting of the same or equivalent quality and color.
ARTICLE 23
MISCELLANEOUS
23.1 ATTORNEYS' FEES. In case it should be necessary or proper for one
party to bring an action under this Lease against the other, then the party
which does not prevail agrees in each and any such case to pay to the party
which prevails its reasonable attorneys' fees. Furthermore, should it be
necessary for one party to consult an attorney for the enforcement of any of
such party's rights hereunder (including seeking payment of any amounts due
under the Lease) without the necessity of bringing an action, then the other
party, nonetheless, agrees in such event to pay to such party its reasonable
attorneys' fees.
23.2 TAXES. Tenant shall be liable for all taxes levied or assessed
against personal property, furniture, or fixtures placed by Tenant in the
Premises. If any taxes for which Tenant is liable are levied or assessed against
Landlord or Landlord's property and Landlord elects to pay the same, or if the
assessed value of Landlord's property is increased by inclusion of such personal
property, furniture or fixtures and Landlord elects to pay the taxes based on
such increase, then Tenant shall pay to Landlord, upon demand, that part of such
taxes for which Tenant is primarily liable hereunder.
23.3 NAME. Tenant shall not, without the written consent of Landlord,
use the name of the Building for any purpose other than as the address of the
business to be conducted by Tenant in the Premises. In no event shall Tenant
acquire any rights in or to such name and Landlord reserves the right from time
to time and at any time to change the name of the Building.
23.4 FINANCIAL STATEMENTS. Prior to the execution of this Lease, Tenant
has delivered financial statements to Landlord, prepared by a certified public
accountant and certified to be true and correct in all material aspects. Tenant
further agrees to deliver to Landlord updated financial statements from time to
time within ten (10) days of Landlord's written request, each financial
statement certified to be true and correct in all material aspects by an
authorized person on behalf of Tenant.
23.5 BROKERAGE. Landlord and Tenant each warrant to the other that it
has not dealt with any broker or agent in connection with the negotiation or
execution of this Lease, other than the person(s) listed in the Basic
Definitions and Lease Provisions of this Lease (the "Broker(s)"). Except for any
Broker(s) who shall be compensated in accordance with the provisions of a
separate agreement, Landlord and Tenant each agree to indemnify the other
against all costs, expenses, attorneys' fees, and other liability for
commissions or other compensation claimed by any other broker or agent claiming
the same by, through, or under the indemnifying party.
23.6 QUIET ENJOYMENT. Provided Tenant has performed all of the terms and
conditions of this Lease to be performed by Tenant, Tenant shall peaceably and
quietly hold and enjoy the Premises for the Term, without hindrance from
Landlord or any party claiming by, through, or under Landlord, subject to the
terms and conditions of this Lease.
23.7 FORCE MAJEURE. Whenever a period of time is herein prescribed for
action to be taken by either party hereto, such party shall not be liable or
responsible for, and there
<PAGE> 31
shall be excluded from the computation for any such period of time, delays due
to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations, or restrictions, or any other causes of any kind
whatsoever which are beyond the control of such party. The foregoing shall not
excuse, however, the timely payment of rent by Tenant under the provisions of
this Lease.
23.8 NOTICES. All notices and other communications given by one party to
the other under the provisions of this Lease shall be in writing, addressed to
the party at the address provided in the Basic Definitions and Lease Provisions,
and shall be by one of the following: (i) mailed by first class, United States
Mail, postage prepaid, certified, with return receipt requested, (ii) hand
delivered by courier to the intended address, or (iii) sent by prepaid telegram,
cable, facsimile transmission, or telex followed by a confirmatory
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letter or (iv) reputable overnight courier services. Notice sent by certified
mail shall be effective three (3) days after being deposited in the United
States Mail; all other notices shall be effective upon delivery to the address
of the addressee. The parties hereto may change their addresses by giving notice
thereof to the other in conformity with this provision.
23.9 JOINT AND SEVERAL LIABILITY. If there is more than one Tenant, then
the obligations hereunder imposed upon Tenant shall be joint and several. If
there is a guarantor of Tenant's obligations hereunder, then the obligations
hereunder imposed upon Tenant shall be the joint and several obligations of
Tenant and such guarantor, and Landlord need not first proceed against Tenant
before proceeding against such guarantor nor shall any such guarantor be
released from its guaranty for any reason whatsoever.
23.10 SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid, or unenforceable under present or future laws, then the remainder of
this Lease shall not be affected thereby and in lieu of such clause or
provision, there shall be added as a part of this Lease a clause of provision as
similar in terms to such illegal, invalid, or unenforceable clause or provision
as may be possible and be legal, valid, and enforceable.
23.11 AMENDMENTS; CONSTRUCTION AND BINDING EFFECT. This Lease may not be
amended except by instrument in writing signed by Landlord and Tenant. No
provision of this Lease shall be deemed to have been waived by Landlord unless
such waiver is in writing signed by Landlord, and no custom or practice which
may evolve between the parties in the administration of the terms thereof shall
waive or diminish the right of Landlord to insist upon the performance by Tenant
in strict accordance with the terms hereof. The terms and conditions contained
in this Lease shall inure to the benefit of and be binding upon the parties
hereto, and upon their respective successors in interest and legal
representatives, except as otherwise herein expressly provided. This Lease is
for the sole benefit of Landlord and Tenant, and, other than Landlord's
Mortgagee or a successor thereto, no third party shall be deemed a beneficiary
hereof.
23.12 CAPTIONS. The captions contained in this Lease are for convenience
of reference only, and do not limit or enlarge the terms and conditions of this
Lease.
23.13 RECORDING. Tenant shall not record or permit to be recorded in the
official records of the county where the Premises are located the Lease or any
memorandum of lease or other document giving notice of the existence of the
Lease.
23.14 TIME OF ESSENCE. Except as otherwise expressly provided in this
Lease, time is of the essence.
23.15 GOVERNING LAW; VENUE. The laws of the state in which the Building
is located shall govern the interpretation, validity, performance and
enforcement of this Lease. Venue for any action under this Lease shall be the
county in which rentals are due the building is located.
23.16 AUTHORITY. If Tenant either party is a corporation or partnership,
the person executing the Lease on behalf of Tenant such party hereby represents
and warrants that (i) he is duly authorized and empowered to execute the Lease
on behalf of Tenant such party, (ii) Tenant has full right and authority to
enter into this Lease, and (iii) upon full execution, this Lease constitutes a
valid and binding obligation of Tenant such party.
23.17 APPROVAL. Any approval of Landlord required under the provisions
of this Lease must be in writing or it shall not be deemed to be effective and,
if not in writing, then in the making of proof thereof, Landlord shall be
presumed not to have given its approval.
23.18 NO MERGER. There shall be no merger of the leasehold estate hereby
created with the fee estate in the Premises or any part thereof if the same
person acquires or holds, directly or indirectly, this Lease or any interest in
this Lease and the fee estate in the Premises or any interest in such fee
estate.
23.19 NO PARTNERSHIP. Nothing in this Lease shall be deemed or construed
by the parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or of joint venture between the parties
hereto, it being understood and agreed that neither the method of computation of
rent, nor any other provision contained herein, nor any acts of the parties
hereto, shall be deemed to create any relationship between the parties hereto
other than the relationship of landlord and tenant.
23.20 NO OFFER. The submission of this Lease by Landlord to Tenant for
examination shall not be construed as an offer to lease or a reservation of an
option to lease. Further, it is the intention of the parties that Landlord shall
not be bound and Tenant
<PAGE> 33
shall not have any rights under this Lease unless and until Landlord executes a
copy of this Lease and delivers it to Tenant.
23.21 EXHIBITS. All exhibits and attachments attached hereto are
incorporated herein by this reference. [Check all boxes which apply. Boxes not
checked are of exhibits that do not apply.]
<TABLE>
<S> <C>
Exhibit A - Legal Description [/]
Exhibit B - Outline of Premises [/]
Exhibit C - Operating Expense Reimbursement [/]
Exhibit D - Building Rules and Regulations [/]
Exhibit E - Work Letter [/]
</TABLE>
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<TABLE>
<S> <C>
Exhibit F - Commencement Date Letter [/]
Exhibit G - Financing Statement [ ]
Exhibit H - Parking [/]
Exhibit I - Signage [/]
Exhibit J - Renewal Option [ ]
Exhibit K - Right of First Refusal [ ]
Exhibit L - Guaranty of Lease [ ]
</TABLE>
23.22 ENTIRE AGREEMENT. This Lease, including all exhibits attached
hereto, constitutes the entire agreement between Landlord and Tenant regarding
the subject matter hereof and supersedes all oral statements and prior writings
relating thereto. Except for those set forth in this Lease, no representations,
warranties, or agreements have been made by Landlord, Landlord's agent or
Tenant, anyone of the foregoing to the other with respect to this Lease or the
obligations to Landlord or Tenant in connection therewith.
EXECUTED to be effective on the day and date first written above.
LANDLORD: Aetna Life Insurance Company
by Allegis Reality Investors, LLC
it's Investment Advisor and Agent
By: /s/ Signature Illegible
----------------------------------------
Printed Name: Joseph R. Gaukler
-----------------------------
Title: Sr. VP
------------------------------------
ATTEST: TENANT: STANFORD MICRODEVICES, INC.
- ---------------------------- By: /s/ Signature Illegible
(Title) ----------------------------------------
Printed Name: S.M. ??
-----------------------------
Title: ??
Stanford Microdevices, Inc
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EXHIBITS "A"
LEGAL DESCRIPTION
Arapaho Business Park X
- -----------------------
BEING a tract of land situated and the J. C. Skiles Survey, Abstract No. 1371
and the Baurch Cantrell Survey, Abstract No. 265, City of Richardson, Dallas
County, Texas, and also being all of Lot 4, Block 2 of the replat of Block 2 of
Arapaho Business Park, an additional to the City of Richardson as recorded in
Volume 8'0011, Page 2276, Deed Records, Dallas County, Texas and being more
particularly described as follows:
BEGINNING at the point of intersection of the West R.O.W. line of Presidential
Drive (a 60' R.O.W.) with the South R.O.W. line of Arapaho Road (a 100' R.O.W.);
THENCE, South along the said West R.O.W. line of Presidential Drive a distance
of 411.49 feet to a point for corner;
THENCE S 89 44' 50" W, a distance of 587.85 feet to a point for corner located
on the East R.O.W. line of Glenville Drive (a 80' R.O.W.);
THENCE N 0 15' 10" W, along the said East R.O.W. line of Glenville Drive a
distance of 394.07 feet to an angle point;
THENCE North a distance of 20.0 feet to a point for corner;
THENCE East along the said South R.O.W. line of Arapaho Road a distance of
589.59 feet to the POINT OF BEGINNING and containing 243,026 square feet or 5.58
acres of land, more or less.
Stanford Microdevices, Inc.
Office - Exhibit A
Version 97.1 (TX)
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[EXHIBIT OMITTED]
Stanford Microdevices, Inc.
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<PAGE> 37
EXHIBIT "C"
OPERATING EXPENSE REIMBURSEMENT
This Exhibit is attached to and made a part of the Lease by and between
AETNA LIFE INSURANCE COMPANY ("Landlord") and STANFORD MICRODEVICES, INC.
("Tenant").
A. Tenant shall pay Tenant's Pro-Rata Share of the excess ("Excess")
of actual Basic Costs for a calendar year over (whichever one of the following
is completed shall be applicable):
(i) the actual Basic Costs for the calendar year of 1998, or
(ii) the sum of $_____ per square foot of rentable area
(the "Expense Stop"). Landlord may make a good faith estimate of the Excess for
any calendar year or part thereof during the Lease Term, and, Tenant shall pay
to Landlord as additional rent along with each monthly payment of Base Rental an
amount equal to the estimated Excess for such calendar year or part thereof
divided by the number of months in such calendar year during the Lease Term.
From time to time during any calendar year, Landlord may revise its estimate of
the Excess and deliver a copy of the revised estimate to Tenant. Thereafter, the
monthly installments of Excess payable by Tenant shall be appropriately
adjusted. In no event will the provisions of Exhibit "C" serve to reduce the
monthly Base Rental.
B. Landlord will maintain books and records of all Basic Costs in
accordance with generally accepted accounting for similar types of properties,
applied on a consistent basis. After the end of every calendar year Landlord
will deliver to Tenant a statement ("Annual Cost Statement") setting forth the
actual Basic Costs for the prior calendar year, the actual amount of any Excess
for the prior calendar year, and Tenant's Pro Rata Share. If Tenant owes an
additional amount of Excess over the estimated payments made during the prior
calendar year, this will also be noted in the Annual Cost Statement and Tenant
will pay such amount, as additional rent, with the next due installment of Base
Rental. If the Annual Statement reflects an overpayment, then Landlord will
credit the amount of the overpayment against the next due installments of
additional rent payable under the provisions of this Exhibit "C", or if the
Lease Term has expired, Landlord will refund the difference to Tenant.
Notwithstanding any expiration or earlier termination of this Lease,
Tenant's obligation to pay Tenant's Pro Rata Share of any Excess shall survive
any expiration or termination of this Lease.
C. The term "Basic Costs" shall mean all expenses and disbursements
of every kind (subject to the limitations set forth below) which Landlord
incurs, pays or becomes obligated to pay in connection with the ownership,
operation, management, repair and maintenance (including replacement thereof) of
the Project, including, but not limited to, the following:
(a) Wages and salaries of all employees engaged solely in the
operation, repair, replacement, and maintenance of the Project,
including taxes, insurance and benefits relating thereto;
(b) All supplies and materials used solely in the operation,
maintenance, repair, replacement, and security of the Project;
(c) Annual cost of all capital improvements made to the
Project which although capital in nature can reasonably be expected to
reduce the normal operating costs of the Project, as well as all capital
improvements made to comply with any legal requirements, insurance
requirements or environmental laws which become effective after the date
of this Lease, or to benefit or increase the safety and security of the
Project, as amortized over the useful economic life of such improvements
as determined by Landlord in its reasonable discretion (without regard
to the period over which such improvements may be depreciated or
amortized for federal income tax purposes), and the amortized portion,
together with interest on the unamortized portion of such improvements
or expenditures at an interest rate equal to two percent (2%) over the
interest rate payable on United States Treasury securities having a
maturity comparable to the period of the amortization at the time
<PAGE> 38
Landlord incurred the cost, shall be included in operating expenses in
the year in which the costs are incurred and in any subsequent years,
during the term of the lease;
(d) Cost of all utilities, other than the cost of utilities
actually reimbursed to Landlord by individual tenants;
(e) Cost of any insurance or insurance related expense
applicable to the Project and Landlord's personal property used in
connection therewith, including without limitation, the premiums for
public liability coverage, fire and extended coverage, and rental loss
coverage;
(f) All taxes and assessments and governmental charges whether
federal, state, county or municipal, and whether they be by taxing
districts or authorities presently taxing or by others, subsequently
created or otherwise, and any other taxes and assessments attributable
to the Project (or its operation), and the grounds, parking areas,
driveways, and alleys around the Project, excluding, however, federal
and state taxes on income (collectively, "Taxes"); if the present method
of taxation changes so that in lieu of the whole or any part of any
Taxes levied on the Landlord or Project, there is
Stanford Microdevices, Inc.
Office - Exhibit C
Version 97.1 (TX)
<PAGE> 39
levied on Landlord a capital tax directly on the rents received
therefrom or a franchise tax, assessment, or charge based, in whole or
in part, upon such rents for the Project and in lieu of the present
method of taxation, then all such taxes, assessments, or charges, or the
part thereof so based, shall be deemed to be included within the term
"Taxes" for the purposes hereof;
(g) Cost of repairs, replacements, and general maintenance of
the Project; and
(h) Cost of service or maintenance contracts with independent
contractors for the operation, maintenance, repair, replacement, or
security of the Project (including, without limitation, alarm service,
window cleaning, and elevator maintenance) (Nothing herein is intended
to obligate Landlord to provide any security for the Project.).
There are specifically excluded from the definition of the term "Basic Cost"
costs for the following:
(1) Capital improvements made to the Project, other than
capital improvements described above in this Exhibit "C" and except for
items which, though capital for accounting purposes, are properly
considered maintenance and repair items, such as painting of common
areas, replacement of carpet in elevator lobbies, and the like;
(2) Repair, replacements and general maintenance paid by
proceeds of insurance or by Tenant or other third parties, and
alterations attributable solely to tenants of the Project other than
Tenant;
(3) Debt service on loans to Landlord;
(4) Depreciation of the Project;
(5) Leasing commissions;
(6) Legal expenses, other than those incurred for the general
benefit of the Building's tenants (e.g., tax disputes);
(7) Wages and salaries and benefits of employees above the
level of Project manager;
(8) renovating or otherwise installing tenant improvements for
occupants of the Project; and
(9) correcting defects in the construction of the Project.
D. With respect to any calendar year or partial calendar year in
which the Project is not occupied to the extent of 95% of the rentable area
thereof, the Basic Costs for such period shall, for the purposes hereof, be
increased to the amount which would have been incurred had the Project been
occupied to the extent of 95% of the rentable area.
Stanford Microdevices, Inc.
Office - Exhibit C
Version 97.1 (TX)
<PAGE> 40
EXHIBIT "D"
RULES AND REGULATIONS
This Exhibit is attached to and made a part of the Lease by and between
AETNA LIFE INSURANCE COMPANY ("Landlord") and STANFORD MICRODEVICES, INC.
("Tenant").
A. The following rules and regulations shall apply to the Building,
including, without limitation the Premises:
1. Sidewalks, doorways, vestibules, halls, stairways, and other
similar areas shall not be obstructed by Tenant or used by any Tenant for
purposes other than ingress and egress to and from its Premises. No rubbish,
litter, trash, or material of any nature shall be placed, emptied, or thrown in
those areas. At no time shall Tenant permit Tenant's employees to loiter in
common areas or elsewhere in or about the Building.
2. Plumbing, fixtures and appliances shall be used only for the
purposes for which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or deposited therein. Damage resulting to any such
fixtures or appliances from misuse by Tenant or its agents, employees or
invitees, shall be paid by such Tenant.
3. No signs, advertisements or notices shall be painted or affixed
on or to any windows or doors or other part of the Building without the prior
written consent of Landlord, which consent shall not be unreasonably withheld.
No nails, hooks or screws shall be driven or interested in any part of the
Building except by personnel of Landlord or retained by Landlord. No curtains or
other window treatments shall be placed on the glass, without Landlord's prior
approval. No lighting which may be visible from the exterior of the Premises may
be utilized without Landlord's prior approval.
4. Landlord may provide and maintain an alphabetical directory for
all tenants in the main lobby of the Building.
5. Landlord shall provide all door locks in Tenant's Premises, at
the cost of Tenant, and Tenant shall not place any additional door locks in its
Premises without Landlord's prior written consent, which consent shall not be
unreasonably withheld. Landlord shall furnish to Tenant a reasonable number of
keys to the door lock's in Tenant's Premises free of cost and additional keys,
at Tenant's cost. Tenant shall not make a duplicate of any key. All keys are to
be returned to Landlord at the expiration or earlier termination of this Lease.
6. Movement in or out of the Building of furniture or office
equipment, or dispatch or receipt by Tenant of any merchandise or materials
which require use of elevators or stairways, common area loading docks or
movement through the Building entrances or lobby shall be conducted under
Landlord's supervision at such times and in such a manner as Landlord may
reasonably require. At the time of seeking Landlord's approval, Tenant shall
provide to Landlord, in writing, a detailed listing of the activity. Tenant
assumes all risks of and shall be liable for all damage to articles moved and
injury to persons resulting from such activity. If any equipment, property and
personnel of Landlord are damaged or injured as a result of acts in connection
with this activity, then Tenant shall be solely liable for any and all damage or
loss resulting therefrom.
7. Landlord may prescribe weight limitations and determine the
locations for safes and other heavy equipment or items, which shall in all cases
be placed in the Building so as to distribute weight in a manner which will
avoid damage to the Building, which may include the use of such supporting
devices as Landlord may require, and which may not in any case exceed the
acceptable floor loading and weight distribution for the Building. All damages
to the Building caused by the installation or removal of any property of a
tenant, or done by a tenant's property while in the Building, shall be repaired
at the expense of such tenant.
8. Corridor doors, when not in use, shall be kept closed.
9. No birds or animals (except seeing eye dogs) shall be brought
into or kept in, on or about the Premises. No portion of the Premises shall at
any time be used or occupied as sleeping or lodging quarters or for any immoral
or illegal purposes or for any purpose which would tend to injure the reputation
of the Building or impair the value of the Building.
10. Tenant shall not commit waste and shall keep its Premises neat
and clean. All trash and debris must be placed in receptacles provided therefor.
<PAGE> 41
11. Tenant shall not make or permit any improper, objectionable or
unpleasant noises or odors to emanate from the Premises to other parts of the
Building or otherwise interfere in any way with other tenants or persons having
business with them, shall not solicit business or distribute, or cause to be
distributed, in any portion of the Building any handbills, promotional materials
or other advertising, and shall not conduct or permit any other activities in
the Building that might constitute a nuisance. Tenant shall not do any cooking
or operate a restaurant or food service business from the Premises (other than a
microwave oven for use by its employees or a beverage and/or snack service that
is free or of nominal charge for use by employees and invitees).
Stanford Microdevices, Inc.
Office - Exhibit D
Version 97.1 (TX)
<PAGE> 42
12. No machinery of any kind (other than normal office equipment)
shall be operated by Tenant on its Premises without Landlord's prior written
reasonable consent.
13. No flammable, explosive or dangerous fluid or substance shall be
used or kept by Tenant in the Premises, except normal amounts used for cleaning.
14. Landlord will not be responsible for lost or stolen personal
property, money or jewelry from the Premises or public or common areas
regardless of whether such loss occurs when the area is locked against entry or
not.
15. No coin, vending or dispensing machines of any kind may be
maintained in any Premises, except that Tenant may from time to time maintain
soft drink and or snack machines for use by its employees and invitees on a
no-charge or nominal charge basis.
16. All mail chutes located in the Building shall be available for
use by Landlord and all tenants of the Building according to the rules of the
United States Postal Service.
17. Neither Tenant nor any agent, contractor or employee of Tenant
shall have any right of access to the roof of the Premises or the Building and
neither shall install, repair, place or replace any aerial, fan, air conditioner
or other device on the roof of the Premises or the Building without the prior
written consent of Landlord. Such consent may be expressly conditioned upon
Landlord's supervision of access to the roof and upon such other reasonable
restrictions as Landlord may advise Tenant. Any aerial, fan, air conditioner or
device installed without such written consent shall be subject to removal, at
Tenant's expense, without notice, at any time. Tenant shall be liable for all
damages resulting from the installation or removal of any aerial, fan, air
conditioner or other device.
18. Tenant will refer to Landlord for Landlord's reasonable
supervision, approval and control all contractors, contractor representatives,
and installation technicians rendering any service to Tenant, before performance
of any contractual service. Such supervisory action by Landlord shall not render
Landlord responsible for any work performed for Tenant. This provision shall
apply to all work performed in the Building, including, without limitation, the
installation of telephones, computer wiring, cabling, electrical devices,
attachments and installations of any nature. Tenant shall be solely responsible
for complying with all applicable laws, codes and ordinances pursuant to which
such work shall be performed.
19. Landlord may from time to time (without any obligation to do so
or liability for not doing so) adopt appropriate and lawful systems and
procedures for the security or safety of the Building, its occupants, entry and
use, or its contents and Tenant, its employees, contractors, agents and invitees
shall comply therewith.
20. Canvassing, soliciting, and peddling in or about the Building is
prohibited and Tenant shall cooperate and use reasonable efforts to prevent
same.
21. At no time shall Tenant permit or shall Tenant's agents,
employees, contractors, quests, or invitees smoke in any common area of the
Building, unless such common area has been declared a designated smoking area by
Landlord.
22. Tenant accepts any and all liability for damages and injuries to
persons and property resulting from the serving and sales of alcoholic beverages
from the Premises. Nothing contained herein shall be construed as the consent of
Landlord to permit the serving or sale of alcoholic beverages on the Premises.
B. The Landlord reserves the right to rescind any of these rules and
make such other and further rules and regulations as in the judgment of Landlord
shall from time to time be needed for the safety, protection, care and
cleanliness of the Building, the operation thereof, the preservation of good
order therein, and the protection and comfort of its tenants, their agents,
employees and invitees, which rules when made and notice thereof given to Tenant
shall be binding upon him in like manner as if originally herein prescribed;
provided such rules are reasonable, non-descriminatory and are not in conflict
with the provisions of tenant's lease.
Stanford Microdevices, Inc.
Office Exhibit D
Version 97.1 (TX)
<PAGE> 43
EXHIBIT "E"
WORK LETTER
This Exhibit is attached to and made a part of the Lease by and between
AETNA LIFE INSURANCE COMPANY ("Landlord") and STANFORD MICRODEVICES, INC.
("Tenant").
The Landlord agrees to provide Tenant with an improvement allowance not to
exceed $15,300.00 or $5.30 per rentable square foot. This allowance is to be
used for specific improvements done to the demised premises only and shall
remain a part of the demised premises upon the expiration of this Lease. Any
residual amount not used shall be returned to the Landlord.
A. Delivery of the Premises. Subject to unavoidable delays, the Work is
estimated to be substantially completed for delivery of the Premises to Tenant
by the Commencement Date. If an unavoidable delay will prevent the substantial
completion of the Work prior to the scheduled Commencement Date, then Landlord
will notify Tenant in writing. Upon substantial completion of the Work, Landlord
will notify Tenant in writing and afford Tenant an opportunity to inspect the
Premises prior to delivery. At the inspection, Landlord and Tenant will prepare
and agree upon a punchlist of any items that remain to be completed.
If the Work is substantially completed to permit delivery of the
Premises prior to the Commencement Date, Landlord shall notify Tenant in writing
and, should Tenant elects to take occupancy early, then Tenant may inspect the
Premises and prepare, with Landlord, a punchlist prior to delivery.
Stanford Microdevices, Inc.
Office - Exhibit E
Version 97.1 (TX)
<PAGE> 44
EXHIBIT "F"
COMMENCEMENT DATE LETTER
This Exhibit is attached to and made a part of the Lease by and between
AETNA LIFE INSURANCE COMPANY ("Landlord") and STANFORD MICRODEVICES, INC.
("Tenant").
1. The Lease Term commenced on July 29, 1998.
2. The Lease Term will expire on July 31, 2001 unless renewed or
extended.
3. Tenant acknowledges that the Work has been completed in
accordance with the Plans and Specifications and accepts such
Work, subject to any punch list items being completed.
4. Tenant, further, acknowledges that any tenant improvement
allowance owed to Tenant or other obligations of Landlord to
Tenant in connection with the Work and all other conditions
precedent to the commencement of the Lease Term have occurred and
that the Lease is in full force and effect.
5. There are no existing defenses or offsets which, as of the date
hereof, Tenant has against the enforcement of the Lease by
Landlord.
EXECUTED on the _____ day of __________, 19__.
LANDLORD: AETNA LIFE INSURANCE COMPANY
BY ALLEGIS REALTY INVESTORS, LLC
IT'S INVESTMENT ADVISOR AND AGENT
By: /s/ Signature Illegible
Printed Name: Joseph E. Gaukler
----------------------
Title: SLVP
-----------------------------
ATTEST: TENANT: STANFORD MICRODEVICES, INC.
- ----------------------------- By: /s/ Signature Illegible
(Title)
Printed Name: Susan Mendord
-----------------------------
Title: G??elle
------------------------------------
Stanford Microdevices, Inc.
Office - Exhibit F
Version 97.1 (TX)
<PAGE> 45
[EXHIBIT G MISSING FROM ORIGINAL]
<PAGE> 46
EXHIBIT "H"
PARKING
This Exhibit is attached to and made a part of the Lease by and between
AETNA LIFE INSURANCE COMPANY ("Landlord") and STANFORD MICRODEVICES, INC.
("Tenant").
Provided that Tenant is not in default under the Lease, Landlord shall
make available to Tenant throughout the Lease Term, parking as designated by the
City of Richardson code for this property type. As consideration for the parking
spaces, Tenant shall pay to Landlord as Additional Rental the amount, if any,
set forth below, together with each monthly payment of Base Rental. Except with
respect to any reserved parking that Landlord may establish from time to time,
all tenant parking will be on a non-reserved, first-come, first-serve basis.
Landlord may elect to establish parking zone(s) or otherwise restrict access to
the parking spaces on the Project and require specific identification and/or
access cards for those vehicles allowed to park in such zone(s) or parking
spaces. Landlord reserves the right upon written notice posted in the parking
areas to temporarily close the parking areas for repairs or alterations as
Landlord may deem appropriate.
Tenant agrees to pay to Landlord during the Lease Term the parking
charge of $0 per month for each parking space, beginning on the Commencement
Date. A pro rata portion of such parking charge shall be paid for any partial
month during the Lease Term. The parking charge is subject to adjustment from
time to time by Landlord to reflect Landlord's then current market charge, if
any, for parking spaces on the Project. Such adjustment shall be consistent with
industry standards in comparable buildings in the vicinity of the Project and
shall become effective on the first day of the first calendar month following
the delivery of written notice by Landlord to Tenant of the change. Tenant's
obligation to pay the parking charge is considered an obligation to pay rent and
is secured in a like manner to Tenant's obligation to pay rent and the failure
to pay the parking charge shall be deemed a failure to pay rent under the Lease.
Landlord shall not be liable for any damage to Tenant's vehicles, or
those of any employees, agents, contractors or invitees of Tenant who use the
parking spaces and Tenant hereby waives on behalf of itself and its employees,
agents, contractors and invitees all claims against Landlord, whether based on
negligence or otherwise, and arising out of any loss or damage to vehicles or
other property while located in the parking spaces, or arising out of personal
injury sustained in connection with the use of such parking spaces. Tenant
hereby agrees to advise each of its employees, agents, contractors and invitees
of such waiver of claims.
The failure to timely pay the parking charge or to comply with any of
the rules and regulations governing the parking shall entitle Landlord, in
addition to any other remedies provided under the Lease, to terminate Tenant's
right to use the parking spaces and tow any vehicles which are in violation of
the rules and regulations at the sole cost and expense of Tenant and without
liability for damages resulting therefrom.
/s/ Signature Illegible
------------------------------------
Landlord's initials
/s/ Signature Illegible
------------------------------------
Tenant's initials
Stanford Microdevices, Inc.
Office - Exhibit H
Version 97.1 (TX)
<PAGE> 47
EXHIBIT "I"
SIGN SPECIFICATIONS
* 21" x 42" Aluminum pan with radius corners - 1" Depth
* Painted Sherwin Williams 2074
* Gerber Deep Mahogany Brown Copy & Border
* 4" Copy only - 3 Line Maximum
* 1 1/2" Between Lines of Copy
* 35" Maximum Length of Copy
* Condensed or expanded copy not accepted - See below
* Letter style - Halvetica Compact
* Logos subject to Landlord and Architects' approval, not to be
unreasonably withheld.
* Sign drawings must be submitted for Landlord and Architects' written
approval not to be unreasonably withheld before fabrication.
Our purpose in providing the Tenants with these requirements is to create a good
business image which gives the impression of quality and professionalism.
[CHART OMITTED]
ABC ABC
NOT ACCEPTED
------------
<PAGE> 48
EXHIBIT "I"
SIGN SPECIFICATIONS
* 21" x 42" Aluminum pan with radius corners - 1" Depth
* Painted Sherwin Williams 2074
* Gerber Deep Mahogany Brown Copy & Border
* 4" Copy only - 3 Line Maximum
* 1 1/2" Between Lines of Copy
* 35" Maximum Length of Copy
* Condensed or expanded copy not accepted - See below
* Letter style - Halvetica Compact
* Logos subject to Landlord and Architects' approval, not to be
unreasonably withheld.
* Sign drawings must be submitted for Landlord and Architects' written
approval not to be unreasonably withheld before fabrication.
Our purpose in providing the Tenants with these requirements is to create a good
business image which gives the impression of quality and professionalism.
[CHART OMITTED]
ABC ABC
NOT ACCEPTED
------------
<PAGE> 1
EXHIBIT 10.16
SUBLEASE AGREEMENT
This SUBLEASE AGREEMENT is made and entered into the ______ day of
_______, 1999, by and between FAMILY AND CHILD GUIDANCE CENTERS D.B.A. CHILD AND
FAMILY GUIDANCE CENTERS. Sublessor has succeeded to the interests of Family
Guidance Centers ("Sublessor") and STANFORD MICRODEVICES, INC., ("Sublessee").
SUBLEASE
1.1 Sublessor hereby rents and subleases to Sublessee, and Sublessee
hereby rents from Sublessor, subject to the terms, conditions and covenants set
forth in this Sublease, that certain office space, comprised of approximately
2,049 rentable square feet, described as Suite 300 (the "Premises") in the
building located at 1222 E. Arapaho, Richardson, Texas 75081 and more commonly
known as "Arapaho Business Park X" (the "Building"), as more fully described in
that certain Lease Agreement by and between Aetna Life Insurance Company
("Lessor") and Family Guidance Center, attached hereto as Exhibit "A" and made a
part hereof and incorporated herein by reference (the "Prime Lease").
1.2 Sublessor has not obtained the consent of the Lessor, named below,
to this Sublease, prior to the execution of this Sublease. In accordance with
the terms of the Lease, Lessor's consent is required and shall not be
unreasonably withheld. Sublessee agrees to cooperate and furnish such
information on Sublessee as Lessor may request in connection with its review and
consent to this transaction. Notwithstanding anything to the contrary, this
Sublease is expressly conditioned on receipt of the consent of Lessor. If Lessor
objects to the Sublease, then Sublessor will give notice to Sublessee, and this
Sublease will terminate immediately, with neither party having any further
obligation to the other. No objection by Lessor and no termination of this
Sublease by reason of such objection shall diminish any rights of Sublessor
under the Lease, Sublessor preserving all recourse against Lessor for any
wrongful withholding of consent.
TERM
2.1 The term of this Sublease shall commence on November 1, 1999 or upon
completion of the foundation work and continue to 12:00 midnight on August 31st,
2002, unless sooner terminated by reason of a default of Sublessee or a
cancellation right, as provided for in Paragraph 5.2 of this Agreement.
Sublessee shall have no right to renew or extend the term of this Sublease.
RENT
5.2 Basic Rent:
Sublessee covenants and agrees to pay basic rent in the amount of
$2,390.50, payable on the first day of each calendar month during the term of
this Sublease, without notice or demand.
5.3 Adjustment of Rental:
SUBLEASE
- --------
Page 1 of 10
<PAGE> 2
Subleasee shall pay to Sublessor the pro rata share of Real
Estate Taxes and Operating Expenses in excess of those incurred in the Base Year
of 1998, as referenced in Addendum B of the Prime Lease.
3.3 Herein, reference to the term "rent" refers to all sums of money due
under the provisions of this Sublease, including, without limitation, the Base
Rent and Additional Rent for the Premises. Rent is payable by the Sublessee
without notice, demand, abatement, deduction or setoff. Sublessee's obligation
to pay rent is independent of any obligation of Sublessor under this Sublease.
In addition to any other rights afforded Sublessor for a late payment, if
payment is not made to Sublessor within the five (5) day period, a late charge
will be assessed against Sublessee in the amount of five percent (5%) of the
past due sum and Sublessee acknowledges and agrees that, as the actual damages
of Sublessor and administrative costs resulting from Sublessee's failure to pay
timely would be difficult to calculate, that this sum represents fair
compensation for any instance where Sublessee is late in payment of rent.
Furthermore, if any amount then due is not paid to Sublessor the amount thus due
shall bear interest at one and one-half percent (1-1/2%) per month; such
interest to accrue continuously on any unpaid balance due to Sublessor by
Sublessee during the period commencing with the due date and terminating with
the date on which Sublessee makes full payment of all amounts owing to Sublessor
at the time of said payment. Any such interest shall be payable as additional
rent hereunder, shall not be considered as a deduction from the rent, and shall
be payable immediately on demand.
USE AND ACCEPTANCE OF PREMISES
4.1 Sublessee shall have the right to use the Premises for the following
purpose: General office use.
4.2 Sublessee shall not use the Premises for any other purpose.
Sublessee will exercise due care and diligence in its conduct of activities and
operations in and about the Premises, and will conduct its business in
accordance with all federal, state, county, city and other governmental laws,
ordinances, rules and regulations. Sublessee will at its own expense obtain any
and all licenses and permits necessary to conduct its business on the Premises.
Sublessee will not permit anything to be done or conducted in or upon the
Premises which would be immoral, illegal or constitute a nuisance. Sublessee
shall not use any hazardous materials on the Premises. The term "hazardous
materials" as used herein shall mean (i) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.),
as amended from time to time, and regulations promulgated thereunder; (ii) any
"hazardous substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Section 9601, et seq.), as
amended from time to time, and regulations promulgated thereunder; (iii)
asbestos or polychlorinated biphenyls; (iv) any substance the presence of which
on the Premises is prohibited or regulated by any federal, state or local law,
regulation, code or rule; (v) any other substance which requires special
handling or notification of any federal, state or local governmental entity in
its collection, storage, treatment, or disposal; and (vi) with the exception of
products normally found or used in general business offices.
4.3 The Premises will be delivered to Sublessee and Sublessee accepts
them "AS IS", "WHERE IS" and "WITH ALL FAULTS". If the Premises are not in
compliance with all
SUBLEASE
- --------
Page 2 of 10
<PAGE> 3
existing laws, ordinances, rules and regulations on the date this Sublease
commences, Sublessee shall be solely responsible for bringing the Premises into
compliance, including, without limitation, compliance with the Americans With
Disabilities Act ("ADA"), and Sublessor shall have no obligation hereunder.
Sublessee shall be responsible and pay any and all fines or penalties, assessed
after the date hereof, for the failure of the Premises to comply with all laws,
ordinances, rules and regulations, for which Sublessor under the Prime Lease, as
Tenant, is responsible thereunder.
Special Provisions
5.1 Sublessor shall repaint the Premises and clean the carpet, prior to
Sublessees occupancy in the same color and quality of paint used in Sublessees
space located at the 1201 Arapaho Road, Suite 102, Richardson, TX, located in
the same business park as the "Premises"
5.2 Sublessee may cancel the Sublease Agreement on July 31, 2001 by
giving Sublessor at least six (6) months prior written notice along with a check
in the amount of $4,781. as a cancellation penalty.
5.3 Sublessor shall not agree to changes or modifications in the Prime
Lease without the prior written consent of the Sublessee
5.4 Sublessor shall forward any and all notices received by Lessor
regarding any default by the Sublessor.
5.5 Sublessor shall forward any notification from Lessor notifying
Sublessor of availability of contingious space. Sublessee shall request in
writing to Sublessor within five (5) days of Subtenant desire to lease
additional space and Sublessor shall exercise right with the Lessor
PRIME LEASE
6.1 Sublessor holds the Premises pursuant to the Prime Lease. This
Sublease is in all respects subject and subordinate to the Prime Lease.
6.2 In addition to all of the terms and provisions contained in this
Sublease, Sublessee will comply with all of the terms and provisions of the
Prime Lease, which are to be observed and performed by Sublessor (as Tenant
thereunder). Except to the extent any provisions of the Prime Lease are
inapplicable, inconsistent with or modified by the terms of this Sublease, each
of the provisions of the Prime Lease are incorporated into this Sublease as
fully as if completely rewritten herein, and Sublessee agrees to be bound to
Sublessor by all of the terms of the Prime Lease and to assume toward Sublessor
and perform all of the obligations and responsibilities that Sublessor assumes
towards Lessor, in and under the Prime Lease with respect to its occupancy of
the Premises and use of the common areas, and Sublessor shall have all of the
rights, remedies and privileges of Lessor under the Prime Lease
SUBLEASE
- --------
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<PAGE> 4
for a default by Sublessee under this Sublease. Sublessee hereby acknowledges
receipt of a copy of the Prime Lease, attached hereto as Exhibit "A".
6.3 All terms not specifically defined in this Sublease shall have the
same meaning as set forth in the Prime Lease.
ASSIGNMENT AND SUBLETTING
7.1 Provided Lessor has consented to an assignment or sublease by
Sublessee of its interest in the Premises, Sublessor shall not unreasonably
withhold its consent to an assign or sublet of the Premises at any time during
the term of the Sublease. No such assignment or sublease shall release Sublease
from its obligations under this Sublease.
SERVICES AND UTILITIES
8.1 As long as Sublessee is not in default under any provision of this
Sublease, Sublessor will exercise such rights as afforded under the Prime Lease
to cause Lessor to furnish to the Premises those services provided by Lessor
under the Lease Agreement in the amounts and during the times set forth in the
Lease Agreement. Sublessor will not be liable for any interruption of services,
and, both the Sublessor and Sublessee will look to the Lessor to restore any
interruption. Sublessee will be solely liable for any excess usage of services
in accordance with any such provisions in the Prime Lease. The charge for such
after business hours usage will equal the charge made by Lessor to Sublessor
under the Prime Lease.
ACCESS TO PREMISES
9.1 Sublessor reserves the right from time to time to access the
Premises on prior notice to Sublessee, except in an emergency, when only such
notice as is reasonable will be given, to inspect the Premises and for all such
other reasons as the Sublessor would have if it were the Lessor under the Prime
Lease.
INSURANCE; INDEMNITY
10.1 During the term of this Sublease, Sublessee shall comply with the
following insurance requirements:
(a) Sublessee shall, at Sublessee's sole expense, procure and maintain
fire and extended coverage insurance on the leasehold improvements to the
Premises, the FF&E and any other furniture, fixtures, equipment or other items
located in the Premises, in a reasonable amount, but in no event shall the
amount of coverage be less than the reasonable cost to replace them.
(b) Sublessee shall maintain commercial general liability insurance in
the minimum amounts of $1,000,000 for each occurrence (and any additional amount
required of Sublessor, as Tenant, under the Prime Lease).
(c) Not later than the commencement of the term of this Sublease, the
Sublessee shall provide Sublessor with copies of appropriate certification of
the required insurance, with a
SUBLEASE
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<PAGE> 5
company or companies acceptable to the Sublessor, evidencing the coverage that
is in effect, and all policies of such insurance shall name the Sublessor and
Lessor as co-insureds, as their interests may appear. Each such policy shall
provide that the Sublessor shall be given thirty (30) days prior written notice
of cancellation or material modification.
(d) Sublessor and Sublessee agree to waive, and cause their respective
insurers to waive, any and all rights of subrogation either may have against
each other and the Sublessee shall also obtain the waiver of subrogation against
the Lessor under the Prime Lease.
(e) Sublessee further agrees not to use or to permit any other party to
use the Premises in any manner which will increase the present rate of premium
for insurance on the Building, the Premises, or in any manner which would cause
a cancellation of any insurance policy of Sublessor relating to same, and
Sublessee will not keep or suffer to be kept therein any gasoline, distillate,
petroleum or explosive products or any other hazardous or toxic materials in, on
or around the Premises. Sublessee agrees to indemnify, defend and hold harmless
Sublessor for all claims, demands, losses, costs and expenses arising from a
breach of the foregoing covenant.
10.2 Sublessee hereby indemnifies and holds Sublessor and Lessor
harmless from and against any and all claims, demands, liabilities, and
expenses, including attorney's fees, arising from any breach or default by
Sublessee of this Sublease, or the negligence or willful misconduct of Subtenant
or its agents, employees, invitees, or contractors in or about the Subleased
Premises except to the extent caused by Sublessor's gross negligence or willful
misconduct. In the event any action or proceeding shall be brought against
Sublessor or Lessor by reason of any such claim, Sublessee shall defend the same
at Sublessee's expense by counsel reasonably satisfactory to Sublessor or
Lessor, as the case may be.
CASUALTY
If all or a portion of the Subleased Premises is damaged by fire or other
casualty and the Prime Lease is not terminated by Lessor, this Sublease shall
remain in full force and effect and Rent shall not abate except to the extent
Sublessor is entitled to an abatement of rent under the terms of the Prime
Lease; however if Sublessor, has a right to terminate it shall notify Sublesee
prior to exercising such right. If Sublessor exercises its right to terminate,
this Sublease shall terminate; if it elects not to terminate but Sublessee
desires to terminate, this Sublease shall terminate.
ALTERATIONS
12.1 During the term hereof, Sublessee will not make alterations or
improvements to or modifications of the Premises without the prior written
consent of Sublessor and Lessor. Sublessee will pay the cost and expense of all
alterations. Sublessor hereby consents to Sublessee's change of the locks on the
front door and interior doors, provided Sublessee obtains the consent of the
Lessor to change the locks and makes such change at the sole cost and expense of
Sublessee.
PARKING
SUBLEASE
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<PAGE> 6
13.1 Sublessor will provide to Sublessee, during the term of this
Sublease, the surface parking spaces provided to Tenant under the Prime Lease
(Sublessor). Sublessee and its employees and invitees will abide by all rules
and regulations of Lessor governing the use of the parking.
SUBLEASE
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<PAGE> 7
LESSOR'S OBLIGATIONS
14.1 Sublessee agrees that if Lessor fails or refuses to perform its
obligations or provide services under the Prime Lease for reasons other than due
to Sublessor's default under the Prime Lease, Sublessor shall not be obligated
to perform or have liability for such obligations.
14.2 Sublessor shall cooperate with Sublessee's reasonable requests to
enforce for the benefit of Sublessee the obligations of Lessor to Sublessee
under the Prime Lease as those obligations relate to the Premises; provided,
however, Sublessor is not required to expend any monies in assisting Sublessee.
NOTICE
15.1 Unless otherwise provided herein, any notice, tender or delivery
required or permitted hereunder may be affected by personal delivery or by
registered or certified mail, postage prepaid, return receipt requested,
addressed as indicated below (or to such other address as either party may from
time to time indicate in writing), and shall be deemed given (i) upon receipt,
if personal delivery, or (ii) upon three (3) days after being deposited in the
United States mail, if mailed.
SUBLESSOR: Dr. James Calvert
Dallas Child and Family Guidance Center
8915 Harry Hines Blvd.
Dallas, TX 75235
SUBLESSSEE: Susan Ocampo
Stanford Microdevices, Inc.
522 Almanor Ave.
Sunnyvale, CA 94086
With a copy to: Regional Manager
Stanford Microdevices, Inc.
1202 Arapaho Rd.
Suite 102
Richardson, TX 75081
MISCELLANEOUS
16.1 Building Directories and Signage. Sublessee will not be permitted
any listing of its name in the building directory or signage on the Premises,
without first obtaining the consent of Lessor. Any such changes will be at
Sublessee's sole cost and expense.
16.2 Severability. Each of the terms and provisions of this Sublease is,
and must be construed to be, separate and independent. If any of the terms and
provisions of this Sublease or its application to any person or circumstances is
to any extent invalid and
SUBLEASE
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<PAGE> 8
unenforceable, the remainder of this Sublease, or the application of that term
and provision to the persons or circumstances other than those as to which it is
invalid or unenforceable, are not affected thereby.
16.3 Brokerage. Sublessee warrants that it has had no dealings with any
broker or agent in connection with the negotiation or execution of this Sublease
other than Janice Koster Peters of Henry S. Miller Commercial ("Broker").
Sublessee shall indemnify, defend, and hold Sublessor harmless against all
costs, expenses, attorneys' fees, or other liability for commissions or other
compensation or charges claimed by any broker or agent other than Broker
claiming by, through, or under Sublessee with respect to this Sublease. Any
brokerage commissions payable to Broker by Sublessor shall be pursuant to the
terms of separate agreements between Sublessor and Broker.
16.4 No Representations. Sublessor and Sublessor's agents made no, and
Sublessee waives any, representations or promises with respect to the Premises
or the Building except as expressly set forth in this Sublease. No rights,
easements, or licenses are acquired by Sublessee by implication or otherwise
except as expressly set forth in this Sublease.
16.5 Entire Agreement; Amendments. This Sublease and the Consent of
Lessor are the entire agreements between the parties. All negotiations,
considerations, representations, and understandings between Sublessor and
Sublessee are incorporated in this Sublease and the Consent. No act or omission
of any employee or agent of Sublessor may alter, change, or modify any of the
terms of this Sublease. No amendment or modification of this Sublease is binding
unless expressed in a written instrument executed by Sublessee and Sublessor.
SUBLESSOR:
----------------------,
a corporation
-------
By:
- -------------------------------- --------------------------------------
Address
Its:
- -------------------------------- -------------------------------------
SUBLESSEE:
----------------------,
a corporation
-------
By:
- -------------------------------- --------------------------------------
Address
Its:
- -------------------------------- -------------------------------------
SUBLEASE
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<PAGE> 9
LESSOR CONSENT
Lessor consents to the subletting of the Premises in accordance with the
terms and conditions of the above-Sublease subject to the following:
1. If any default under the Prime Lease occurs, Lessor shall have the
right to collect the rent due to Sublessor under the Sublease or directly from
the Sublessee without waiving any of the Lessor's rights against Sublessor as a
result of such default, and in such case the Sublease shall continue.
2. If the default cannot be cured and the Prime Lease terminates, Lessor
shall release the space to Sublessee on the same terms and conditions as in the
Prime Lease for the remainder of the term.
3. The above Sublease constitutes the entire agreement between Sublessor
and Sublessee and there are no other oral or written agreements between them. No
modifications or amendments to the Sublease will be made without the prior
written consent of Lessor.
AGREED to and executed this ____ day of _______________, 1999.
LESSOR:
----------------------------------------,
a
---------------------------------
By:
- -----------------------------------
By:
SUBLEASE
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<PAGE> 10
[PAGE 10 MISSING FROM ORIGINAL]
<PAGE> 1
EXHIBIT 10.17
ELK PROPERTY
MANAGEMENT LIMITED
November 19, 1999
Stanford Microdevices, Inc
522 Almanor Avenue
Sunnyvale, CA 94086
Attention: Tom Scannell
Re: 350 Palladium Dr. Office Space
Dear Sirs
Further to our discussions we are pleased to make the offer set out in this
Letter Agreement for the leasing of office space at 350 Palladium Drive which
will, if accepted by the parties to this agreement, form the basis of a formal
lease agreement.
TENANT:
Stanford Microdevices (Canada) Inc.
GUARANTOR:
Stanford Microdevices Inc.
LANDLORD:
350 Palladium Drive Inc. as to 55% and Sukang Inc. as to 45%
LEASED PREMISES:
The ground floor consisting of a Rentable Area of approximately 3858 sq.ft. as
shown outlined on the attached preliminary floor plan (Schedule "A".)
The Tenant shall be entitled during the Term of the Lease to have use of
unreserved surface parking spaces free of charge at a ratio of 4 stalls per 1000
sq.ft leased, (i.e 16 stalls).
The Landlord will provide the Tenant with an architect's certificate confirming
the rentable area of the Leased Premises.
TERM:
- -------------------------------------------------------------------------------
451 Daly Avenue, 2nd floor, Ottawa, Ontario K1N 6H6
Tel: (613) 244-1012 Fax: (613) 241-4327
<PAGE> 2
Five (5) years commencing upon the 15 th day of December 1999 with the right to
cancel in the Tenant's discretion after 2 years with 6 months prior written
notice to the Landlord with no penalty. If the improvements required to be
performed by the Landlord hereunder are not completed by December 15th 1999
then the Term of the lease will be adjusted to commence on the date on which the
improvements are complete.
In the event the improvements are completed prior to the commencement of the
lease term, the Tenant will be allowed to occupy the Leased Premises in advance
of the commencement date.
MINIMUM RENT:
The Annual Minimum Rent shall be calculated using a rate of $14 per sq.ft. per
annum multiplied by the Rentable Area of the Leased Premises, plus G.S.T.
payable in equal monthly installments, in advance on the first day of each month
throughout the Term.
LEASING COMMISSIONS:
The Tenant hereby acknowledges that it is not dealing with any real estate
broker and that it is only dealing with the Landlord's representive Ken Hoppner
in the leasing of the Leased Premises. The Tenant shall not be responsible to
pay leasing commissions.
ADDITIONAL RENT:
It being the intention of the parties that the Lease be on a fully "net lease"
basis in addition to Annual Minimum Rent, the Tenant shall be responsible for
its proportionate share of taxes, operating costs, and hydro charges, plus GST,
in accordance with the provisions of the Lease. These costs are estimated to be
$ 10.50 per sq.ft per annum for the calendar year 2000. The Landlord will
provide the Tenant a complete breakdown of this estimate prior to the Tenant's
execution of the lease.
The Tenant has requested and the Landlord agrees to limit that portion of
Additional Rent that applies to operating costs. This limit is not applied
against any form of taxes or utilities that are the Tenant's responsibility
pursuant to terms in the Lease. The Tenant's share of operating costs shall be
limited in the following calendar years to the lesser of the applicable amounts
noted below and the actual operating costs incurred:
<TABLE>
<S> <C>
Calendar Year 2000 $4.50 p.s.f per annum
2001 $4.73 p.s.f per annum
2002 $4.96 p.s.f per annum
2003 $5.21 p.s.f per annum
2004 $5.47 p.s.f per annum
</TABLE>
Again for greater clarification the Tenant shall pay over and above its share of
operating costs as noted above its share of all taxes and utilities as called
for in the Lease.
USE:
The Leased Premises shall be used and occupied only for the purpose of office
use.
<PAGE> 3
The Landlord agrees to use its best efforts to obtain a non-disturbance
agreement satisfactory to both parties from any existing mortgagee of the
property and from any future mortgagee but only in the event that such mortgagee
request that the Tenant postpone or subordinate this lease to such mortgage.
DEPOSIT:
Upon the execution of the Lease Agreement by both parties, the Tenant shall
provide the Landlord a cheque for $16856.25 (Includes GST) payable to the
Landlord to be held by the Landlord without interest as a deposit to be applied
on account towards the first 1st and last month's gross rent due under the
Lease.
SIGNAGE:
As part of the Building Standard Turnkey Package the Tenant will be entitled to
place its name on a sign panel on the pylon. The size, color and location of
said signage will be subject to mutual agreement between the Landlord and the
Tenant and governing authorities.
BUILDING STANDARD IMPROVEMENT PACKAGE:
Prior to the commencement date the Landlord will at its sole cost complete a
Building Standard Improvement Package based on the preliminary plans (Schedule
"A") as more fully described in Schedule "B".
The Landlord will agree to move the garbage bins to a site deemed satisfactory
by the Landlord and the Tenant.
LEASE:
The terms and conditions of this Agreement shall be incorporated into the
Landlord's standard form of lease subject to reasonable amendments requested by
the Tenant. In that regard the Landlord shall provide a draft lease for review
by the Tenant within 5 business days of the date of acceptance hereof.
It is agreed that both parties will work towards finalizing the Lease by
December 10th 1999.
CREDIT CHECK:
The Tenant agrees to cooperate fully with the Landlord by providing to the
Landlord any information reasonably required by the Landlord to assess the
financial standing, credit worthiness and corporate organization of the Tenant.
Stanford Microdevices Inc. shall, on or before November 26th, 1999, provide
financial statements for the last 2 fiscal years and current year to date
operating statements. Should the Landlord provide its written notice to the
Tenant by November 26th 1999 that it is not
<PAGE> 4
satisfied with the Tenant's credit worthiness then this agreement shall be null
and void and the deposit shall be returned to the Tenant.
ACCEPTANCE OF AGREEMENT:
The Tenant and Landlord shall indicate their acceptance of this Agreement by
signing both copies where provided and initialing every page and returning both
copies to the attention of the writer. This Agreement shall be irrevocable by
the Landlord until 5:00 p.m. on the 25th day of November 1999, after which time,
if not accepted by the Tenant and returned to the Landlord, this Agreement shall
become null and void.
We trust the above is satisfactory and look forward to a favorable reply in the
near future.
Yours truly,
/s/ Signature Illegible
Elk Property Management Limited
As duly authorized representative of the Landlord
We hereby accept the terms and conditions outlined herein.
Dated at __________ this __________ day of __________, 19 .
Tenant
Stanford Microdevices(Canada) Inc:
_________________ Per: _________________________ c/s
Witness: Name:
Title:
Guarantor
Stanford Microdevices Inc:
_________________ Per: /s/ Signature Illegible c/s
Witness: Name: THOMAS J. SCANNELL
Title: VP FINANCE & ADMINISTRATION
<PAGE> 5
SCHEDULE "A"
[CHART OMITTED]
<PAGE> 6
Attachments:
Schedule A - Preliminary Floor Plan
Schedule B - Building Standard Improvement Package
Schedule C - Legal Description
SCHEDULE "B"
BUILDING STANDARD IMPROVEMENT PACKAGE
The Landlord will at its cost provide to the Tenant a building standard
improvement package based on the preliminary plans outlined in Schedule "A" and
more fully described as follows:
CEILINGS
* Inverted T-bar ceiling grid with lay-in tile, with appropriate air supply and
return fixtures..
HVAC
<PAGE> 7
* Configuration of system to include all supply and return ductwork,
diffusers, grills, dampers and controls, all connected back to the base
building HVAC system. Final distribution to suit Tenant's layout.
LIGHTING
* Lighting will be 20 * 60 2 lamp lay-in T-Bar fluorescent lighting
fixtures with acrylic K12 lens providing a lighting level intensity of
45 foot-candles at desktop height.
MISCELLANEOUS
* Suite Entry and Directory Signage.
* Suite entrance door with one side light and Building standard hardware
and lockset.
SERVICES
* Security card access system for access to the building entrances and
elevator after normal business hours.
* A common mail box will be provided for Tenants
* An electronically zoned fire alarm system located in the plenums on each
floor. The alarm consisting of pull stations next to each exit door,
fire bells smoke detectors, wet sprinkler flow valves and speakers.
* ELECTRICAL POWER:
All distribution wiring and devices, including electrical outlets from
the base building panels.
* PLUMBING & MILLWORK
A standard kitchen sink with upper and lower cabinets as shown on the
plans
* FIRE PROTECTION:
Reconfiguration and or addition of sprinkler system to suit Tenants
office layout.
* WALLS:
Drywall partitions, painted steel door frames, paint grade doors, finish
hardware in Leased Premises as shown.
* FINISHES:
<PAGE> 8
Wall finishes to be painted, flooring will be 26 oz. carpet except for
the lab area which will be anti-static tile and in front of the kitchen
area which will be vinyl tile.
* ARCHITECTURAL, ENGINEERING AND PERMITS
The Landlord will be responsible for architectural, mechanical and
electrical fees and permits for the interior fit-up drawings for the
Tenant Improvements.
* ITEMS NOT INCLUDED
* Furniture Workstations
* Reception Furniture
* Telephone System and Data Cabling
* Custom millwork
* Kitchen Equipment
* Window coverings
<PAGE> 9
SCHEDULE "C"
LEGAL DESCRIPTION
Firstly:
Part of Lot 1, Concession 2
Designated as Part 1 on Plan 4R-14540
Geographic Township of March
City of Kanata
Regional Municipality of Ottawa-Carleton
Land Titles Division of Ottawa-Carleton (No.4)
Secondly:
Part of Lot 1, Concession 2
Designated as Parts 2 and 3 on Plan 4R-14540
Geographic Township of March
City of Kanata
Regional Municipality of Ottawa-Carleton
Land Titles Division of Ottawa-Carleton (No.5)
<PAGE> 10
THIS INDENTURE MADE THE 15TH DAY OF DECEMBER 1999,
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT.
BETWEEN:
SUKANG INC. AS TO 45% AND 350 PALLADIUM DRIVE INC. AS TO 55%
Hereinafter called the "Landlord"
OF THE FIRST PART,
AND:
STANFORD MICRODEVICES (CANADA) INC.
Hereinafter called the "Tenant" OF THE SECOND PART,
AND:
STANFORD MICRODEVICES INC.
Hereinafter called the "Guarantor" OF THE THIRD PART,
PREMISES
1. WITNESSETH that in consideration of the rents, covenants and agreements
hereinafter reserved and contained on the part of the Tenant to be paid,
observed and performed, the Landlord does demise and lease unto the Tenant the
premises, hereinafter called the "Leased Premises" for the purpose of being used
by the Tenant as office space and for no other purpose, all those premises
consisting of three thousand eight hundred and fifty eight (3,858) square feet
on the ground floor of the building known as 350 Palladium Drive (hereinafter
called the "building" or the "Building"), in the City of Kanata, Province of
Ontario, which said building is erected on the lands described in Schedule "A"
hereto annexed and which said Leased Premises are outlined in red on the floor
plan of the said ground level annexed hereto and marked Schedule "B", it being
expressly understood that this demise does not include any part of the external
walls of the building. The Landlord will deliver to the Tenant a written
statement of the Landlord's architect certifying both the Rentable Area and
useable area of the Leased Premises. The measurement of the Leased Premises will
be in accordance with the prevailing BOMA standard of measurement.
The Landlord and each person acting for the Landlord in making a determination,
designation, calculation, estimate, conversion, or allocation under this Lease,
will act reasonably and in good faith and each accountant, architect, engineer
or surveyor, or the professional person employed or retained by the Landlord
will act in accordance with the applicable principles and standard of the
person's profession,
<PAGE> 11
TERM
2(a) TO HAVE AND TO HOLD the Leased Premises for and during the term,
(hereinafter called "the Term") of 5 years to be computed from
the 15th day of December, 1999 and from thenceforth next ensuing
and fully to be completed and ended on the 14th day of December,
2004. Tenant shall have the right to terminate this Lease in its
sole discretion at any time after 2 years with 6 months written
notice to the Landlord with no penalty.
INABILITY TO GIVE POSSESSION
2(b) IT IS HEREBY AGREED that if the Landlord is unable to deliver
vacant possession of the Leased Premises on the date of
commencement of the Term by reason of a delay in the completion
of the Landlord's Work set forth in Schedule "D" of this Lease,
the Landlord shall diligently exercise all its rights to effect
completion of the Landlord's Work and delivery of vacant
possession of the Leased Premises as soon as possible and the
rent payable hereunder shall abate pro rata until such completion
and vacant possession is obtained but the Landlord shall not be
liable to the Tenant for damages of any nature whatsoever and
this lease shall continue in full force and effect subject only
to the abatement of rent as aforesaid, and save and except that
if there is a delay in the completion of the Landlord's Work,
there will be a corresponding delay of the date of commencement
of the Term and expiry date of the Term of this Lease. If the
Landlord's Work set forth in Schedule "D" hereof is completed
prior to December 15th, 1999, the Tenant will have the right to
take possession of the Leased Premises prior to December 15th,
1999, in order to carry out and complete the Tenant's Work.
Notwithstanding anything else herein contained, if the Landlord's
Work is not substantially completed as determined by the
Landlord's architect, acting reasonably, by January 31st, 2000,
than this Lease shall be null and void and the deposit shall be
returned to the Tenant without any deduction.
RENTALS PAYABLE
3(a) The Tenant covenants and agrees to pay to the Landlord as rental
for the Leased Premises, without any set-off or deduction
whatsoever, the following, namely:
(i) A minimum annual rental of FOURTEEN DOLLARS ($14)
(hereinafter called the "Minimum Rental") and
(ii) Additional Rental for the payment of the Tenants
proportionate share of taxes,
<PAGE> 12
insurance and operating costs as set forth in subparagraphs 3(i),
3(j) and 3(k) hereof.
MINIMUM RENTAL
3(b) Minimum Rental shall be payable in equal monthly installments of
four thousand five hundred and one dollars ($4,501.00) in advance
on the first day of each full calendar month during the Term, the
first such payment to include also any pro-rated Minimum Rental
(on a per diem basis) for the period from the date of the
commencement of the Term to the first day of the first full
calendar month in the Term. The Minimum Rental will be adjusted
proportionately for any Lease Year which is other than twelve
(12) calendar months. The Tenant will participate in an automatic
withdrawal plan whereby the Tenant will authorize its bank or
other financial institution to credit the Landlord's bank account
on the first day of each month in an amount equal to the Minimum
and Additional Rental payable on a monthly basis pursuant to the
provisions of this Lease. This shall be provided in lieu of the
requirement to deliver post-dated cheques. When the Rentable Area
of the Leased Premises, subject to the Tenant's final space plan,
is measured by the Landlord, the Minimum Rental and Additional
Rental shall, if necessary, be adjusted accordingly.
ADVANCE RENTAL
3(c) The Landlord hereby acknowledges receipt from the Tenant the sum
of sixteen thousand eight hundred and fifty-six dollars and
twenty-five cents ($16,856.25) to be held without interest as a
deposit and applied against the first and last month's Minimum
Rent and Additional Rent.
MANNER AND PLACE OF PAYMENT OF RENT
3(d) (i) All rent shall be paid by the Tenant to the Landlord at par
at the principal office of the Landlord or at such other place in
Canada as the Landlord may reasonably designate in writing from
time to time without any prior demand therefor, and shall be
payable in lawful money of Canada.
(ii) Any sums received by the Landlord from or for the account of the
Tenant when the Tenant is in default hereunder may be applied at
the Landlord's option to the satisfaction, in whole or part, of
any of the obligations of the Tenant then due hereunder in such
manner as the Landlord sees fit, and regardless of any
designation of instruction of the Tenant to the contrary.
<PAGE> 13
- 4 -
LEASE YEAR
3(e) The first Lease Year shall commence on the first day of the Term
and shall end on the next following 30th day of April;
thereafter, the Lease Years shall consist of consecutive periods
of twelve (12) months. If, however, the Landlord deems it
necessary or convenient for the Landlord's accounting purposes,
the Landlord, acting reasonably, may at any time and from time to
time, by written notice to the Tenant, specify an annual date
from which each subsequent Lease Year is to commence, and, in
such event, the then current Lease Year shall terminate on the
day preceding the commencement of such new Lease Year. The last
Lease Year of the term shall terminate as of the termination of
this Lease Agreement either on account of the running of time or
on account of the early termination of this Lease under the terms
hereof.
SET-OFF & ABATEMENT
3(f) All Minimum Rent and Additional Rent and other sums payable
hereunder by the Tenant to the Landlord shall be payable without
any deduction, set-off or abatement whatsoever, and shall be
collectable as rent, except as herein expressly provided.
INTEREST ON ARREARS
3(g) If the Tenant shall fail to pay when due any Minimum Rent,
Additional Rent, or installment on account thereof, or any other
amount payable to the Landlord hereunder, the amount unpaid shall
bear interest from the due date thereof to the date of payment at
the rate of four (4%) percent in excess of the prime rate of
interest then chargeable by the Landlord's bankers to its most
favored customers on commercial loans in Canadian currency, but
this provision for interest shall not limit any other remedies
which the Landlord may have in respect of such default.
OPERATE ON CONTINUOUS BASIS
3(h) Deleted Intentionally.
ADDITIONAL TAXES AND RATES
3(i) The Tenant shall pay in addition to the Minimum Rent an
additional monthly sum (herein called the "Additional Rental for
Taxes") estimated by the Landlord, acting reasonably, as
sufficient to reimburse the Landlord for all municipal,
provincial, federal or other governmental taxes or rates or
charges of every nature or description, including without
limiting the generality of the foregoing, realty taxes, school
taxes, general taxes, goods and services taxes (GST), value added
taxes, business transfer taxes, fire protection charges,
<PAGE> 14
- 5 -
water rates, sewerage rates, local improvement rates, general or
particular levies or assessments, or charges or any similar
rates, taxes, assessments or charges levied by any municipal,
provincial, federal or other governmental authority against the
building to the extent that the same are attributed to the
Leased Premises but excluding any interest or penalty payable as
a result of the failure by the Landlord to make any payment of
any such taxes, rates, or charges when due and if such taxes,
duties, rates, levies, assessments or charges are based on a
municipal assessment then in proportion to the amount of a
municipal assessment attributed to the Leased Premises as
compared with the total assessment on the building, or if not
based on assessment then prorated on the basis of the number of
square feet contained within the outer surface of the exterior
walls or center line of interior walls of the Leased Premises
compared with the total number of square feet contained within
the outer surface of the exterior walls of the building, it
being the intent under this clause that when the building is
fully rented the Landlord will be fully reimbursed for all such
taxes, rates, levies, assessments and charges levied on the
building, and upon the receipt by the Landlord of any demand for
payment or statement of account with respect to any such taxes,
rates and charges, it shall notify the Tenant of any variation
in the monthly amount payable as Additional Rental for Taxes
under this clause; provided, however, that the Landlord, acting
reasonably, shall be entitled to vary the Additional Rental for
Taxes at any time upon giving reasonable, notice in writing of
such variation to the Tenant and all amounts payable under this
Lease as Additional Rental for Taxes shall be recoverable by the
Landlord from the Tenant in the same manner as rent reserved and
in arrears under the terms hereof.
For clarification, "taxes" shall not include capital taxes nor
any tax calculated or assessed on the basis of capital invested
or employed in the Leased Premises.
INSURANCE
3(j) The Landlord shall at all times throughout the Term maintain on
the building fire insurance for full replacement cost with
minimum by-law endorsement and broad extended coverage, boiler
insurance coverage, insurance against loss of rental income by
reason of fire or related perils and third person liability
insurance protecting the Landlord against all or any claims for
personal injury including death or property damage in an amount
deemed advisable by the Landlord acting reasonably from time to
time, and if and when deemed advisable by the Landlord, insurance
against loss of an "all risk" nature including earthquake, and
the Tenant shall reimburse the Landlord by paying a further
additional monthly sum (herein called the "Additional Rental for
Insurance") for all costs and charges
<PAGE> 15
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in connection with any such insurance in the same proportion as
the square foot area contained within the outside surface of the
exterior walls or the center line of interior walls of the
Leased Premises compares to the square foot area contained
within the outside surface of the exterior walls of the
building, and all such costs and charges may be recovered by the
Landlord from the Tenant in the same manner as rent reserved and
in arrears under the terms hereof. The Landlord shall obtain
from its insurers a waiver of subrogation in favour of the
Tenant.
The Tenant shall, throughout the Term of the Lease, maintain
adequate comprehensive general liabilty insurance and property
damage insurance of not less than two million($2,000,000)
dollars for each occurrence and shall have the Landlord named as
co-insured and shall forward a copy of the policy as evidence of
compliance with the Landlord's requirements
OPERATING AND MAINTENANCE COSTS
3(k) The Landlord shall maintain the building including the structure
of the building, the surface of the roof, thereof, as well as the
foundations, structural columns of the building and mechanical,
electrical and other basic systems of the building and all the
lands comprising the said building including the parking areas
and landscaped areas, as well as operate the said building to the
standard of a first class commercial building so as to give it
high character and distinction and the Tenant shall reimburse the
Landlord for its proportionate share of the costs to maintain and
to operate said building in such a manner as hereinafter set
forth which said proportionate share of the said operating costs
are hereinafter called "Additional Rental for Operating Costs".
The said operating costs shall, without limiting the generality
of the foregoing, include the amounts paid whether by the
Landlord or others on behalf of the Landlord for complete
maintenance services for the building such as are in keeping with
maintaining the standard of a first class commercial building so
as to give it high character and distinction, all repairs and
replacements required for such maintenance, including but not
limited to the following: garbage removal, all grass cutting and
removal and other landscaping costs, parking lot maintenance and
snow removal, maintenance of the exterior of the building
including roof repairs and subject to the amortization provision
referred to later herein, the cost of any structural repairs or
repairs of a capital nature, the costs of providing water and
electricity not otherwise chargeable to tenants, service
contracts with independent contractors, a reasonable amount paid
for wages, benefits to janitors, caretakers and any other staff
involved in the maintenance and management of the building,
managerial and administration fees and expenses, supplies used in
the
<PAGE> 16
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maintenance of the building, the cost of heating, ventilating
and/or air-conditioning the building, including the common areas
of the building, and including repairs and all other
replacements to all equipment used in the provision of
electricity, heating, ventilating and air conditioning of the
building including any meters and all other expenses paid or
payable by the Landlord in connection with the operation of the
building, but shall not include interest on debt or capital
retirement of debt, or any amount directly chargeable by the
Landlord to any tenant or tenants as otherwise provided herein,
or the proceeds realized by the Landlord from any insurance
claims made by the Landlord in connection with repairs done by
the Landlord. The Tenant's proportionate share of such operating
costs shall be in the same proportion that the square foot area
contained within the outside surface of the exterior walls or
the center line of interior walls of the Leased Premises
compares to the square foot area contained within the outside
surface of the exterior walls of the building; and all such
costs and charges may be recoverable by the Landlord from the
Tenant in the same manner as rent reserved and in arrears under
the terms hereof.
There shall be excluded or deducted from Additional Rental for Operating Costs
the following:
(i) debt servicing costs and retirement of debt
(ii) the costs of enforcing other tenants' leases;
(iii) the costs of leasing space, including any tenant inducement paid
to or on behalf of, or the costs of completing any tenant's work
for any tenant;
(iv) any fines or penalties that the Landlord incurs in connection
with any failure to perform obligations, such as the late payment
of taxes, unless caused by the default of the Tenant or those for
whom it is in law responsible;
(v) the costs of acquisition of the lands and building, development
of the lands and building and the cost of original construction
of the building, or repairing premises intended by the Landlord
to be leased, whether actually leased or not;
vi) advertising and other costs associated with the promotion of the
building by the Landlord unless requested by the Tenant;
(vii) costs associated with surplus lands which the Landlord retains as
part of the building for future expansion purposes;
(viii) any monies received by the Landlord pursuant to any warranties
and guarantees to the extent that such monies are a reimbursement
for work the cost of which was previously included in operating
costs.
Except for any utilities or taxes, which shall not be subject to
the cap below, the amount payable by the Tenant under this Lease in respect of
Additional Rental for Operating Costs shall
<PAGE> 17
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be limited in each calendar year to the lesser of i) Tenant's proportionate
share of the actual operating costs incurred by the Landlord in such calendar
year, calculated as aforesaid, and (ii) the following amounts:
Calendar Year 2000 $4.50 psf per annum
2001 $4.73 psf per annum
2002 $4.96 psf per annum
2003 $5.21 psf per annum
2004 $5.47 psf per annum
Provided, however, that the aforementioned limitation shall not apply to that
portion of Additional Rental for Operating Costs attributable to taxes and/or
utilities, the intent being that the Tenant shall pay its full proportionate
share of such amounts in each calendar year of the Term whether those taxes and
utilities apply to the Leased Premises or whether they represent the Tenant's
share of taxes and utilities that are levied on common areas of the building or
the building as a whole.
In so far as the replacement of major equipment or the replacement of major
structural items then the amount which the Landlord can expense in any one year
shall not exceed the greater of the cost of such replacement divided by the
item's life expectancy in years or that amount which would be permitted to be
expensed in any one year and still comply with generally accepted accounting
principles. Such expense shall be permitted on an annual basis until the cost of
such replaced item has been fully amortized or the Term has expired.
DIRECT CHARGE FOR WATER & SEWERAGE RATES & HYDRO CHARGES
3(l) Notwithstanding the foregoing provisions of this Lease, if at any
time and from time to time the Leased Premises shall be equipped
with a meter to measure usage of water or electricity or any
water or sewerage rates or electrical charges referable only to
the Leased Premises, the Tenant shall reimburse the Landlord for
any costs involved in the original installation or repair or
replacement of the meter itself and shall pay or reimburse the
Landlord for payment of any water, sewerage, electricity or other
rates to the extent that they are charged based on the meter
measurement for service supplied to the Leased Premises.
PAYMENT OF ADDITIONAL RENT
3(m) During the Term of the Lease, the Tenant shall pay to the
Landlord its proportionate share of Additional Rental for Taxes,
Additional Rental for Insurance and Additional
<PAGE> 18
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Rental for Operating Costs. Prior to the commencement of the term
of this Lease and of each fiscal period selected by the Landlord
thereafter which commences during the term of this Lease, the
Landlord shall, acting reasonably, estimate the amounts of the
said Additional Rentals as herein before set forth for the
ensuing fiscal period or (if applicable) broken portion thereof,
as the case may be, and shall notify the Tenant in writing of
such estimate. The amount so estimated shall be payable in equal
monthly installments in advance over the fiscal period or broken
portion thereof in question, on the first day of each and every
month during such fiscal period.
The Landlord may from time to time alter the fiscal period
selected in which case the appropriate adjustment in monthly
installments shall be made. From time to time during a fiscal
period, the Landlord may, acting reasonably, re-estimate the
amount of the taxes, insurance, or operating costs or any of them
and the Tenant's proportionate share thereof for such fiscal
period or broken portion thereof, in which event the Landlord
shall notify the Tenant in writing of such re-estimate and fix
the monthly installments for the then remaining balance of such
fiscal period or broken portion thereof such that, after giving
credit for installments paid by the Tenant on the basis of the
previous estimate or estimates, the Tenant's entire proportionate
share of such Additional Rentals will have been paid during such
fiscal period.
As soon as is practicable after the expiration of each calendar
year, the Landlord shall, acting reasonably, make a final
determination and shall provide a statement certified as accurate
by the Landlord, of such taxes, insurance, and operating costs
and of the Tenant's proportionate share thereof for such fiscal
period or broken portion thereof and shall notify the Tenant of
such determination and the Landlord and the Tenant shall make the
necessary readjustment within thirty (30) days of such
notification to the Tenant. Neither the Landlord nor the Tenant
may claim a readjustment with respect to such Additional Rentals
based upon any error of estimation, determination or calculation
thereof unless claimed in writing within one (1) year after the
final determination thereof.
EXAMINATION OF RECORDS
3(n) The Tenant and its agents may within sixty (60) days of the
receipt by the Tenant of any notice respecting Additional Rental
for Taxes, Insurance or Operating Costs payable hereunder, at
reasonable times, and upon giving reasonable prior notice in
writing of its
<PAGE> 19
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intention to do so, examine at the expense of the Tenant, the
accounts, records, books, statements and other documents
concerning such Additional Rental. All information obtained by
the Tenant as a result of such examination shall be treated as
confidential. All statements of operating costs and any other
cost payable by Tenant shall be prepared in accordance with
generally accepted accounting principles and shall be certified
accurate by the Landlord.
APPEAL OF ASSESSMENT
3(o) The Tenant shall be entitled at any time and from time to time,
provided that it has first obtained the Landlord's consent, at
its own cost and expense to appeal any assessment or taxes
imposed or levied on the Leased Premises or the building and may
take such appeal in the name of the Landlord provided that such
appeal is prosecuted in good faith, and provided that if the
building or any part thereof or the Landlord shall become liable
to assessment, prosecution, fine or other liability, the Tenant
shall have given security in a form and in an amount satisfactory
to the Landlord in respect of such liability and such
undertakings as the Landlord may reasonably require to indemnify
the Landlord from any costs of any nature in connection with such
appeal.
TENANT'S COVENANTS
4. THE TENANT COVENANTS WITH THE LANDLORD AS FOLLOWS:
(a) To pay Minimum Rent and Additional Rents as herein set forth;
(b) To observe and perform all covenants and obligations of the
Tenant herein;
(c) To pay all gas, electrical, water and sewer rates and charges
levied, imposed rates (including the cost of installing,
repairing or replacing any meter) charged or assessed against the
Leased Premises as and when the same become due;
(d) To pay business and other taxes, charges, rates, duties and
assessments levied, rated, charged or assessed against and in
respect of the Tenant's occupancy of the Leased Premises or in
respect of the personal property, trade fixtures, furniture and
facilities of the Tenant or business of the Tenant on the Leased
Premises, as and when the same become due, and to indemnify and
keep indemnified the Landlord from and against all payment of all
loss, costs, charges and expenses occasioned by or arising from
any and all such taxes, rates, duties, assessments, license fees
and any and all taxes which may in future be levied in lieu of
such taxes, and also if the Tenant or any person occupying the
Leased Premises or any part thereof shall elect to have the
Leased Premises or any part thereof assessed for Separate School
taxes, the Tenant shall pay to the Landlord as soon as the amount
of the Separate School taxes is ascertainable, any amount by
which the Separate School taxes
<PAGE> 20
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exceed the amount which would have been payable for school taxes had
such election not been made as aforesaid.
TENANT REPAIRS
4(e) And to repair, maintain and keep the Leased Premises in such good
order and condition as they would be kept by a careful and
prudent tenant of similar premises; and that the Landlord may,
except in emergencies (where Landlord can immediately enter),
upon 48 hours prior notice, enter and view state of repair and
that the Tenant will repair according to notice in writing,
reasonable wear and tear and damage by fire, lightning and
tempest or other casualty against which the Landlord is insured
only excepted; and that the Tenant will leave the Leased Premises
in good repair, reasonable wear and tear and damage by fire,
lightning and tempest or other casualty against which the
Landlord is insured only excepted. Notwithstanding anything
herein before contained, the Landlord may in any event make
repairs to the Leased Premises without notice if such repairs are
in the Landlord's reasonable opinion necessary for the protection
of the building and provided the Landlord shall use its best
efforts to try to minimize disruption to the operation of the
Tenant. The Tenant covenants and agrees with the Landlord that if
the Landlord acting reasonably exercises any such option to
repair, the Tenant will pay to the Landlord together with the
next installment of rent which shall become due after the
exercise of such option all sums which the Landlord shall have
expended in making such repairs and such sums if not so paid
within such time shall be recoverable from the Tenant as rent in
arrears. Provided further that in the event that the Landlord,
acting reasonably, from time to time makes any repairs as
hereinbefore provided, the Tenant shall not be deemed to have
been relieved from the obligation to repair and leave the Leased
Premises in a good state of repair.
REPAIRS DUE TO TENANT'S NEGLIGENCE
1(f) If the building including the Leased Premises, the boilers,
engines, pipes and other apparatus (or any of them) used for the
purpose of heating, ventilating or air-conditioning the building
or if the water pipes, drainage pipes, electric lighting or other
equipment of the building or the roof or outside walls of the
building get out of repair as determined by the Landlord, acting
reasonably, or become damaged or destroyed through the
negligence, carelessness or misuse of the Tenant, its servants,
agents, employees or anyone permitted by it to be in the building
or through it or them in any way stopping up or injuring the
heating apparatus, water pipes, drainage pipes or other equipment
or part of the building the expense of the necessary repairs,
replacements or alterations shall be borne by the Tenant who
shall pay the same to the Landlord forthwith on demand.
<PAGE> 21
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ASSIGNING OR SUBLETTING
4(g) And the Tenant will not assign or sublet without leave which
leave shall not be unreasonably withheld provided that the
Landlord's consent shall not be required in the case of an
assignment or sublease to an "affiliate" as defined in the
Business Corporations Act of Ontario but only so long as the
Guarantor and Tenant remain fully responsible for all obligations
of this Lease. If the Tenant requests the Landlord's consent to
an assignment of this Lease or to a subletting of the whole or
any part of the Leased Premises, the Tenant shall submit to the
Landlord the name of the proposed assignee or subtenant and such
information as to the nature of its business and its financial
responsibility and standing as the Landlord may reasonably
require. The Landlord will, within seven (7) days after receiving
such notice and the above-noted credit and financial information,
notify the Tenant in writing as to whether it approves the
Tenant's request. It is agreed that the proposed sublessee or
assignee must demonstrate financial strength and credit
worthiness of no lesser degree than the Tenant and Guarantor. In
no event shall any assignment or subletting to an affiliate as
defined above release or relieve the Tenant or Guarantor from the
obligations to fully perform all the terms, covenants and
conditions of this Lease. If, however, the Landlord consents to
an assignment of this Lease to a third party then the Tenant and
Guarantor shall be released from all obligations pursuant to this
Lease and the guarantee respectively from and after the effective
date of any such assignment.
CHANGE IN CORPORATE CONTROL
4(g)(2)(i) Deleted Intentionally.
CHANGE IN TENANT'S NAME
4(g)(3) Deleted Intentionally
RULES AND REGULATIONS
4(h) The Tenant and its employees and all persons visiting or doing
business with it on the Leased Premises shall be bound by and
shall observe such reasonable rules and regulations as may
hereafter be set by the Landlord of which notice in writing shall
be given to the Tenant and upon such notice being delivered all
such rules and regulations shall be deemed to be incorporated
into and form part of this Lease. The Rules and regulations as at
the date of execution of this lease are those set out in Schedule
" C". The Landlord shall enforce each rule and regulation against
each tenant of the building and such enforcement shall be
equitable amongst all tenants of the building.
<PAGE> 22
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USE OF PREMISES
4(i) The Leased Premises shall be used only for OFFICE SPACE purposes.
Subject to any specific imitations herein to the contrary, the
Tenant shall have access to the Leased Premises 24 hours per day,
7 days per week.
INCREASE IN INSURANCE PREMIUMS
4(j) The Tenant agrees that it will not keep, use, sell or offer for
sale in or upon the Leased Premises any article which may be
prohibited by any insurance policy in force from time to time
covering the building. In the event the Tenant's occupancy or
conduct of business in, or on the Leased Premises, whether or not
the Landlord has consented to same, results in any increase in
premiums for the insurance carried from time to time by the
Landlord with respect to the building, the Tenant shall pay any
such increase in premiums as additional rent within thirty (30)
days after bills for such additional premiums shall be rendered
by the Landlord. In determining whether increased premiums are a
result of the Tenant's use or occupancy of the Leased Premises, a
schedule issued by the organization computing the insurance rate
on the building and certified by a senior officer thereof showing
the various components of such rate, shall be conclusive evidence
of the several items and charges which make up such rate. The
Tenant shall promptly comply with all reasonable requirements of
the insurance authority or of any insurer now or hereafter in
effect relating to the Leased Premises.
CANCELLATION OF INSURANCE
4(k) If any policy of insurance upon the building or any part thereof
shall be canceled by the insurer by reason of the use or
occupation of the Leased Premises or any part thereof by the
Tenant or by any assignee or subtenant of the Tenant or by anyone
permitted by the Tenant to be upon the Leased Premises, and the
Tenant is unable to arrange similar insurance coverage, the
Landlord may at its option determine this Lease forthwith by
leaving upon the Leased Premises notice in writing of its
intention so to do and thereupon rent and any other payments for
which the Tenant is liable under this Lease shall be apportioned
and paid in full to the date of such determination and the Tenant
shall immediately deliver up possession of the Leased Premises to
the Landlord and the Landlord may re-enter and take possession of
same.
<PAGE> 23
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OBSERVANCE OF LAW
4(l) To comply with all provisions of law including without
limitation, federal and provincial legislative enactment's,
building by-laws, and any other governmental or municipal
regulations which relate to the partitioning, equipment,
operation and use of the Leased Premises, and to the making of
any repairs, replacements, alterations, additions, changes,
substitutions or improvements of or to the Leased Premises. And
to comply with all police, fire and sanitary regulations imposed
by any federal, provincial or municipal authorities or made by
fire insurance underwriters, and to observe and obey all
governmental and municipal regulations and other requirements
governing the conduct of any business conducted in the Leased
Premises. Provided that in default of the Tenant so complying the
Landlord may at its option where possible comply with any such
requirement and the cost of such compliance shall be payable by
the Tenant to the Landlord as additional rent and the Landlord
may enforce payment thereof as rent in arrears. Provided that
nothing herein, shall be deemed to require the Tenant to make any
repairs, alterations or modifications of a structural nature or
any repairs, alterations or modifications to the base building
systems. The Landlord represents and warrants to the Tenant that,
on the commencement date the building and the Leased Premises
shall comply with all laws of the federal, provincial, municipal
or any other governmental authority.
WASTE & OVERLOADING OF FLOORS
4(m) Not to do or suffer any waste or damage, disfiguration or injury
to the Leased Premises or the fixtures and equipment thereof or
permit or suffer any overloading of the floors thereof; and not
to place therein any safe, heavy business machine or other heavy
thing without first obtaining the consent in writing of the
Landlord; and not to use or permit to be used any part of the
Leased Premises for any dangerous, noxious or offensive trade or
business and not to cause or permit any nuisance in, at or on the
Leased Premises; and without the prior consent in writing of the
Landlord, the Tenant will not bring onto or use in the Leased
Premises or permit any person subject to the Tenant to bring onto
or use on the Leased Premises any fuel or combustible material
for heating, lighting or cooking nor will it allow onto the
Leased Premises any stove, burner, apparatus or appliances for
utilizing the same not including a microwave oven, and the Tenant
will not purchase, acquire or use electrical current or gas for
consumption on the Leased Premises except from some supplier
thereof as shall have been approved in writing by the Landlord,
acting reasonably.
<PAGE> 24
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INSPECTION
4(n) To permit the Landlord, its servants or agents, upon at least 48
hours prior notice (except in an emergency), to enter upon the
Leased Premises at any time and from time to time for the purpose
of inspection and of making emergency repair alterations or
improvements to the Leased Premises or to the building and the
Tenant shall not be entitled to compensation for any
inconvenience, nuisance or discomfort occasioned thereby. The
Landlord, its servants or agents may at any time and from time to
time enter upon the Leased Premises to remove any article or
remedy any condition which in the reasonable opinion of the
Landlord, reasonably arrived at, would be likely to lead to
cancellation of any policy of insurance as referred to in
Paragraph 4(j) and such entry by the Landlord shall not be deemed
to be a re-entry.
INDEMNITY BY TENANT
4(o) And the Tenant agrees to indemnify and save harmless the Landlord
of and from all liabilities, suits, claims, demands, and actions
of any kind or nature, including the full cost of the Landlord in
resisting or defending same, to which the Landlord shall or may
become liable for or suffer by reason of any breach, violation or
non-performance by the Tenant of any covenant, term or provision
hereof or by reason of any occurrence resulting from, occasioned
to or suffered by any person or property by reason of any act,
neglect or default on the part of the Tenant or any of its
officers, agents, employees, visitors, customers or licensees;
and the covenant of the Tenant in regard to such indemnification
occurring during the term of the Lease or any renewal or over
holding in respect thereof shall continue in full force and
effect notwithstanding the expiration of the term or the
termination of this Lease for any reason whatsoever for a period
of one (1) year after expiration or other termination of the
Term.
The Landlord shall be responsible for damage caused as a
result of its breach of this Lease and agrees to indemnify and
save harmless the Tenant of and from all liabilities, suits,
claims, demands, and actions of any kind or nature, including
the full cost of the Tenant in resisting or defending same, to
which the Tenant shall or may become liable for or suffer by
reason of any breach, violation or non-performance by the
Landlord of any covenant, term or provision hereof or by reason
of any occurrence resulting from, occasioned to or suffered by
any person or property by reason of any act, neglect or default
on the part of the Landlord or any of its officers, agents,
employees, visitors, customers or licensees; and the covenant of
the Landlord in regard to such indemnification occurring during
the term of the Lease or any renewal or over holding in respect
thereof shall continue in full force and effect notwithstanding
the expiration of the term or the termination
<PAGE> 25
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of this Lease for any reason whatsoever for a period of one (1)
year after expiration or other termination of the Term.
NO ABATEMENT OF RENT
4(p) That there shall be no abatement or reduction of rent and that
the Landlord shall not be liable for any damage howsoever caused
to property of the Tenant or of any person subject to the Tenant
which is in or upon or being brought to or from the Leased
Premises or the building or for personal injury (including death)
sustained in any manner by the Tenant or any person subject to
the Tenant while the Tenant or any such person is in or upon or
entering or leaving the Leased Premises or building and the
Tenant will indemnify and save harmless the Landlord from and
against all claims and demands made against the Landlord by any
person for or arising out of any such property damage or personal
injury unless such property damage or personal injury may have
been attributable to fault or neglect on the part of the Landlord
or of any person for whom the Landlord is responsible.
EXHIBITING PREMISES
4(q) To permit the Landlord or its agents or servants to enter and
show the Leased Premises upon 48 hours prior notice during normal
business hours, to prospective purchasers of the building and may
after notice terminating this Lease has been given by the Tenant,
if applicable, or within the last six (6) months of the Term,
enter and show the Leased Premises to prospective tenants and
erect a sign with reasonable dimensions stating that the Leased
Premises are "For Rent".
ALTERATIONS, ETC.
4(r) The Tenant will not make or erect in or to the Leased Premises
any installations, alterations, additions or partitions or remove
or change the location or style of any equipment, outlets, piping
or wiring relating to the electrical, plumbing, water, gas or
heating systems without submitting drawings and specifications to
the Landlord and obtaining the Landlord's prior written consent
in each instance not to be unreasonably withheld or delayed (and
the Tenant must further obtain the Landlord's prior written
consent to any change or changes in such drawings and
specifications submitted as aforesaid, prior to proceeding with
any work based on such drawings or specifications); such work may
be performed by contractors engaged by the Tenant but in each
case only under written contract approved in writing by the
Landlord, acting reasonably, and subject to all reasonable
conditions which the Landlord may impose, provided nevertheless
that the Landlord may at its option require that the Landlord's
contractors be engaged for any
<PAGE> 26
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mechanical or electrical work; without limiting the generality
of the foregoing any work performed by or for the Tenant shall
be performed by competent workmen whose labor union affiliations
are not incompatible with those of any workmen who may be
employed in the building by the Landlord, its contractors or
subcontractors; the Tenant shall submit to the Landlord's
supervision over construction and promptly pay to the Landlord's
or the Tenant's contractors, as the case may be, when due, the
cost of all such work and of all materials, labor and services
involved therein and of all decoration and all changes in the
building, its equipment or services, necessitated thereby. The
Tenant covenants that it will not suffer or permit during the
term hereof any construction or other liens for work, labor,
services or materials ordered by it or for the costs of which it
may be in any way obligated to attach to the Leased Premises or
to the building and that whenever and so often as any such liens
shall attach or claims therefor shall be filed, the Tenant shall
within thirty (30) days after the Tenant has notice of the claim
for lien, procure the discharge thereof by payment or by giving
security or in such other manner as is or may be required or
permitted by law. Any such alterations, additions and fixtures
shall when made or installed be and become the property of the
Landlord without payment being made therefor; provided that upon
the determination of this Lease the Landlord may at its option
require the Tenant to remove the same and to restore the Leased
Premises to the condition in which they were at the commencement
of this Lease, reasonable wear and tear excepted.
MAINTENANCE
4(s)i Unless caused by the misuse or neglect of the Tenant, the
Landlord shall repair all plate and window glass facing the
exterior or facing any common areas of the Building, outlets,
wiring, plumbing, plumbing fixtures, heating equipment and all
water and gas piping and outlets within the Leased Premises and
the cost of such repairs shall form part of the operating costs
as described in paragraph 3(k) herein and the Tenant shall pay
its share of such costs. Any repairs caused by the misuse or
neglect of the Tenant shall be repaired by the Landlord but the
Tenant shall reimburse the Landlord for all such costs.
(s)ii) That the Tenant will maintain the Leased Premises in good repair
including all plate and window glass within the Leased Premises
and not facing the exterior or common areas, and all light
fixtures, within the Leased Premises. The Tenant acknowledges
that it has inspected the entire Leased Premises, that they are
clean and in good order and in a good state of repair, and that
all plate and window glass is whole.
<PAGE> 27
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SIGNS
4(t) The Tenant shall erect and maintain an identification sign of a
type and in a location of which the Landlord, acting reasonably,
shall have approved in writing, and shall not erect, install,
inscribe, paint or affix any sign, lettering or advertisement
upon or above the exterior of the Leased Premises or the building
in which they are situate, including the exterior glass surface
of the windows or doors, without first in each instance, securing
the written approval of the Landlord not to be unreasonably
withheld. Should the Tenant install, display, inscribe, paint or
affix any sign, lettering or advertisement to or upon the
interior doors which face common areas of the building without in
each instance the prior written approval of the Landlord, as
aforesaid, and should such sign prove objectionable to the
Landlord, acting reasonably, it shall be removed forthwith by the
Tenant upon the request of the Landlord. Notwithstanding the
foregoing, as part of the leasehold improvement package referred
to in Schedule "D" of this Lease, the Tenant will have the right
to place its name on a sign panel on the pylon. The size, color
and location of such signage will be mutually agreed to between
the parties, subject to all requirements of any governmental
authorities.
NAME OF BUILDING
4(u) Not to refer to the building by any name other than that
designated from time to time by the Landlord and the Tenant shall
use the name of the building for the business address of the
Tenant but for no other purpose.
KEEP TIDY
4(v) At the end of each business day, to leave the Leased Premises in
a tidy condition.
GARBAGE REMOVAL
4(w) Deleted Intentionally.
DELIVERIES
4(x) The Tenant shall receive, ship, take delivery of and allow and
require suppliers or others to deliver or take delivery of
merchandise, supplies, fixtures, equipment, furnishings, wares or
merchandise only through the facilities provided for that
purpose, but this restriction shall not apply to the retail
customers of the Tenant.
<PAGE> 28
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NOTICE OF DAMAGE
4(y) That in the event of damage to the Leased Premises from any cause
or of any damage to or defect in any electrical, plumbing,
heating, water, sprinkler or gas systems within or leading to the
Leased Premises, the Tenant shall give immediate notice of such
damage or defect to the Landlord and in case of fire, to the Fire
Department.
CERTIFICATES
4(z) The Tenant agrees that it will at any time and from time to time
upon not less than ten (10) days prior notice execute and deliver
to the Landlord a statement in writing certifying that this Lease
is unmodified and in full force and effect (or, if modified,
stating the modifications and that the same is in full force and
effect as modified), the amount of the annual rental then being
paid hereunder, the dates to which the same, by installments or
otherwise, and other charges hereunder have been paid, and
whether or not there is any existing default on the part of the
Landlord of which the Tenant has notice.
QUIET ENJOYMENT
5. The Landlord covenants with the Tenant:
v) for quiet enjoyment;
vi) to observe and perform all covenants and obligations of
the Landlord herein; and
vii) that it has the right, power and authority to enter into
this Lease and to demise and lease unto the Tenant the
Leased Premises as provided in this Lease.
LANDLORD'S COVENANTS
6. The Landlord further covenants with the Tenant as follows:
Subject to the Tenant paying its proportionate share as set forth
in Paragraphs 3(a), 3 (i) and 4(d) hereof, to pay all taxes and
rates, municipal, parliamentary or otherwise, including without
limiting the generality of the foregoing, water rates with
respect to the Leased Premises and building or assessed against
the Landlord in respect thereof, except such as the Tenant has
herein covenanted to pay.
PARKING
7. The Tenant and all persons employed by or doing business with the
Tenant shall have the use of the land as designated from time to
time by the Landlord for the purpose of access to and egress from
the Leased Premises, provided that no person or Tenant shall have
the exclusive use of any particular parking space and no motor
vehicle shall be parked on any part of the lands contained in the
building which is a loading zone or is not designated by the
Landlord for parking or where signs are in place indicating that
parking is prohibited and the Tenant agrees
<PAGE> 29
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to reimburse the Landlord on demand for the cost of removal of
any motor vehicles which are parked in breach of this clause and
which belong to or are parked by any person employed by or doing
business with the Tenant, all such costs to be recoverable by
the Landlord as additional rent under this Lease. It is
specifically understood and agreed that the Landlord shall have
the right to make all reasonable rules, regulations and by-laws
relating to the operation of the parking lot and means of
ingress to and egress from the building or any part thereof, in
regard to the parking, traffic control, excessive weights of
loads on ramps or loading docks and all such matters as are
required or are normally incidental to the proper management of
the building, but no such rules, regulations or by-laws shall in
any way limit or restrict the nature or extent of the business
carried on by the Tenant within the covenants herein expressed
or the mode of operation thereof. The Tenant covenants and
agrees that it will observe, abide by and conform to all such
reasonable rules, regulations and by-laws made or established by
the Landlord as aforesaid. Throughout the term and any renewal
term, the Tenant, its employees and persons doing business with
the Tenant, shall have the right to use sixteen (16) unreserved
exterior surface parking spots at no additional cost.
FIXTURES
8. Provided that the Tenant may remove its trade fixtures; provided
further, however, that all installations, alterations, additions,
partitions, and fixtures other than trade fixtures in or upon the
Leased Premises, whether placed there by the Tenant or the
Landlord, shall immediately upon such placement, be the
Landlord's property without compensation therefor to the Tenant
and, except as hereinafter mentioned in this Paragraph 8 shall
not be removed from the Leased Premises by the Tenant at any time
either during or after the term. Notwithstanding anything herein
contained, the Landlord shall be under no obligation to repair or
maintain the Tenant's installations, alterations, additions,
partitions and fixtures or anything in the nature of a leasehold
improvement made or installed by the Tenant; and further
notwithstanding anything herein contained, the Landlord shall
have the right upon the termination of this Lease by affluxion of
time or otherwise to require the Tenant to remove its
installations, alterations, additions, partitions and fixtures or
anything in the nature of a leasehold improvement made or
installed by the Tenant and to make good any damage caused to the
Leased Premises by such installation or removal.
FIRE
9. Provided that if during the continuation of this Lease the
building or the Leased Premises are destroyed or damaged by fire
or the elements, then the following provisions shall apply:
(a) If the building or the Leased Premises are totally destroyed or
are partially destroyed so as
<PAGE> 30
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in the opinion of the Landlord, based on certificates of an
engineer or appropriate professional, to render the Leased
Premises wholly unfit for occupancy by the Tenant, or if they
shall be so badly damaged that they cannot in the opinion of the
Landlord be repaired with reasonable diligence within ninety
(90) days of the happening of such damage, then either the
Landlord or the Tenant may elect to terminate this Lease by
giving to the other party, within thirty (30) days after the
damage, notice of termination, and thereupon, the Tenant shall
pay rent only to the time of such damage.
(b) But if the building or the Leased Premises are partially
destroyed and can in the opinion of the Landlord, based on
certificates of an engineer or appropriate professional, be
repaired with reasonable diligence within ninety (90) days from
the happening of such damage and if the damage is such as to
render the Leased Premises wholly unfit for occupancy by the
Tenant, then the rent shall not run or accrue after said damage,
while the process of repairs in going on, and the Landlord shall
repair same with all reasonable speed, and then the rent shall
recommence immediately after said repairs shall be completed.
(c) But if the building or the Leased Premises can in the opinion of
the Landlord be repaired within ninety (90) days from the
happening of such damage, and if the damage is such that the
Leased Premises can be partially used by the Tenant, then until
such damage shall have been repaired, the rent shall abate in the
proportion that the portion of the Leased Premises rendered unfit
for occupancy bears to the whole of the Leased Premises from the
date of damage until the day after the Landlord has completed the
restoration, and the Landlord shall repair same with all
reasonable speed and diligence.
DAMAGE OF PROPERTY
10. The Landlord shall not be liable or responsible in any way for
any loss of or damage or injury to any property belonging to the
Tenant or to employees of the Tenant or to any other person while
such property is on the Leased Premises or in the building or in
or on the surrounding lands and buildings owned by the Landlord
whether or not such property has been entrusted to employees of
the Landlord and without limiting the generality of the
foregoing, the Landlord shall not be liable for any damage to any
such property caused by steam, water, rain or snow which may leak
into, issue or flow from any part of the building or from the
water, steam or drainage pipes or plumbing works of the building
or from any other place or quarter or from any damage caused by
or attributable to the condition or arrangement of any electric
or other wiring or for any damage caused by anything done or
omitted by any other tenant.
<PAGE> 31
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DELAYS IN PROVISION OF SERVICE
11. Except for payment of any and all rent payments by Tenant for
which no delays shall be permitted, it is understood and agreed
that whenever and to the extent that the Landlord and Tenant
shall be unable to fulfill, or shall be delayed or restricted in
the fulfillment of any obligation hereunder in respect of the
supply or provision of any service or utility or the doing of any
work or the making of any repairs by reason of being unable to
obtain the material, goods, equipment, service, utility or labor
required to enable it to fulfill such obligation or by reason of
any statute, law or order-in-council or any regulation or order
passed or made pursuant thereto or by reason of the order or
direction of any administrator, controller or board, or any
governmental department or officer of other authority, or by
reason of not being able to obtain any permission or authority
required thereby, or by reason of any other cause beyond its
control whether in the foregoing character or not, the Landlord
or Tenant, as applicable, shall be entitled to extend the time
for fulfillment of such obligation by a time equal to the
duration of such delay or restriction, and neither shall be
entitled to compensation for any inconvenience, nuisance or
discomfort thereby occasioned.
DEFAULT OF TENANT
12. Provided and it is hereby expressly agreed that (i) if and
whenever the rent hereby reserved or any part thereof shall not
be paid within five (5) business days of the day appointed for
payment thereof, whether lawfully demanded or not, or (ii) in
case of breach or non-observance or non-performance of any of the
other covenants, agreements, provisos, conditions or rules and
regulations on the part of the Tenant to be kept, observed or
performed, for fifteen (15) business days after notice in writing
from the Landlord or such longer period of time as is reasonable
in the circumstances, provided that within such fifteen (15)
business day period, the Tenant has commenced and thereafter
proceeds diligently with any such cure, or (iii) in case the term
shall be taken in execution or attachment for any cause whatever,
then and in every such case, it shall be awful for the Landlord
thereafter to enter into and upon the Leased Premises or any part
thereof in the name of the whole and the same to have again,
repossess and enjoy as of its former estate, anything in this
Lease contained to the contrary notwithstanding other than the
proviso to this Paragraph 12.
BANKRUPTCY, ETC.
13. Provided further that in case without the written consent of the
Landlord the Leased Premises shall be used by any other person
than the Tenant or for any other purpose than that for which the
same were let or in case the term or any of the goods and
chattels of the Tenant shall be at any time seized in execution
or attachment by any creditor of the Tenant
<PAGE> 32
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or the Tenant shall make any assignment for the benefit of
creditors or any bulk sale without the consent of the Landlord
or become bankrupt or insolvent or take the benefit of any Act
now or hereafter in force for bankrupt or insolvent debtors, or,
if the Tenant is a corporation and any order shall be made for
the winding up of the Tenant, or other termination of the
corporate existence of the Tenant, then in any such case this
Lease shall at the option of the Landlord cease and determine
and the term shall immediately become forfeited and void and the
then current month's rent and the next ensuing three (3) months
rent shall immediately become due and be paid and the Landlord
may re-enter and take possession of the Leased Premises as
though the Tenant or other occupant or occupants of the Leased
Premises was or were holding over after the expiration of the
Term without any right whatever.
RE-ENTRY BY LANDLORD
14. The Tenant further covenants and agrees that on the Landlord's
becoming entitled to re-enter upon the Leased Premises under any
of the provisions of this Lease, the Landlord in addition to all
other rights shall have the right to enter the Leased Premises as
the agent of the Tenant either by force or otherwise, without
being liable for any prosecution therefor and to re-let the
Leased Premises as the agent of the Tenant, and to receive the
rent therefor and as the agent of the Tenant, to take possession
of any furniture or other property on the Leased Premises and to
sell the same at public or private sale without notice and to
apply the proceeds of such sale and any rent derived from
reletting the Leased Premises upon account of the rent under this
Lease, and the Tenant shall be liable to the Landlord for the
deficiency, if any.
LANDLORD'S RIGHT OF TERMINATION
15. The Tenant further covenants and agrees that upon the Landlord
becoming entitled to re-enter upon the Leased Premises under any
of the provisions of this Lease, the Landlord, in addition to all
other rights, shall have the right to determine forthwith this
Lease and the term by leaving upon the Leased Premises notice in
writing of its intention so to do, and thereupon, rent shall be
computed, apportioned and paid in full to the date of such
determination of this Lease and any other payments for which the
Tenant is liable under this Lease shall be paid and the Tenant
shall immediately deliver up possession of the Leased Premises to
the Landlord, and the Landlord may re-enter and take possession
of same.
<PAGE> 33
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DISTRESS
16. The Tenant waives and renounces the benefit of any present or
future statute taking away or limiting the Landlord's right of
distress, and covenants and agrees that notwithstanding any such
statute, none of the goods and chattels of the Tenant on the
Leased Premises at any time during the term shall be exempt from
levy by distress for rent in arrears. In the event that the
Tenant shall remove or permit the removal of any of its goods or
chattels from the Leased Premises, the Landlord may within thirty
(30) days thereafter and if the Tenant is in arrears of rent,
seize such goods and chattels wherever the same may be found and
may sell or otherwise dispose of same as if they had actually
been distrained upon the Leased Premises by the Landlord for
arrears of rent.
LANDLORD'S WORK
17. The Landlord agrees to complete at its sole cost and expense the
work as outlined in Schedule " D" hereto.
NON-WAIVER
18. No condoning, excusing or overlooking by the Landlord of any
default, breach or non-observance by the Tenant at any time or
times in respect of any covenant, proviso or condition herein
contained shall operate as a waiver of the Landlord's rights
hereunder in respect of any continuing or subsequent default,
breach or non-observance, or so as to defeat or affect in any way
the rights of the Landlord herein in respect of any such
continuing or subsequent default or breach, and no waiver shall
be inferred from or implied by anything done or omitted by the
Landlord save only express waiver in writing. All rights and
remedies of the Landlord in this Lease contained shall be
cumulative and not alternative.
OVER-HOLDING
19. If the Tenant shall continue to occupy the Leased Premises after
the expiration of this Lease with or without the consent of the
Landlord, and without any further written agreement, the Tenant
shall become and be a monthly tenant only (terminated by one
calendar month's notice) at a rent equivalent to the monthly
rental hereby reserved for the last month of the Term or extended
term herein, and subject to all the terms and conditions herein
set out except as to length of tenancy.
<PAGE> 34
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RECOVERY OF ADJUSTMENT
20. The Landlord shall have (in addition to any other right or remedy
of the Landlord) the same rights and remedies in the event of
default by the Tenant in payment of any amount payable by the
Tenant hereunder, as the Landlord would have in the case of
default in payment of rent.
NOTICE
21. Any notice required or contemplated by any provisions of this
Lease shall be given in writing enclosed in a sealed envelope
addressed, in the case of notice to the Landlord, at 451 DALY
AVENUE, 2ND FLOOR, OTTAWA, ONTARIO K1N 6H6 and in the case of
notice to the Tenant, to it at the Leased Premises and mailed,
registered and postage prepaid. The time of giving of such notice
shall be conclusively deemed to be the fourth business day after
the day of such mailing. Such notice shall be delivered, in the
case of notice to the Landlord, to an executive officer of the
Landlord, and in the case of notice to the Tenant, to it
personally, or to the manager operating the Tenant's business
upon the Leased Premises, or to an executive officer or director
of the Tenant if the Tenant is a corporation. Such notice, if
delivered shall be conclusively deemed to have been given and
received at the time of such delivery. If in this Lease two or
more persons are named as Tenant, such notice shall also be
sufficiently given if and when the same shall be delivered
personally to any one of such persons. Provided that either party
may, by notice to the other from time to time designate another
address in Canada to which notices mailed more than ten (10) days
thereafter shall be addressed.
SUBORDINATION
22. The Landlord agrees to use its best efforts to obtain a
non-disturbance agreement satisfactory to both parties from any
existing mortgagee of the property and from any future mortgagee
but only in the event that such future mortgagee requests that
the Tenant postpone or subordinate this lease to such mortgage.
LEASE ENTIRE AGREEMENT
23. The Tenant acknowledges that there are no covenants,
representations, warranties, agreements or conditions expressed
or implied, collateral or otherwise forming part of or in any way
affecting or relating to this Lease save as expressly set out in
this Lease and that this Lease constitutes the entire agreement
between the Landlord and the Tenant and may not be modified
except as herein explicitly provided or except by subsequent
agreement in writing of equal formality hereto executed by the
Landlord and the Tenant.
<PAGE> 35
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REGISTRATION
24. The Tenant covenants and agrees with the Landlord that the Tenant
will not register this Lease in this form in the Registry Office
or the Land Titles Office. If the Tenant desires to make a
registration for the purpose only of giving notice of this Lease,
then the parties hereto shall execute a short form thereof solely
for the purpose of supporting an application for registration of
notice thereof.
OPTION TO RENEW
25. Deleted Intentionally.
NET RENT
26. It is expressly agreed between the Landlord and the Tenant that
it is intended that the rent reserved in this Lease shall be an
absolutely net/net/net return to the Landlord during the Term of
the Lease without regard to the condition of the Leased Premises,
free of any and all costs, expenses, taxes and charges with
respect to the Leased Premises whatsoever, save and except only
taxes which are attributable to the income or profits of the
Landlord and any charges to the Landlord in respect of the
amortization or interest under any mortgage or charge on the
building.
PAYMENTS BY TENANT
27. In addition to any other specific provisions herein contained,
where the Tenant is obligated under the terms of this Lease to
pay any moneys or to do any act involving the payment of money,
and the Tenant shall fail to carry out its obligations after
notice in writing and the expiry of the applicable cure period,
the Landlord may do such act or pay such moneys and charge the
cost of doing such act or the amount of such moneys paid against
the Tenant and may enforce the payment thereof by the Tenant in
the same manner as rent reserved and in arrears under the terms
of this Lease, and the Tenant shall pay unto the Landlord, in
respect of any amount so paid in respect of any rent or
additional rent not paid on the due date thereof, interest at the
rate computed in accordance with Paragraph 3(j) hereof.
POST-DATED CHEQUES
28. Deleted Intentionally.
<PAGE> 36
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INTERPRETATION
29. (a) In this Indenture "herein", "hereof", "hereby", "hereunder",
"hereto", "hereinafter" and similar expressions refer to this
indenture and not to any particular paragraph, section or other
portion thereof, unless there is something in the subject matter
or context inconsistent therewith.
(b) "business day" means any of the days from Monday to Friday of
each week inclusive unless such day is a holiday.
(c) "normal business hours" means the hours from 8:00 a.m. to
6:00 p.m. on business days.
SEVERABILITY OF COVENANTS
30. The Landlord and the Tenant agree that all of the provisions of
this Lease are to be construed as covenants and agreements as
though the words importing such covenants and agreements were
used in each separate paragraph hereof. Should any provision or
provisions of his Lease be illegal or not enforceable it or they
shall be considered separate and severable from the Lease and its
remaining provisions shall remain in force and be binding upon
the parties hereto as though the said provision or provisions had
never been included.
CAPTIONS
31. The captions appearing in this Lease have been inserted as a
matter of convenience and for reference only, and in no way
define, limit or enlarge the scope or meaning of this Lease or of
any provision hereof.
SUCCESSORS & ASSIGNS
32. This indenture and everything herein contained shall enure to the
benefit of and be binding upon the respective heirs, executors,
administrators, successors and assigns and other legal
representatives as the case may be, of each and every of the
parties hereto, and every reference herein to any party hereto
shall include the heirs, executors, administrators, successors
and assigns and other legal representatives of such party, and
where there is more than one tenant, the provisions hereof shall
be read with all grammatical changes thereby rendered necessary,
and all covenants shall be deemed joint and several. The neutral
gender shall include both the masculine and feminine gender.
<PAGE> 37
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ADDITIONAL TAXES
33. If any business transfer tax, value-added tax, multi-stage sales
tax, sales tax, goods and services tax (GST) or any like tax is
imposed on the Landlord by any governmental authority on any rent
payable by the Tenant under this Lease, the Tenant shall
reimburse the Landlord for the amount of such tax forthwith upon
demand as additional rent.
CHANGES TO BUILDING
34. Deleted Intentionally.
GUARANTEE
35(a) Deleted Intentionally. (See attached Rider)
IN WITNESS WHEREOF the parties hereto have hereunto set their
respective hands and seals and/or affixed their corporate seals duly attested to
by the hands of their proper signing officer(s) authorized in that behalf.
SIGNED, SEALED AND DELIVERED
In the presence of: ) 350 PALLADIUM DRIVE INC.
) (LANDLORD)
)
) Per: /s/ Signature Illegible
) Name:
) Position
) I have the authority to bind the
) Corporation
)
) SUKANG INC.
) (LANDLORD)
)
) Per: /s/ Signature Illegible
) Name:
) Position:
) I have the authority to bind the
) Corporation
)
) STANFORD MICRODEVICES (CANADA) INC.
) (TENANT)
)
) Per: /s/ Signature Illegible
) Name: Tom Scannell
) Position: President
) I have the authority to bind the
) Corporation
)
) STANFORD MICRODEVICES INC.
) (as GUARANTOR)
)
) Per: /s/ Signature Illegible
) Name: Tom Scannell
) Position: President
) I have the authority to bind the
) Corporation
<PAGE> 38
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Schedule "A"
Legal Description - Lands
Firstly:
Part of Lot 1, Concession 2
Designated as Part 1 on Plan 4R-14540
Geographic Township of March
City of Kanata
Regional Municipality of Ottawa-Carleton
Land Titles Division of Ottawa-Carleton (No. 4)
Secondly:
Part of Lot 1, Concession 2
Designated as Parts 2 and 3 on Plan 4R-14540
Geographic Township of March
City of Kanata
Regional Municipality of Ottawa-Carleton
Land Titles Division of Ottawa-Carleton (No. 5)
<PAGE> 39
SCHEDULE "B"
FLOOR PLAN
[CHART OMITTED]
<PAGE> 40
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SCHEDULE "C"
Rules and Regulations
The Tenant and its invitees and employees shall observe the following rules and
regulations (as added to, amended or modified from time to time by the
Landlord).
1. SECURITY Landlord may from time to time adopt appropriate systems and
procedures for the security or safety of the Building, any persons
occupying, using or entering the same ,or any equipment finishings or
contents thereof, and Tenant shall comply with Landlord's reasonable
requirements relative thereto.
2. LOCKS Landlord may from time to time install and change locking
mechanisms on the entrances to the Building, common area thereof, and
the Premises, and shall provide to the Tenant a reasonable number of
keys and replacements therefore to meet the bona fide requirements of
the Tenant. In these rules "keys" include any device serving the same
purpose. Tenant shall not add to or change existing locking mechanisms
on any door in or to the Leased Premises without Landlord's prior
written consent and without providing a copy of the key to the Landlord.
If, with Landlord's consent, Tenant installs lock(s)incompatible with
the Building master locking system:
(a) Landlord, without abatement of Rent, shall be relieved of any
obligation under the Lease to provide any service to the
affected areas which require access thereto,
(b) Tenant shall indemnify Landlord against any expense as a result
of forced entry thereto which may be required in an emergency,
and
(c) Tenant shall at the end of the Term and at Landlord's request
remove such lock(s) at Tenant's expense.
3. RETURN OF KEYS At the end of the Term, Tenant shall promptly return
to Landlord all keys for the Building and Leased Premises which are in
possession of Tenant.
4. WINDOWS Tenant shall observe Landlord's rules with respect to
maintaining window coverings at all windows in the Leased Premises so
that the Building presents a uniform exterior appearance, and shall not
install any window shades, screens, drapes, covers or any other on or at
window in the Leased Premises without Landlord's prior written consent.
5. REPAIR, MAINTENANCE, ALTERATIONS AND IMPROVEMENTS Tenant shall carry
out Tenant's repair, maintenance, alterations and improvements in the
Leased Premises only during times agreed to in advance by Landlord
acting reasonably and in a manner in which will not interfere with the
rights of other tenants in the Building.
6. WATER FIXTURES Tenant shall not use water fixtures for any purpose
for which they are not intended, nor shall Tenant tamper in any way with
water fixtures so as to increase water consumption. Tenant shall pay for
any cost or damage resulting from such misuse by Tenant.
7. PERSONAL USE OF LEASED PREMISES The Leased Premises shall not be used
or permitted to be used for residential, lodging or sleeping purposes or
for the storage of personal effects or property not required for
business purposes.
8. HEAVY ARTICLES Tenant shall not place in or move about the Leased
Premises without Landlord's prior written consent any safe or other
heavy article, which in the Landlord's reasonable opinion may damage the
Building and Landlord may designate the location of any heavy articles
in the Leased Premises.
9. CARPET PADS In those portions of the Leased Premises where carpet has
been provided directly or indirectly by Landlord, Tenant shall at its
own expense install and maintain pads to protect the carpet under all
furniture having casters other than carpet casters.
10. BICYCLES, ANIMALS Tenant shall not bring any animals or birds into
the Building and shall not permit bicycles or other vehicles inside or
on the sidewalks outside the Building except in areas designated from
time to time by Landlord for such purposes.
11. DELIVERIES Tenant shall insure that deliveries of materials and
supplies to the Leased Premises are made through such entrances,
elevators and corridors and at such times as may from time to time be
designated by Landlord, and shall promptly pay or cause to be paid to
Landlord the cost of repairing any damage to the Building caused by any
person making such deliveries.
<PAGE> 41
- 32 -
12. FURNITURE AND EQUIPMENT Tenant shall insure that furniture and
equipment being moved into or out of the Leased Premises is moved
through such entrances, elevators and corridors and at such times as may
from time to time be designated by the Landlord, and by movers or a
moving company approved by Landlord and shall promptly pay or cause to
be paid to Landlord the cost of repairing any damage in the Building
caused thereby.
13. SOLICITATIONS Landlord reserves the right to restrict or prohibit
canvassing, soliciting or peddling in the Building.
14. FOOD AND BEVERAGES Tenant shall be permitted the use of the equipment
on the Leased Premises for the dispensation of soft drinks, cold
confectioneries and the like, for the preparation of coffee, tea and the
like, and for the warming of food already prepared. The Tenant shall not
permit on the premise equipment for the preparation of food. In addition
only persons approved from time to time by the Landlord may prepare,
solicit orders for, sell, serve, or distribute foods or beverages in the
Building or use the elevators, corridors or common areas for such
purpose. This however shall not prevent the Tenant from using catering
services from time to time for special occasions as luncheons and
receptions.
15. REFUSE Tenant shall place all refuse in proper receptacles provided
by Tenant at its expense in the Leased Premises or in receptacles (if
any) provided by Landlord for the Building and shall keep sidewalks and
driveways outside the Building and lobbies, corridors, stairwells, ducts
and shafts of the Building free of all refuse.
16. OBSTRUCTIONS Tenant shall not obstruct or place anything in or on the
sidewalks or driveways outside the building or in the lobbies,
corridors, stairwells or other common areas of the Building, or use such
locations for any purpose except access to and exit from the Leased
Premises without Landlord's prior written consent. Landlord may remove
at Tenant's expense any such obstruction or thing (unauthorized by
Landlord) without notice or obligation to Tenant.
17. DANGEROUS OR IMMORAL ACTIVITIES Tenant shall not make any use of the
Leased Premises which involves the danger or injury to any person, nor
shall the same be used for any immoral purpose.
18. PROPER CONDUCT Tenant shall not conduct itself in any manner which is
inconsistent with the character of the Building as a first quality
building or which will impair the comfort and convenience of other
tenants in the building.
19. EMPLOYEES, AGENTS AND INVITEES In these Rules and Regulations, Tenant
includes the employees, agents, invitees and licensees of Tenant and
others permitted by Tenant to use or occupy the Leased Premises.
20. PARKING Subject to the provisions of this Lease, the Tenant, its
employees, agents and suppliers shall park only in those portions of the
parking area on the Land designated for such purposes by the Landlord.
If required by Landlord to control parking, Tenant will provide Landlord
with the license numbers of the cars of Tenant and its employees
authorized to park in the parking area.
21. WINDOWS AND WINDOW COVERINGS The skylights and windows that reflect
or admit light into any place in the Building shall not be covered or
obstructed by the Tenant, and no awnings, curtains or blinds shall be
installed without the prior written consent of the Landlord. Window
coverings that are installed shall have lining on the side facing the
interior side of exterior windows. The Tenant shall not and shall not
permit its employees, agents or invitees to throw anything out the
windows or doors of the Building or into the passageways, stairways,
lightwells or elevators shafts of the Building.
22. SMOKING Smoking is prohibited in all common areas of the Building.
<PAGE> 42
- 33 -
SCHEDULE "D"
LANDLORD'S WORK
The Landlord will at its cost provide to the Tenant a building standard
improvement package based on the preliminary plans outlined in Schedule "B" and
more fully described as follows:
CEILINGS
* Inverted T-bar ceiling grid with lay-in tile, with appropriate air
supply and return fixtures..
HVAC
* Configuration of system to include all supply and return ductwork,
diffusers, grills, dampers and controls, all connected back to the base
building HVAC system. Final distribution to suit Tenant's layout.
LIGHTING
* Lighting will be 20 * 60 2 lamp lay-in T-Bar fluorescent lighting
fixtures with acrylic K12 lens providing a lighting level intensity of
45 foot-candles at desktop height.
MISCELLANEOUS
* Suite Entry and Directory Signage.
* Suite entrance door with one side light and Building standard hardware
and lockset.
SERVICES
* Security card access system for access to the building entrances and
elevator after normal business hours.
* A common mail box will be provided for Tenant
* An electronically zoned fire alarm system located in the plenums on each
floor. The alarm consisting of pull stations next to each exit door,
fire bells smoke detectors, wet sprinkler flow valves and speakers.
ELECTRICAL POWER:
* All distribution wiring and devices, including electrical outlets from
the base building panels.
<PAGE> 43
- 34 -
PLUMBING & MILLWORK
* A standard kitchen sink with upper and lower cabinets as shown on the
plans
FIRE PROTECTION:
* Reconfiguration and or addition of sprinkler system to suit Tenant's
office layout.
WALLS:
* Drywall partitions, painted steel door frames, paint grade doors, finish
hardware in Leased Premises as shown.
FINISHES:
* Wall finishes to be painted, flooring will be 26 oz. carpet except for
the lab area which will be anti-static tile and in front of the kitchen
area which will be vinyl tile.
ARCHITECTURAL, ENGINEERING AND PERMITS
* The Landlord will be responsible for architectural, mechanical and
electrical fees and permits for the interior fit-up drawings for the
Tenant Improvements.
ITEMS NOT INCLUDED
* Furniture Workstations
* Reception Furniture
* Telephone System and Data Cabling
* Custom millwork
* Kitchen Equipment
* Window coverings
<PAGE> 44
- 35 -
SCHEDULE "E" - GUARANTEE
To induce the Landlord to execute and deliver the lease to which this guarantee
is appended and in consideration of the execution and delivery thereof by the
Landlord, the undersigned (the "Guarantor") as principal obligor and not as
surety hereby covenants with the Landlord as follows:
1. The Guarantor hereby unconditionally guarantees all of the obligations
of the Tenant under the Lease and accordingly covenants and agrees with
the Landlord that all the covenants, agreements and other obligations of
the Tenant under the Lease shall, be fully performed, such guarantee
being upon the following terms:
(a) the liability of the Guarantor to the Landlord shall be for all
purposes as if the Guarantor was primary obligor hereunder, and
not merely surety for the obligations of the Tenant, and the
Landlord shall not be obliged to resort to or exhaust any
recourse which it may have against the Tenant or any other person
before being entitled to claim against the Guarantor,
(b) no dealings between the Landlord and the Tenant of whatsoever
kind, whether with or without notice to the Guarantor, shall
exonerate the Guarantor in whole or in part, and in particular,
and without limiting the generality of the foregoing, the
Landlord may modify or amend the Lease, grant any indulgence,
release, postponement or extension of time, waive any covenant or
provision of the Lease or any obligation of the Tenant, take or
release any securities or other guarantees for performance by the
Tenant, and otherwise deal with the Tenant and any other persons
as the Landlord may see fit without affecting, lessening or
limiting in any way the liability of the Guarantor,
(c) any account settled or stated or any other settlement made
between the Landlord and the Tenant, and any determination made
pursuant to any provision of the Lease which is expressed to be
binding upon the Tenant shall, be binding upon the Guarantor,
(d) the Guarantor shall make payment to the Landlord of any amount
properly payable by the Tenant to the Landlord but unpaid, upon
demand, and shall upon demand, perform any other obligations
under the Lease which the Tenant has failed to perform, and any
demand made by the Landlord upon the Guarantor shall be deemed to
have been made if sent as provided for in the Lease,
(e) unless the Landlord consents to an assignment of the Lease
pursuant to section 4(g) thereof, no assignment of the Lease,
sublease or any other dealings therewith by the Tenant, whether
with or without the consent of the Landlord, shall affect the
guarantee throughout the term of the Lease. For greater
clarification, the Tenant and the Guarantor shall be released
from all obligations under the Lease and the Guarantee
respectively upon an assignment of the Lease to which the
Landlord has consented under section 4(g).
(f) nothing whatsoever except the performance in full of all the
obligations of the Tenant under the Lease throughout the term of
the Lease, and any extension thereof or overholding thereunder
shall discharge the Guarantor or this guarantee.
2. This guarantee shall, enure to the benefit of and be binding upon the
parties hereto and, as permitted herein, their respective heirs,
administrators, personal representatives, executors, successors and
assigns.
3. The Guarantor hereby waives and renounces any right to terminate the
present Guarantee, at any time or by any means.
4. The Landlord hereby agrees to provide the Guarantor with a copy of any
notice delivered by the Landlord to the Tenant hereunder concurrently
with delivery of such notice to the Tenant and the Guarantor designates
the following address of service for the Guarantor:
Stanford Microdevices Inc.
522 ALMANOR AVENUE
Sunnyvale, California 94086
or such other address as may be provided in writing to the Landlord in
accordance with the Lease.
Dated this _____________ day of December, 1999.
STANFORD MICRODEVICES INC.
PER:
/s/ Signature Illegible
- ---------------------------------------------------------
Guarantor: I have the authority to bind the corporation
SUKANG INC. AS TO 45% AND 350 PALLADIUM DRIVE INC. AS TO 55%
PER:
/s/ Signature Illegible
- ---------------------------------------------------------
Landlord: I have the authority to bind the corporation
<PAGE> 1
EXHIBIT 10.18
LEASE AGREEMENT
BY AND BETWEEN
AETNA LIFE INSURANCE COMPANY,
a Connecticut corporation
AS LANDLORD
and
STANFORD MICRODEVICES, INC.,
a Delaware corporation
AS TENANT
Dated January 14, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Basic Lease Information iv
1. Demise 1
2. Premises 1
3. Term 2
4. Rent 2
5. Utility Expenses 6
6. Late Charge 7
7. Security Deposit 7
8. Possession 8
9. Use of Premises 8
10. Acceptance of Premises 10
11. Surrender 10
12. Alterations and Additions 11
13. Maintenance and Repairs of Premises 13
14. Landlord's Insurance 14
15. Tenant's Insurance 14
16. Indemnification 15
17. Subrogation 16
18. Signs 16
19. Free From Liens 17
20. Entry By Landlord 17
21. Destruction and Damage 17
22. Condemnation 19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
23. Assignment and Subletting 20
24. Tenant's Default 23
25. Landlord's Remedies 24
26. Landlord's Right to Perform Tenant's Obligations 27
27. Attorneys' fees 27
28. Taxes 28
29. Effect of Conveyance 28
30. Tenant's Estoppel Certificate 28
31. Subordination 29
32. Environmental Covenants 29
33. Notices 32
34. Waiver 33
35. Holding Over 33
36. Successors and Assigns 33
37. Time 33
38. Brokers 33
39. Limitation of Liability 34
40. Financial Statements 34
41. Rules and Regulations 34
42. Mortgagee Protection 34
43. Entire Agreement 35
44. Interest 35
45. Construction 35
46. Representations and Warranties of Tenant 36
47. Security 36
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
48. Jury Trial Waiver 36
</TABLE>
<TABLE>
<CAPTION>
Exhibit
<S> <C>
A Diagram of the Premises
B Tenant Improvements
B-1 Final Plans and Specifications for Tenant
Improvements
C Commencement and Expiration Date
Memorandum
D Rules and Regulations
E Hazardous Materials Disclosure Certificate
</TABLE>
iii
<PAGE> 5
LEASE AGREEMENT
BASIC LEASE INFORMATION
Lease Date: January 14, 2000
Landlord: AETNA LIFE INSURANCE COMPANY,
a Connecticut corporation
Landlord's Address: c/o UBS Brinson Realty Investors LLC
455 Market Street, Suite 1540
San Francisco, California 94105
Attention: Asset Manager,
UBS Brinson Business Center
All notices sent to Landlord under
this Lease shall be sent to the
above address, with copies to:
Insignia Commercial Group, Inc.
160 West Santa Clara Street, Suite 1350
San Jose, California 95113
Attention: Property Manager,
UBS Brinson Business Center
Tenant: STANFORD MICRODEVICES, INC.,
a Delaware corporation
Tenant's Contact Person: Susan O'Campo
Tenant's Address and 522 Almanor Avenue
Telephone Number: Sunnyvale, California 94086
(408) 616-5499
Premises Square Footage: Approximately Ten Thousand (10,000) rentable
square feet
Premises Address: 726 Palomar Avenue
Sunnyvale, California
Project: 720-726 Palomar Avenue, Sunnyvale, California,
together with the land on which the Project is
situated and all Common Areas
Building (if not the same as
the Project): Same as the Project
iv
<PAGE> 6
Tenant's Proportionate Share
of Project: 50%
Tenant's Proportionate Share
of Building: 50%
Length of Term: Sixty (60) months
Estimated Commencement
Date: February 1, 2000
Estimated Expiration Date: January 31, 2005
<TABLE>
<CAPTION>
Monthly Base Rent: Monthly Base Monthly Base
Months Sq. Ft. Rate Rent
<S> <C> <C> <C> <C>
1-12 10,000 x $2.15 =$21,500.00
13-24 10,000 x $2.24 = $22,400.00
25-36 10,000 x $2.33 = $23,300.00
37-48 10,000 x $2.42 = $24,200.00
49-60 10,000 x $2.52 = $25,200.00
</TABLE>
Prepaid Base Rent: Twenty One Thousand Five Hundred Dollars
($21,500.00)
Prepaid Additional Rent: Two Thousand Five Hundred Forty Six and 16/100
Dollars ($2,546.16)
Month to which Prepaid Base
Rent and Additional Rent will
be Applied: First (1st) month of the Term
Security Deposit: Fifty Thousand Dollars ($50,000.00)
Permitted Use: General office and sales and engineering of
microwave devices
Unreserved Parking Spaces: Thirty-five (35) nonexclusive and undesignated
parking spaces
Brokers: (1) BT Commercial and Cornish & Carey
Commercial (collectively, Landlord's Broker)
(2) Grubb & Ellis Company (Tenant's Broker)
v
<PAGE> 7
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into by and between Landlord
and Tenant on the Lease Date. The defined terms used in this Lease which are
defined in the Basic Lease Information attached to this Lease Agreement ("BASIC
LEASE INFORMATION") shall have the meaning and definition given them in the
Basic Lease Information. The Basic Lease Information, the exhibits, the addendum
or addenda described in the Basic Lease Information, and this Lease Agreement
are and shall be construed as a single instrument and are referred to herein as
the "LEASE".
1. DEMISE
In consideration for the rents and all other charges and payments
payable by Tenant, and for the agreements, terms and conditions to be performed
by Tenant in this Lease, LANDLORD DOES HEREBY LEASE TO TENANT, AND TENANT DOES
HEREBY HIRE AND TAKE FROM LANDLORD, the Premises described below (the
"PREMISES"), upon the agreements, terms and conditions of this Lease for the
Term hereinafter stated.
2. PREMISES
The Premises demised by this Lease is located in that certain building
(the "BUILDING") specified in the Basic Lease Information, which Building is
located in that certain real estate development (the "PROJECT") specified in the
Basic Lease Information. The Premises has the address and contains the square
footage specified in the Basic Lease Information. The location and dimensions of
the Premises are depicted on Exhibit A, which is attached hereto and
incorporated herein by this reference; provided, however, that any statement of
square footage set forth in this Lease, or that may have been used in
calculating any of the economic terms hereof, is an approximation which Landlord
and Tenant agree is reasonable and, except as expressly set forth in Paragraph
4(c)(iii) below, no economic terms based thereon shall be subject to revision
whether or not the actual square footage is more or less. Tenant shall have the
non-exclusive right (in common with the other tenants, Landlord and any other
person granted use by Landlord) to use the Common Areas (as hereinafter
defined), except that, with respect to parking, Tenant shall have only a license
to use the number of non-exclusive and undesignated parking spaces set forth in
the Basic Lease Information in the Project's parking areas (the "PARKING
AREAS"); provided, however, that Landlord shall not be required to enforce
Tenant's right to use such parking spaces; and, provided further, that the
number of parking spaces allocated to Tenant hereunder shall be reduced on a
proportionate basis in the event any of the parking spaces in the Parking Areas
are taken or otherwise eliminated as a result of any Condemnation (as
hereinafter defined) or casualty event affecting such Parking Areas. No easement
for light or air is incorporated in the Premises. For purposes of this Lease,
the term "COMMON AREAS" shall mean all areas and facilities outside the Premises
and within the exterior boundary line of the Project that are provided and
designated by Landlord for the non-exclusive use of Landlord, Tenant and other
tenants of the Project and their respective employees, guests and invitees.
The Premises demised by this Lease shall include the Tenant Improvements
(as that term is defined in the tenant improvement work agreement attached
hereto as Exhibit B) to be
1
<PAGE> 8
constructed by Landlord within the interior of the Premises. Landlord shall
construct the Tenant Improvements on the terms and conditions set forth in
EXHIBIT B. Landlord and Tenant agree to and shall be bound by the terms and
conditions of EXHIBIT B.
Landlord has the right, in its sole discretion, from time to time, to:
(a) make changes to the Common Areas, including, without limitation, changes in
the location, size, shape and number of driveways, entrances, parking spaces,
parking areas, ingress, egress, direction of driveways, entrances, corridors and
walkways; (b) close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available; (c) add
additional buildings and improvements to the Common Areas or remove existing
buildings or improvements therefrom; (d) use the Common Areas while engaged in
making additional improvements, repairs or alterations to the Project or any
portion thereof; and (e) do and perform any other acts or make any other changes
in, to or with respect to the Common Areas and the Project as Landlord may, in
its sole discretion, deem to be appropriate.
3. TERM
The term of this Lease (the "TERM") shall be for the period of months
specified in the Basic Lease Information, commencing on the earliest to occur of
the following dates (the "COMMENCEMENT DATE"):
(a) The date the Tenant Improvements are approved by the appropriate
governmental agency as being in accordance with its building code and the
building permit issued for such improvements, as evidenced by the issuance of a
final building inspection approval; or
(b) The date Landlord's architect and general contractor have both
certified in writing to Tenant that the Tenant Improvements have been
substantially completed in accordance with the plans and specifications
therefor; or
(c) The date Tenant commences occupancy of the Premises.
In the event the actual Commencement Date, as determined pursuant to the
foregoing, is a date other than the Estimated Commencement Date specified in the
Basic Lease Information, then Landlord and Tenant shall promptly execute a
Commencement and Expiration Date Memorandum in the form attached hereto as
Exhibit C, wherein the parties shall specify the Commencement Date and the date
on which the Term expires (the "EXPIRATION DATE").
4. RENT
(a) BASE RENT. Tenant shall pay to Landlord, in advance on the first day
of each month, without further notice or demand and without offset, rebate,
credit or deduction for any reason whatsoever, the monthly installments of rent
specified in the Basic Lease Information (the "BASE RENT").
Upon execution of this Lease, Tenant shall pay to Landlord the Prepaid
Rent and first monthly installment of estimated Additional Rent (as hereinafter
defined) specified in the Basic Lease Information to be applied toward Base Rent
and Additional Rent for the month of the Term specified in the Basic Lease
Information.
2
<PAGE> 9
(b) ADDITIONAL RENT. This Lease is intended to be a triple-net Lease
with respect to Landlord; and subject to Paragraph 13(b) below, the Base Rent
owing hereunder is (i) to be paid by Tenant absolutely net of all costs and
expenses relating to Landlord's ownership and operation of the Project and the
Building, and (ii) not to be reduced, offset or diminished, directly or
indirectly, by any cost, charge or expense payable hereunder by Tenant or by
others in connection with the Premises, the Building and/or the Project or any
part thereof. The provisions of this Paragraph 4(b) for the payment of Tenant's
Proportionate Share(s) of Expenses (as hereinafter defined) are intended to pass
on to Tenant its share of all such costs and expenses. In addition to the Base
Rent, Tenant shall pay to Landlord, in accordance with this Paragraph 4,
Tenant's Proportionate Share(s) of all costs and expenses paid or incurred by
Landlord in connection with the ownership, operation, maintenance, management
and repair of the Premises, the Building and/or the Project or any part thereof
(collectively, the "EXPENSES"), including, without limitation, all the following
items (the "ADDITIONAL RENT"):
(i) Taxes and Assessments. All real estate taxes and assessments,
which shall include any form of tax, assessment, fee, license fee, business
license fee, levy, penalty (if a result of Tenant's delinquency), or tax (other
than net income, estate, succession, inheritance, transfer or franchise taxes),
imposed by any authority having the direct or indirect power to tax, or by any
city, county, state or federal government or any improvement or other district
or division thereof, whether such tax is (A) determined by the area of the
Premises, the Building and/or the Project or any part thereof, or the Rent and
other sums payable hereunder by Tenant or by other tenants, including, but not
limited to, any gross income or excise tax levied by any of the foregoing
authorities with respect to receipt of Rent and/or other sums due under this
Lease; (B) upon any legal or equitable interest of Landlord in the Premises, the
Building and/or the Project or any part thereof; (C) upon this transaction or
any document to which Tenant is a party creating or transferring any interest in
the Premises, the Building and/or the Project; (D) levied or assessed in lieu
of, in substitution for, or in addition to, existing or additional taxes against
the Premises, the Building and/or the Project, whether or not now customary or
within the contemplation of the parties; or (E) surcharged against the parking
area. Tenant and Landlord acknowledge that Proposition 13 was adopted by the
voters of the State of California in the June, 1978 election and that
assessments, taxes, fees, levies and charges may be imposed by governmental
agencies for such purposes as fire protection, street, sidewalk, road, utility
construction and maintenance, refuse removal and for other governmental services
which may formerly have been provided without charge to property owners or
occupants. It is the intention of the parties that all new and increased
assessments, taxes, fees, levies and charges due to any cause whatsoever are to
be included within the definition of real property taxes for purposes of this
Lease. "Taxes and assessments" shall also include legal and consultants' fees,
costs and disbursements incurred in connection with proceedings to contest,
determine or reduce taxes, Landlord specifically reserving the right, but not
the obligation, to contest by appropriate legal proceedings the amount or
validity of any taxes.
(ii) Insurance. All insurance premiums for the Building and/or
the Project or any part thereof, including premiums for "all risk" fire and
extended coverage insurance, commercial general liability insurance, rent loss
or abatement insurance, earthquake insurance, flood or surface water coverage,
and other insurance as Landlord deems necessary in its sole discretion, and any
deductibles paid under policies of any such insurance.
3
<PAGE> 10
(iii) Utilities. The cost of all Utilities (as hereinafter
defined) serving the Premises, the Building and the Project that are not
separately metered to Tenant, any assessments or charges for Utilities or
similar purposes included within any tax bill for the Building or the Project,
including, without limitation, entitlement fees, allocation unit fees, and/or
any similar fees or charges and any penalties (if a result of Tenant's
delinquency) related thereto, and any amounts, taxes, charges, surcharges,
assessments or impositions levied, assessed or imposed upon the Premises, the
Building or the Project or any part thereof, or upon Tenant's use and occupancy
thereof, as a result of any rationing of Utility services or restriction on
Utility use affecting the Premises, the Building and/or the Project, as
contemplated in Paragraph 5 below (collectively, "UTILITY EXPENSES").
(iv) Common Area Expenses. All costs to operate, maintain,
repair, replace, supervise, insure and administer the Common Areas, including
supplies, materials, labor and equipment used in or related to the operation and
maintenance of the Common Areas, including parking areas (including, without
limitation, all costs of resurfacing and restriping parking areas), signs and
directories on the Building and/or the Project, landscaping (including
maintenance contracts and fees payable to landscaping consultants), amenities,
sprinkler systems, sidewalks, walkways, driveways, curbs, lighting systems and
security services, if any, provided by Landlord for the Common Areas, and any
charges, assessments, costs or fees levied by any association or entity of which
the Project or any part thereof is a member or to which the Project or any part
thereof is subject.
(v) Parking Charges. Any parking charges or other costs levied,
assessed or imposed by, or at the direction of, or resulting from statutes or
regulations, or interpretations thereof, promulgated by any governmental
authority or insurer in connection with the use or occupancy of the Building or
the Project.
(vi) Maintenance and Repair Costs. Except for costs which are the
responsibility of Landlord pursuant to Paragraph 13(b) below, all costs to
maintain, repair, and replace the Premises, the Building and/or the Project or
any part thereof, including, without limitation, (A) all costs paid under
maintenance, management and service agreements such as contracts for janitorial,
security and refuse removal, (B) all costs to maintain, repair and replace the
roof coverings of the Building or the Project or any part thereof, (C) all costs
to maintain, repair and replace the heating, ventilating, air conditioning,
plumbing, sewer, drainage, electrical, fire protection, life safety and security
systems and other mechanical and electrical systems and equipment serving the
Premises, the Building and/or the Project or any part thereof (collectively, the
"SYSTEMS"), and (D) all costs and expenses incurred in causing the Project to be
Year 2000 Compliant (as defined below). "YEAR 2000 COMPLIANT" shall mean that
all Systems containing or using computers or other information technology will
function without material error or interruption resulting from the date change
from year 1999 to year 2000, to the extent that information technology of third
parties properly communicates date/time data with the Systems.
(vii) Life Safety Costs. All costs to install, maintain, repair
and replace all life safety systems, including, without limitation, all fire
alarm systems, serving the Premises, the Building and/or the Project or any part
thereof (including all maintenance contracts and fees payable to life safety
consultants) whether such systems are or shall be required by Landlord's
insurance carriers, Laws (as hereinafter defined) or otherwise.
4
<PAGE> 11
(viii) Management and Administration. All costs for management
and administration of the Premises, the Building and/or the Project or any part
thereof, 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 fees for licenses and permits related to the ownership
and operation of the Project.
Notwithstanding anything in this Paragraph 4(b) to the contrary,
with respect to all sums payable by Tenant as Additional Rent under this
Paragraph 4(b) for the replacement of any item or the construction of any new
item in connection with the physical operation of the Premises, the Building or
the Project (i.e., HVAC, roof membrane or coverings and parking area) which is a
capital item the replacement of which would be capitalized under Landlord's
commercial real estate accounting practices, Tenant shall be required to pay
only the prorata share of the cost of the item falling due within the Term
(including any Renewal Term) based upon the amortization of the same over the
useful life of such item, as reasonably determined by Landlord.
(c) Payment of Additional Rent.
(i) Upon commencement of this Lease, Landlord shall submit to
Tenant an estimate of monthly Additional Rent for the period between the
Commencement Date and the following December 31 and Tenant shall pay such
estimated Additional Rent on a monthly basis, in advance, on the first day of
each month. Tenant shall continue to make said monthly payments until notified
by Landlord of a change therein. If at any time or times Landlord determines
that the amounts payable under Paragraph 4(b) for the current year will vary
from Landlord's estimate given to Tenant, Landlord, by notice to Tenant, may
revise the estimate for such year, and subsequent payments by Tenant for such
year shall be based upon such revised estimate. By April 1 of each calendar
year, Landlord shall endeavor to provide to Tenant a statement showing the
actual Additional Rent due to Landlord for the prior calendar year, to be
prorated during the first year from the Commencement Date. If the total of the
monthly payments of Additional Rent that Tenant has made for the prior calendar
year is less than the actual Additional Rent chargeable to Tenant for such prior
calendar year, then Tenant shall pay the difference in a lump sum within ten
(10) days after receipt of such statement from Landlord. Any overpayment by
Tenant of Additional Rent for the prior calendar year shall be credited towards
the Additional Rent next due.
(ii) Landlord's then-current annual operating and capital budgets
for the Building and the Project or the pertinent part thereof shall be used for
purposes of calculating Tenant's monthly payment of estimated Additional Rent
for the current year, subject to adjustment as provided above. Landlord shall
make the final determination of Additional Rent for the year in which this Lease
terminates as soon as possible after termination of such year. Even though the
Term has expired and Tenant has vacated the Premises, Tenant shall remain liable
for payment of any amount due to Landlord in excess of the estimated Additional
Rent previously paid by Tenant, and, conversely, Landlord shall promptly return
to Tenant any overpayment. Failure of Landlord to submit statements as called
for herein shall not be deemed a waiver of Tenant's obligation to pay Additional
Rent as herein provided.
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(iii) With respect to Expenses which Landlord allocates to the
Building, Tenant's "Proportionate Share" shall be the percentage set forth in
the Basic Lease Information as Tenant's Proportionate Share of the Building, as
adjusted by Landlord from time to time for a remeasurement of or changes in the
physical size of the Premises or the Building, whether such changes in size are
due to an addition to or a sale or conveyance of a portion of the Building or
otherwise. With respect to Expenses which Landlord allocates to the Project as a
whole or to only a portion of the Project, Tenant's "PROPORTIONATE SHARE" shall
be, with respect to Expenses which Landlord allocates to the Project as a whole,
the percentage set forth in the Basic Lease Information as Tenant's
Proportionate Share of the Project and, with respect to Expenses which Landlord
allocates to only a portion of the Project, a percentage calculated by Landlord
from time to time in its sole discretion and furnished to Tenant in writing, in
either case as adjusted by Landlord from time to time for a remeasurement of or
changes in the physical size of the Premises or the Project, whether such
changes in size are due to an addition to or a sale or conveyance of a portion
of the Project or otherwise. Notwithstanding the foregoing, Landlord may
equitably adjust Tenant's Proportionate Share(s) for all or part of any item of
expense or cost reimbursable by Tenant that relates to a repair, replacement, or
service that benefits only the Premises or only a portion of the Building and/or
the Project or that varies with the occupancy of the Building and/or the
Project. Without limiting the generality of the foregoing, Tenant understands
and agrees that Landlord shall have the right to adjust Tenant's Proportionate
Share(s) of any Utility Expenses based upon 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 of Utility Expenses, then Tenant
shall either pay the estimated amount or cause the Premises to be separately
metered at Tenant's sole expense.
(d) GENERAL PAYMENT TERMS. The Base Rent, Additional Rent and all other
sums payable by Tenant to Landlord hereunder, including, without limitation, any
late charges assessed pursuant to Paragraph 6 below and any interest assessed
pursuant to Paragraph 44 below, are referred to as the "Rent". All Rent shall be
paid without deduction, offset or abatement in lawful money of the United States
of America. Checks are to be made payable to Aetna Life Insurance Company and
shall be mailed to: UBS Brinson Business Center, Department #44820, San
Francisco, California 94144-4820, or to such other person or place as Landlord
may, from time to time, designate to Tenant in writing. The Rent for any
fractional part of a calendar month at the commencement or termination of the
Lease term shall be a prorated amount of the Rent for a full calendar month
based upon a thirty (30) day month.
5. UTILITY EXPENSES
(a) Tenant shall pay the cost of all water, sewer use, sewer discharge
fees and permit costs and sewer connection fees, gas, heat, electricity, refuse
pick-up, janitorial service, telephone and all materials and services or other
utilities (collectively, "UTILITIES") billed or metered separately to the
Premises and/or Tenant, together with all taxes, assessments, charges and
penalties added to or included within such cost. Tenant acknowledges that the
Premises, the Building and/or the Project 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
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jurisdiction thereof. Tenant acknowledges and agrees that its tenancy and
occupancy hereunder shall be subject to such rationing or restrictions as may be
imposed upon Landlord, Tenant, the Premises, the Building and/or 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. Tenant agrees to comply with energy conservation programs
implemented by Landlord by reason of rationing, restrictions or Laws.
(b) Landlord shall not be liable for any loss, injury or damage to
property caused by or resulting from any variation, interruption, or failure of
Utilities due to any cause whatsoever, or from failure to make any repairs or
perform any maintenance. No temporary interruption or failure of such services
incident to the making of repairs, alterations, improvements, or due to
accident, strike, or conditions or other events shall be deemed an eviction of
Tenant or relieve Tenant from any of its obligations hereunder. In no event
shall Landlord be liable to Tenant for any damage to the Premises or for any
loss, damage or injury to any property therein or thereon occasioned by
bursting, rupture, leakage or overflow of any plumbing or other pipes
(including, without limitation, water, steam, and/or refrigerant lines),
sprinklers, tanks, drains, drinking fountains or washstands, or other similar
cause in, above, upon or about the Premises, the Building, or the Project.
6. LATE CHARGE
Notwithstanding any other provision of this Lease, Tenant hereby
acknowledges that late payment to Landlord of Rent, or other amounts due
hereunder will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. If any Rent or
other sums due from Tenant are not received by Landlord or by Landlord's
designated agent within five (5) days after their due date, then Tenant shall
pay to Landlord a late charge equal to five percent (5%) of such overdue amount,
plus any costs and attorneys' fees incurred by Landlord by reason of Tenant's
failure to pay Rent and/or other charges when due hereunder. Landlord and Tenant
hereby agree that such late charges represent a fair and reasonable estimate of
the cost that Landlord will incur by reason of Tenant's late payment and shall
not be construed as a penalty. Landlord's acceptance of such late charges shall
not constitute a waiver of Tenant's default with respect to such overdue amount
or estop Landlord from exercising any of the other rights and remedies granted
under this Lease.
INITIALS: /s/ Signature Illegible /s/ Signature Illegible
Landlord Tenant
7. SECURITY DEPOSIT
Concurrently with Tenant's execution of the Lease, Tenant shall deposit
with Landlord the Security Deposit specified in the Basic Lease Information as
security for the full and faithful performance of each and every term, covenant
and condition of this Lease. Landlord may use, apply or retain the whole or any
part of the Security Deposit as may be reasonably necessary (a) to remedy
Tenant's default in the payment of any Rent, (b) to repair damage to the
Premises caused by Tenant, (c) to clean the Premises upon termination of this
Lease, (d) to reimburse Landlord for the payment of any amount which Landlord
may reasonably spend or be required to spend by reason of Tenant's default, or
(e) to compensate Landlord for any other loss or damage
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which Landlord may suffer by reason of Tenant's default. Should Tenant
faithfully and fully comply with all of the terms, covenants and conditions of
this Lease, within thirty (30) days following the expiration of the Term, the
Security Deposit or any balance thereof shall be returned to Tenant or, at the
option of Landlord, to the last assignee of Tenant's interest in this Lease.
Landlord shall not be required to keep the Security Deposit separate from its
general funds and Tenant shall not be entitled to any interest on such deposit.
If Landlord so uses or applies all or any portion of said deposit, within five
(5) days after written demand therefor Tenant shall deposit cash with Landlord
in an amount sufficient to restore the Security Deposit to the full extent of
the above amount, and Tenant's failure to do so shall be a default under this
Lease. In the event Landlord transfers its interest in this Lease, Landlord
shall transfer the then remaining amount of the Security Deposit to Landlord's
successor in interest, and thereafter Landlord shall have no further liability
to Tenant with respect to such Security Deposit.
8. POSSESSION
(a) TENANT'S RIGHT OF POSSESSION. Subject to Paragraph 8(b), Tenant
shall be entitled to possession of the Premises upon commencement of the Term.
(b) DELAY IN DELIVERING POSSESSION. If for any reason whatsoever,
Landlord cannot deliver possession of the Premises to Tenant on or before the
Estimated Commencement Date, this Lease shall not be void or voidable, nor shall
Landlord, or Landlord's agents, advisors, employees, partners, shareholders,
directors, invitees or independent contractors (collectively, "LANDLORD'S
AGENTS"), be liable to Tenant for any loss or damage resulting therefrom. Tenant
shall not be liable for Rent until Landlord delivers possession of the Premises
to Tenant. The Expiration Date shall be extended by the same number of days that
Tenant's possession of the Premises was delayed beyond the Estimated
Commencement Date.
(c) EARLY OCCUPANCY. Notwithstanding the provisions of Paragraph 8(a)
above, Tenant shall be permitted to enter upon the Premises at times convenient
to Landlord during the fourteen (14) day period prior to the Commencement Date
for the sole purpose of installing furniture and telephone and data lines and
preparing the Premises for Tenant's occupancy; provided, however, that prior to
any such entry, Tenant shall provide Landlord with proof of Tenant's insurance
as set forth in Paragraph 15 of this Lease. Such entry upon the Premises shall
be subject to all of the provisions of this Lease, except that Tenant shall not
be required to pay Base Rent or Additional Rent as long as Tenant is not
operating its business in the Premises during such early possession period. All
materials, work, installations, equipment and decorations of any nature brought
upon or installed by Tenant in the Premises prior to the Commencement Date shall
be at Tenant's sole risk.
9. USE OF PREMISES
(a) PERMITTED USE. The use of the Premises by Tenant and Tenant's
agents, advisors, employees, partners, shareholders, directors, invitees and
independent contractors (collectively, "TENANT'S AGENTS") shall be solely for
the Permitted Use specified in the Basic Lease Information and for no other use.
Notwithstanding anything in this Lease to the contrary, Tenant acknowledges and
agrees that it shall have no right to use, and shall expressly be prohibited
from using, (i) the Premises for manufacturing or assembly purposes of any kind,
and (ii) Hazardous
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Materials of any type in or about the Premises at any time. Tenant shall not
permit any objectionable or unpleasant odor, smoke, dust, gas, noise or
vibration to emanate from or near the Premises. The Premises shall not be used
to create any nuisance or trespass, for any illegal purpose, for any purpose not
permitted by Laws, for any purpose that would invalidate the insurance or
increase the premiums for insurance on the Premises, the Building or the Project
or for any purpose or in any manner that would interfere with other tenants' use
or occupancy of the Project. If any of Tenant's office machines or equipment
disturb any other tenant in the Building, then Tenant shall provide adequate
insulation or take such other action as may be necessary to eliminate the noise
or disturbance. Tenant agrees to pay to Landlord, as Additional Rent, any
increases in premiums on policies resulting from Tenant's Permitted Use or any
other use or action by Tenant or Tenant's Agents which increases Landlord's
premiums or requires additional coverage by Landlord to insure the Premises.
Tenant agrees not to overload the floor(s) of the Building.
(b) COMPLIANCE WITH GOVERNMENTAL REGULATIONS AND PRIVATE RESTRICTIONS.
Tenant and Tenant's Agents shall, at Tenant's expense, faithfully observe and
comply with (i) all municipal, state and federal laws, statutes, codes, rules,
regulations, ordinances, requirements, and orders (collectively, "LAWS"), now in
force or which may hereafter be in force pertaining to the Premises or Tenant's
use of the Premises, the Building or the Project, including, without limitation,
any Laws requiring installation of fire sprinkler systems, seismic reinforcement
and related alterations, and removal of asbestos, whether substantial in cost or
otherwise; provided, however, that except as provided in Paragraph 9(c) below,
Tenant shall not be required to make or, except as provided in Paragraph 4
above, pay for, structural changes to the Premises or the Building not related
to Tenant's specific use of the Premises unless the requirement for such changes
is imposed as a result of any improvements or additions made or proposed to be
made at Tenant's request; (ii) all recorded covenants, conditions and
restrictions affecting the Project ("PRIVATE RESTRICTIONS") now in force or
which may hereafter be in force; and (iii) any and all rules and regulations set
forth in EXHIBIT D and any other rules and regulations now or hereafter
promulgated by Landlord related to parking or the operation of the Premises, the
Building and/or the Project (collectively, the "RULES AND REGULATIONS"). The
judgment of any court of competent jurisdiction, or the admission of Tenant in
any action or proceeding against Tenant, whether Landlord be a party thereto or
not, that Tenant has violated any such Laws or Private Restrictions, shall be
conclusive of that fact as between Landlord and Tenant.
(c) COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Landlord and Tenant
hereby agree and acknowledge that the Premises, the Building and/or the Project
may be subject to, among other Laws, 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, and all regulations and guidelines
related thereto, together with any and all laws, rules, regulations, ordinances,
codes and statutes now or hereafter enacted by local or state agencies having
jurisdiction thereof, including all requirements of Title 24 of the State of
California, as the same may be in effect on the date of this Lease and may be
hereafter modified, amended or supplemented (collectively, the "ADA"). Any
Tenant Improvements to be constructed hereunder shall be in compliance with the
requirements of the ADA, and all costs incurred for purposes of compliance
therewith shall be a part of and included in the costs of the Tenant
Improvements. Tenant shall be solely responsible for conducting its own
independent investigation of this matter and for ensuring that the design of all
Tenant Improvements strictly complies with all requirements of the ADA. Subject
to
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reimbursement pursuant to Paragraph 4 above, if any barrier removal work or
other work is required to the Building, the Common Areas or the Project under
the ADA, then such work shall be the responsibility of Landlord; provided that,
if such work is required under the ADA as a result of Tenant's use of the
Premises or any work or Alteration (as hereinafter defined) made to the Premises
by or on behalf of Tenant, then such work shall be performed by Landlord at the
sole cost and expense of Tenant. Except as otherwise expressly provided in this
provision, Tenant shall be responsible at its sole cost and expense for fully
and faithfully complying with all applicable requirements of the ADA, including,
without limitation, not discriminating against any disabled persons in the
operation of Tenant's business in or about the Premises, and offering or
otherwise providing auxiliary aids and services as, and when, required by the
ADA. Within ten (10) days after receipt, Tenant shall advise Landlord in
writing, and provide Landlord with copies of (as applicable), any notices
alleging violation of the ADA relating to any portion of the Premises, the
Building or the Project; any claims made or threatened orally or in writing
regarding noncompliance with the ADA and relating to any portion of the
Premises, the Building, or the Project; or any governmental or regulatory
actions or investigations instituted or threatened regarding noncompliance with
the ADA and relating to any portion of the Premises, the Building or the
Project. Tenant shall and hereby agrees to protect, defend (with counsel
acceptable to Landlord) and hold Landlord and Landlord's Agents harmless and
indemnify Landlord and Landlord's Agents from and against all liabilities,
damages, claims, losses, penalties, judgments, charges and expenses (including
attorneys' fees, costs of court and expenses necessary in the prosecution or
defense of any litigation including the enforcement of this provision) arising
from or in any way related to, directly or indirectly, Tenant's or Tenant's
Agents' violation or alleged violation of the ADA. Tenant agrees that the
obligations of Tenant herein shall survive the expiration or earlier termination
of this Lease
10. ACCEPTANCE OF PREMISES
(a) By entry hereunder, Tenant accepts the Premises as suitable for
Tenant's intended use and as being in good and sanitary operating order,
condition and repair, AS IS, and without representation or warranty by Landlord
as to the condition, use or occupancy which may be made thereof. Any exceptions
to the foregoing must be by written agreement executed by Landlord and Tenant.
(b) Notwithstanding the terms of Paragraph 10(a), Landlord shall cause
the mechanical, electrical and plumbing systems serving the Premises to be in
good working order and the roof on the Building to be in good condition on the
Commencement Date. Any claims by Tenant under the preceding sentence shall be
made in writing not later than the tenth (10th) day after the Commencement Date.
In the event Tenant fails to deliver a written claim to Landlord on or before
such tenth (10th) day, then Landlord shall be conclusively deemed to have
satisfied its obligations under this Paragraph 10(b).
11. SURRENDER
Tenant agrees that on the last day of the Term, or on the sooner
termination of this Lease, Tenant shall surrender the Premises to Landlord (a)
in good condition and repair (damage by acts of God, fire, and normal wear and
tear excepted), but with all interior walls painted or cleaned so they appear
painted, 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
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working order, and (b) otherwise in accordance with Paragraph 32(h). Normal wear
and tear shall not include any damage or deterioration to the floors of the
Premises arising from the use of forklifts in, on or about the Premises
(including, without limitation, any marks or stains on any portion of the
floors), and 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 sooner termination
of this Lease, (i) Tenant shall remove all of Tenant's Property (as hereinafter
defined) and Tenant's signage from the Premises, the Building and the Project
and repair any damage caused by such removal, and (ii) Landlord may, by notice
to Tenant given not later than ninety (90) days prior to the Expiration Date
(except in the event of a termination of this Lease prior to the scheduled
Expiration Date, in which event no advance notice shall be required), require
Tenant at Tenant's expense to remove any or all Alterations and/or the initial
Tenant Improvements constructed and installed pursuant to EXHIBIT B hereto, and
to repair any damage caused by such removal. 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, that 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
end of the Term or sooner termination of this Lease, and in accordance with the
provisions of this Paragraph 11 and Paragraph 32(h) below, Tenant shall continue
to be responsible for the payment of Rent (as the same may be increased pursuant
to Paragraph 35 below) until the Premises are so surrendered in accordance with
said Paragraphs, and Tenant shall indemnify, defend and hold Landlord harmless
from and against any and all loss or liability resulting from delay by Tenant in
so surrendering the Premises including, without limitation, any loss or
liability resulting from any claim against Landlord made by any succeeding
tenant or prospective tenant founded on or resulting from such delay and losses
to 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.
12. ALTERATIONS AND ADDITIONS
(a) Tenant shall not make, or permit to be made, any alteration,
addition or improvement (hereinafter referred to individually as an "ALTERATION"
and collectively as the "ALTERATIONS") to the Premises or any part thereof
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld; provided, however, that Landlord shall have the right in
its sole and absolute discretion to consent or to withhold its consent to any
Alteration which affects the structural portions of the Premises, the Building
or the Project or the Systems serving the Premises, the Building and/or the
Project or any portion thereof.
(b) Any Alteration to the Premises shall be at Tenant's sole cost and
expense, in compliance with all applicable Laws and all requirements requested
by Landlord, including, without limitation, the requirements of any insurer
providing coverage for the Premises or the Project or any part thereof, and in
accordance with plans and specifications approved in writing by Landlord, and
shall be constructed and installed by a contractor approved in writing by
Landlord ("TENANT'S CONTRACTOR"). As a further condition to giving consent,
Landlord may require that either Tenant or Tenant's Contractor provide Landlord,
at Tenant's or Tenant's
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Contractor's sole cost and expense, a payment and performance bond in form
acceptable to Landlord, in a principal amount not less than one and one-half
times the estimated costs of such Alterations, to ensure Landlord against any
liability for mechanic's and materialmen's liens and to ensure completion of
work. Before Alterations may begin, valid building permits or other permits or
licenses required must be furnished to Landlord, and, once the Alterations
begin, Tenant will diligently and continuously pursue their completion. Landlord
may monitor construction of the Alterations and Tenant shall reimburse Landlord
for its costs (including, without limitation, the costs of any construction
manager retained by Landlord) in reviewing plans and documents and in monitoring
construction. Tenant shall ensure that its contractor(s) maintain during the
course of construction, at the contractor'(s) sole cost and expense, builders'
risk insurance for the amount of the completed value of the Alterations 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 Landlord shall reasonably require in connection with the Alterations.
In addition to and without limitation on the generality of the foregoing, Tenant
shall ensure that its contractor(s) procure and maintain in full force and
effect during the course of construction a "broad form" commercial general
liability and property damage policy of insurance naming Landlord, Landlord's
investment advisor and agent, UBS Brinson Realty Investors LLC, Tenant and
Landlord's lenders as additional insureds. The minimum limit of coverage of the
aforesaid policy shall be in the amount of not less than Two Million Dollars
($2,000,000.00) for injury or death of one person in any one accident or
occurrence and in the amount of not less than Two Million Dollars
($2,000,000.00) for injury or death of more than one person in any one accident
or occurrence, and shall contain a severability of interest clause or a cross
liability endorsement. Such insurance shall further insure Landlord and Tenant
against liability for property damage of at least One Million Dollars
($1,000,000.00).
(c) All Alterations, including, but not limited to, heating, lighting,
electrical, air conditioning, fixed partitioning, drapery, wall covering and
paneling, built-in cabinet work and carpeting installations made by Tenant,
together with all property that has become an integral part of the Premises or
the Building, shall at once be and become the property of Landlord, and shall
not be deemed trade fixtures or Tenant's Property. If requested by Landlord,
Tenant will pay, prior to the commencement of construction, an amount determined
by Landlord necessary to cover the costs of demolishing such Alterations and/or
the cost of returning the Premises and the Building to its condition prior to
such Alterations.
(d) No private telephone systems and/or other related computer or
telecommunications equipment or lines may be installed without Landlord's prior
written consent. If Landlord gives such consent, all equipment must be installed
within the Premises and, at the request of Landlord made at any time prior to
the expiration of the Term, removed upon the expiration or sooner termination of
this Lease and the Premises restored to the same condition as before such
installation.
(e) Notwithstanding anything herein to the contrary, before installing
any equipment or lights which generate an undue amount of heat in the Premises,
or if Tenant plans to use any high-power usage equipment in the Premises, Tenant
shall obtain the written permission of Landlord. Landlord may refuse to grant
such permission unless Tenant agrees to pay the costs to Landlord for
installation of supplementary air conditioning capacity or electrical systems
necessitated by such equipment.
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(f) Tenant agrees not to proceed to make any Alterations,
notwithstanding consent from Landlord to do so, until Tenant notifies Landlord
in writing of the date Tenant desires to commence construction or installation
of such Alterations and Landlord has approved such date in writing, in order
that Landlord may post appropriate notices to avoid any liability to contractors
or material suppliers for payment for Tenant's improvements. Tenant will at all
times permit such notices to be posted and to remain posted until the completion
of work.
13. MAINTENANCE AND REPAIRS OF PREMISES
(a) MAINTENANCE BY TENANT. Throughout the Term, Tenant shall, at its
sole expense, (i) keep and maintain in good order and condition the Premises,
and repair and replace every part thereof, including glass, windows, window
frames, window casements, skylights, interior and exterior doors, door frames
and door closers; interior lighting (including, without limitation, light bulbs
and ballasts), the plumbing and electrical systems exclusively serving the
Premises, all communications systems serving the Premises, Tenant's signage,
interior demising walls and partitions, equipment, interior painting and
interior walls and floors, and the roll-up doors, ramps and dock equipment,
including, without limitation, dock bumpers, dock plates, dock seals, dock
levelers and dock lights located in or on the Premises (excepting only those
portions of the Building or the Project to be maintained by Landlord, as
provided in Paragraph 13(b) below), (ii) furnish all expendables, including
light bulbs, paper goods and soaps, used in the Premises, and (iii) keep and
maintain in good order and condition, repair and replace all of Tenant's
security systems in or about or serving the Premises and, except to the extent
that Landlord notifies Tenant in writing of its intention to arrange for such
monitoring, cause the fire alarm systems serving the Premises to be monitored by
a monitoring or protective services firm approved by Landlord in writing. Tenant
shall not do nor shall Tenant allow Tenant's Agents to do anything to cause any
damage, deterioration or unsightliness to the Premises, the Building or the
Project.
(b) MAINTENANCE BY LANDLORD. Subject to the provisions of Paragraphs
13(a), 21 and 22, and further subject to Tenant's obligation under Paragraph 4
to reimburse Landlord, in the form of Additional Rent, for Tenant's
Proportionate Share(s) of the cost and expense of the following items, Landlord
agrees to repair and maintain the following items: the 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
resulting from the presence of such additional equipment); the Systems serving
the Premises and the Building, excluding the plumbing and electrical systems
exclusively serving the Premises; and the Parking Areas, pavement, landscaping,
sprinkler systems, sidewalks, driveways, curbs, and lighting systems in the
Common Areas. Subject to the provisions of Paragraphs 13(a), 21 and 22,
Landlord, at its own cost and expense, agrees to repair and maintain the
following items: the structural portions of the roof (specifically excluding the
roof coverings), the foundation, the footings, the floor slab, and the load
bearing walls and exterior walls of the Building (excluding any glass and any
routine maintenance, including, without limitation, any painting, sealing,
patching and waterproofing of such walls). Notwithstanding anything in this
Paragraph 13 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, the
Building and/or the Project caused by or created due to any act, omission,
negligence or willful misconduct of Tenant or Tenant's Agents and to restore the
Premises, the Building and/or the Project, as applicable, to the condition
existing prior to the
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occurrence of such damage; provided, however, that in the event 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. Landlord's obligation hereunder to repair and maintain is subject to
the condition precedent that Landlord shall have received written notice of the
need for such repairs and maintenance and a reasonable time to perform such
repair and maintenance. 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 such defects shall make Tenant responsible to Landlord for
any liability incurred by Landlord by reason of such condition.
(c) TENANT'S WAIVER OF RIGHTS. Tenant hereby expressly waives all rights
to make repairs at the expense of Landlord or to terminate this Lease, as
provided for in California Civil Code Sections 1941 and 1942, and 1932(1),
respectively, and any similar or successor statute or law in effect or any
amendment thereof during the Term.
14. LANDLORD'S INSURANCE
Landlord shall purchase and keep in force fire, extended coverage and
"all risk" insurance covering the Building and the Project. Tenant shall, at its
sole cost and expense, comply with any and all reasonable requirements
pertaining to the Premises, the Building and the Project of any insurer
necessary for the maintenance of reasonable fire and commercial general
liability insurance, covering the Building and the Project. Landlord, at
Tenant's cost, may maintain "Loss of Rents" insurance, insuring that the Rent
will be paid in a timely manner to Landlord for a period of at least twelve (12)
months if the Premises, the Building or the Project or any portion thereof are
destroyed or rendered unusable or inaccessible by any cause insured against
under this Lease.
15. TENANT'S INSURANCE
(a) COMMERCIAL GENERAL LIABILITY INSURANCE. Tenant shall, at Tenant's
expense, secure and keep in force a "broad form" commercial general liability
insurance and property damage policy covering the Premises, insuring Tenant, and
naming Landlord, Landlord's investment advisors and agents from time to time,
including, without limitation, UBS Brinson Realty Investors LLC, and Landlord's
lenders as additional insureds, against any liability arising out of the
ownership, use, occupancy or maintenance of the Premises. The minimum limit of
coverage of such policy shall be in the amount of not less than One Million
Dollars ($1,000,000.00) for injury or death of one person in any one accident or
occurrence and in the amount of not less than One Million Dollars
($1,000,000.00) for injury or death of more than one person in any one accident
or occurrence and shall contain a severability of interest clause or a cross
liability endorsement. In addition to the foregoing coverages, Tenant shall
maintain an umbrella policy of liability insurance with a minimum coverage limit
of Two Million Dollars ($2,000,000.00) above the foregoing amounts. Such
insurance policies (including the umbrella policy) shall further insure Landlord
and Tenant against liability for property damage of at least Three Million
Dollars ($3,000,000.00). Landlord may from time to time require reasonable
increases in any such limits if Landlord believes that additional coverage is
necessary or desirable. The limit of any insurance shall not limit the liability
of Tenant hereunder. No policy maintained by Tenant under this Paragraph 15(a)
shall contain a deductible greater than Ten Thousand Dollars
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($10,000.00). No policy shall be cancelable or subject to reduction of coverage
without thirty (30) days prior written notice to Landlord, and loss payable
clauses shall be subject to Landlord's approval. Such policies of insurance
shall be issued as primary policies and not contributing with or in excess of
coverage that Landlord may carry, by an insurance company authorized to do
business in the State of California for the issuance of such type of insurance
coverage and rated A:XIII or better in Best's Key Rating Guide.
(b) PERSONAL PROPERTY INSURANCE. Tenant shall maintain in full force and
effect on all of its personal property, furniture, furnishings, trade or
business fixtures and equipment (collectively, "TENANT'S PROPERTY") on the
Premises, a policy or policies of fire and extended coverage insurance with
standard coverage endorsement to the extent of the full replacement cost
thereof. No such policy shall contain a deductible greater than Ten Thousand
Dollars ($10,000.00). During the term of this Lease the proceeds from any such
policy or policies of insurance shall be used for the repair or replacement of
the fixtures and equipment so insured. Landlord shall have no interest in the
insurance upon Tenant's equipment and fixtures and will sign all documents
reasonably necessary in connection with the settlement of any claim or loss by
Tenant. Landlord will not carry insurance on Tenant's possessions.
(c) Worker's Compensation Insurance; Employer's Liability Insurance.
Tenant shall, at Tenant's expense, maintain in full force and effect worker's
compensation insurance with not less than the minimum limits required by law,
and employer's liability insurance with a minimum limit of coverage of One
Million Dollars ($1,000,000).
(d) EVIDENCE OF COVERAGE. Tenant shall deliver to Landlord certificates
of insurance and true and complete copies of any and all endorsements required
herein for all insurance required to be maintained by Tenant hereunder at the
time of execution of this Lease by Tenant. Tenant shall, at least thirty (30)
days 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 subject to modification except
after thirty (30) days prior written notice to Landlord and the other 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).
16. INDEMNIFICATION
(a) OF LANDLORD. Tenant shall indemnify and hold harmless Landlord and
Landlord's Agents against and from any and all claims, liabilities, judgments,
costs, demands, causes of action and expenses (including, without limitation,
reasonable attorneys' fees) arising from (i) the use of the Premises, the
Building or the Project by Tenant or Tenant's Agents, or from any activity done,
permitted or suffered by Tenant or Tenant's Agents in or about the Premises, the
Building or the Project, and (ii) any act, neglect, fault, willful misconduct or
omission of Tenant or Tenant's Agents, or from any breach or default in the
terms of this Lease by Tenant or Tenant's Agents, and (iii) any action or
proceeding brought on account of any matter in items (i) or (ii). If any action
or proceeding is brought against Landlord by reason of any such claim, upon
notice from Landlord, Tenant shall defend the same at Tenant's expense by
counsel reasonably satisfactory to Landlord. As a material part of the
consideration to Landlord, Tenant hereby releases Landlord and Landlord's Agents
from responsibility for, waives its entire claim
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of recovery for and assumes all risk of (A) damage to property or injury to
persons in or about the Premises, the Building or the Project from any cause
whatsoever (except that which is caused by the sole active gross negligence or
willful misconduct of Landlord or Landlord's Agents or by the failure of
Landlord to observe any of the terms and conditions of this Lease, if such
failure has persisted for an unreasonable period of time after written notice of
such failure), or (B) loss resulting from business interruption or loss of
income at the Premises. The obligations of Tenant under this Paragraph 16 shall
survive any termination of this Lease.
(b) OF TENANT. Landlord shall indemnify and hold harmless Tenant against
and from any and all claims, liabilities, judgments, costs, demands, causes of
action and expenses (including, without limitation, reasonable attorneys' fees)
arising from (1) the gross negligence of Landlord or from any breach or default
in the terms of this Lease by Tenant, and (2) any action or proceeding brought
on account of any matter in item (1). If any action or proceeding is brought
against Tenant by reason of any such claim, upon notice from Tenant, Landlord
shall defend the same at Landlord's expense by counsel reasonably satisfactory
to Tenant. The obligations of Landlord under this Paragraph 16(b) shall survive
any termination of this Lease.
(c) NO IMPAIRMENT OF INSURANCE. The foregoing indemnities shall not
relieve any insurance carrier of its obligations under any policies required to
be carried by either party pursuant to this Lease, to the extent that such
policies cover the peril or occurrence that results in the claim that is subject
to the foregoing indemnity.
17. SUBROGATION
Landlord and Tenant hereby mutually waive any claim against the other
and its Agents for any loss or damage to any of their property located on or
about the Premises, the Building or the Project that is caused by or results
from perils covered by property insurance carried by the respective parties, to
the extent of the proceeds of such insurance actually received with respect to
such loss or damage, whether or not due to the negligence of the other party or
its Agents. Because the foregoing waivers will preclude the assignment of any
claim by way of subrogation to an insurance company or any other person, each
party now agrees to immediately give to its insurer written notice of the terms
of these mutual waivers and shall have their insurance policies endorsed to
prevent the invalidation of the insurance coverage because of these waivers.
Nothing in this Paragraph 17 shall relieve a party of liability to the other for
failure to carry insurance required by this Lease.
18. SIGNS
Tenant shall not place or permit to be placed in, upon, or about the
Premises, the Building or the Project any exterior lights, decorations,
balloons, flags, pennants, banners, advertisements or notices, or erect or
install any signs, windows or door lettering, placards, decorations, or
advertising media of any type which can be viewed from the exterior of the
Premises without obtaining Landlord's prior written consent or without complying
with Landlord's signage criteria, as the same may be modified by Landlord from
time to time, and with all applicable Laws, and will not conduct, or permit to
be conducted, any sale by auction on the Premises or otherwise on the Project.
Tenant shall remove any sign, advertisement or notice placed on the Premises,
the Building or the Project by Tenant upon the expiration of the Term or sooner
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termination of this Lease and shall repair any damage or injury to the Premises,
the Building or the Project caused thereby, all at Tenant's expense. If any
signs are not removed or necessary repairs not made, Landlord shall have the
right to remove the signs and repair any damage or injury to the Premises, the
Building or the Project at Tenant's sole cost and expense.
19. FREE FROM LIENS
Tenant shall keep the Premises, the Building and the Project free from
any liens arising out of any work performed, material furnished or obligations
incurred by or for Tenant. In the event that Tenant shall not, within ten (10)
days following the imposition of any such lien, cause the lien to be released of
record by payment or posting of a proper bond, Landlord shall have in addition
to all other remedies provided herein and by law the right but not the
obligation to cause same to be released by such means as it shall deem proper,
including payment of the claim giving rise to such lien. All such sums paid by
Landlord and all expenses incurred by it in connection therewith (including,
without limitation, attorneys' fees) shall be payable to Landlord by Tenant upon
demand. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law or that Landlord shall
deem proper for the protection of Landlord, the Premises, the Building and the
Project, from mechanics' and materialmen's liens. Tenant shall give to Landlord
at least five (5) business days' prior written notice of commencement of any
repair or construction on the Premises.
20. ENTRY BY LANDLORD
Tenant shall permit Landlord and Landlord's Agents to enter into and
upon the Premises at all reasonable times, upon reasonable notice (except in the
case of an emergency, for which no notice shall be required), and subject to
Tenant's reasonable security arrangements, for the purpose of inspecting the
same or showing the Premises to prospective purchasers, lenders or tenants or to
alter, improve, maintain and repair the Premises or the Building as required or
permitted of Landlord under the terms hereof, or for any other business purpose,
without any rebate of Rent and without any liability to Tenant for any loss of
occupation or quiet enjoyment of the Premises thereby occasioned (except for
actual damages resulting from the sole active gross negligence or willful
misconduct of Landlord); and Tenant shall permit Landlord to post notices of
non-responsibility and ordinary "for sale" or "for lease" signs. No such entry
shall be construed to be a forcible or unlawful entry into, or a detainer of,
the Premises, or an eviction of Tenant from the Premises. Landlord may
temporarily close entrances, doors, corridors, elevators or other facilities
without liability to Tenant by reason of such closure in the case of an
emergency and when Landlord otherwise deems such closure necessary.
21. DESTRUCTION AND DAMAGE
(a) If the Premises are damaged by fire or other perils covered by
extended coverage insurance, Landlord shall, at Landlord's option:
(i) In the event of total destruction (which shall mean
destruction or damage in excess of twenty-five percent (25%) of the full
insurable value thereof) of the Premises, elect either to commence promptly to
repair and restore the Premises and prosecute the same diligently to completion,
in which event this Lease shall remain in full force and effect; or not to
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repair or restore the Premises, in which event this Lease shall terminate.
Landlord shall give Tenant written notice of its intention within sixty (60)
days after the date (the "CASUALTY DISCOVERY DATE") Landlord obtains actual
knowledge of such destruction. If Landlord elects not to restore the Premises,
this Lease shall be deemed to have terminated as of the date of such total
destruction.
(ii) In the event of a partial destruction (which shall mean
destruction or damage to an extent not exceeding twenty-five percent (25%) of
the full insurable value thereof) of the Premises for which Landlord will
receive insurance proceeds sufficient to cover the cost to repair and restore
such partial destruction and, if the damage thereto is such that the Premises
may be substantially repaired or restored to its condition existing immediately
prior to such damage or destruction within one hundred eighty (180) days from
the Casualty Discovery Date, Landlord shall commence and proceed diligently with
the work of repair and restoration, in which event the Lease shall continue in
full force and effect. If such repair and restoration requires longer than one
hundred eighty (180) days or if the insurance proceeds therefor (plus any
amounts Tenant may elect or is obligated to contribute) are not sufficient to
cover the cost of such repair and restoration, Landlord may elect either to so
repair and restore, in which event the Lease shall continue in full force and
effect, or not to repair or restore, in which event the Lease shall terminate.
In either case, Landlord shall give written notice to Tenant of its intention
within sixty (60) days after the Casualty Discovery Date. If Landlord elects not
to restore the Premises, this Lease shall be deemed to have terminated as of the
date of such partial destruction.
(iii) Notwithstanding anything to the contrary contained in this
Paragraph, in the event of damage to the Premises occurring during the last
twelve (12) months of the Term, Landlord may elect to terminate this Lease by
written notice of such election given to Tenant within thirty (30) days after
the Casualty Discovery Date.
(b) If the Premises are damaged by any peril not covered by extended
coverage insurance, and the cost to repair such damage exceeds any amount Tenant
may agree to contribute, Landlord may elect either to commence promptly to
repair and restore the Premises and prosecute the same diligently to completion,
in which event this Lease shall remain in full force and effect; or not to
repair or restore the Premises, in which event this Lease shall terminate.
Landlord shall give Tenant written notice of its intention within sixty (60)
days after the Casualty Discovery Date. If Landlord elects not to restore the
Premises, this Lease shall be deemed to have terminated as of the date on which
Tenant surrenders possession of the Premises to Landlord, except that if the
damage to the Premises materially impairs Tenant's ability to continue its
business operations in the Premises, then this Lease shall be deemed to have
terminated as of the date such damage occurred.
(c) Notwithstanding anything to the contrary in this Paragraph 21,
Landlord shall have the option to terminate this Lease, exercisable by notice to
Tenant within sixty (60) days after the Casualty Discovery Date, in each of the
following instances:
(i) If more than twenty-five percent (25%) of the full insurable
value of the Building or the Project is damaged or destroyed, regardless of
whether or not the Premises are destroyed.
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(ii) If the Building or the Project or any portion thereof is
damaged or destroyed and the repair and restoration of such damage requires
longer than one hundred eighty (180) days from the Casualty Discovery Date.
(iii) If the Building or the Project or any portion thereof is
damaged or destroyed and the insurance proceeds therefor are not sufficient to
cover the costs of repair and restoration.
(iv) If the Building or the Project or any portion thereof is
damaged or destroyed during the last twelve (12) months of the Term.
(d) In the event of repair and restoration as herein provided, the
monthly installments of Base Rent shall be abated proportionately in the ratio
which Tenant's use of the Premises is impaired during the period of such repair
or restoration, but only to the extent of rental abatement insurance proceeds
received by Landlord; provided, however, that Tenant shall not be entitled to
such abatement to the extent that such damage or destruction resulted from the
acts or inaction of Tenant or Tenant's Agents. Except as expressly provided in
the immediately preceding sentence with respect to abatement of Base Rent,
Tenant shall have no claim against Landlord for, and hereby releases Landlord
and Landlord's Agents from responsibility for and waives its entire claim of
recovery for any cost, loss or expense suffered or incurred by Tenant as a
result of any damage to or destruction of the Premises, the Building or the
Project or the repair or restoration thereof, including, without limitation, any
cost, loss or expense resulting from any loss of use of the whole or any part of
the Premises, the Building or the Project and/or any inconvenience or annoyance
occasioned by such damage, repair or restoration.
(e) If Landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall repair or restore only the initial tenant improvements,
if any, constructed by Landlord in the Premises pursuant to the terms of this
Lease, substantially to their condition existing immediately prior to the
occurrence of the damage or destruction; and Tenant shall promptly repair and
restore, at Tenant's expense, Tenant's Alterations which were not constructed by
Landlord.
(f) Tenant hereby waives the provisions of California Civil Code Section
1932(2) and Section 1933(4) which permit termination of a lease upon destruction
of the leased premises, and the provisions of any similar law now or hereinafter
in effect, and the provisions of this Paragraph 21 shall govern exclusively in
case of such destruction.
22. CONDEMNATION
(a) If twenty-five percent (25%) or more of either the Premises, the
Building or the Project or the parking areas for the Building or the Project is
taken for any public or quasi-public purpose by any lawful governmental power or
authority, by exercise of the right of appropriation, inverse condemnation,
condemnation or eminent domain, or sold to prevent such taking (each such event
being referred to as a CONDEMNATION), Landlord may, at its option, terminate
this Lease as of the date title vests in the condemning party. If twenty-five
percent (25%) or more of the Premises is taken and if the Premises remaining
after such Condemnation and any repairs by Landlord would be untenantable for
the conduct of Tenant's business operations, Tenant shall have the right to
terminate this Lease as of the date title vests in the condemning party. If
either party elects to terminate this Lease as provided herein, such election
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shall be made by written notice to the other party given within thirty (30) days
after the nature and extent of such Condemnation have been finally determined.
If neither Landlord nor Tenant elects to terminate this Lease to the extent
permitted above, Landlord shall promptly proceed to restore the Premises, to the
extent of any Condemnation award received by Landlord, to substantially the same
condition as existed prior to such Condemnation, allowing for the reasonable
effects of such Condemnation, and a proportionate abatement shall be made to the
Base Rent corresponding to the time during which, and to the portion of the
floor area of the Premises (adjusted for any increase thereto resulting from any
reconstruction) of which, Tenant is deprived on account of such Condemnation and
restoration, as reasonably determined by Landlord. Except as expressly provided
in the immediately preceding sentence with respect to abatement of Base Rent,
Tenant shall have no claim against Landlord for, and hereby releases Landlord
and Landlord's Agents from responsibility for and waives its entire claim of
recovery for any cost, loss or expense suffered or incurred by Tenant as a
result of any Condemnation or the repair or restoration of the Premises, the
Building or the Project or the parking areas for the Building or the Project
following such Condemnation, including, without limitation, any cost, loss or
expense resulting from any loss of use of the whole or any part of the Premises,
the Building, the Project or the parking areas and/or any inconvenience or
annoyance occasioned by such Condemnation, repair or restoration. The provisions
of California Code of Civil Procedure Section 1265.130, which allows either
party to petition the Superior Court to terminate the Lease in the event of a
partial taking of the Premises, the Building or the Project or the parking areas
for the Building or the Project, and any other applicable law now or hereafter
enacted, are hereby waived by Tenant.
(b) Landlord shall be entitled to any and all compensation, damages,
income, rent, awards, or any interest therein whatsoever which may be paid or
made in connection with any Condemnation, and Tenant shall have no claim against
Landlord for the value of any unexpired term of this Lease or otherwise;
provided, however, that Tenant shall be entitled to receive any award separately
allocated by the condemning authority to Tenant for Tenant's relocation expenses
or the value of Tenant's Property (specifically excluding fixtures, Alterations
and other components of the Premises which under this Lease or by law are or at
the expiration of the Term will become the property of Landlord), provided that
such award does not reduce any award otherwise allocable or payable to Landlord.
23. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not voluntarily or by operation of law, (1) mortgage,
pledge, hypothecate or encumber this Lease or any interest herein, (2) assign or
transfer this Lease or any interest herein, sublease the Premises or any part
thereof, or any right or privilege appurtenant thereto, or allow any other
person (the employees and invitees of Tenant excepted) to occupy or use the
Premises, or any portion thereof, without first obtaining the written consent of
Landlord, which consent shall not be unreasonably withheld; provided, however,
that (i) Tenant is not then in Default under this Lease nor is any event then
occurring which with the giving of notice or the passage of time, or both, would
constitute a Default hereunder, and (ii) the proposed transfer is not an
assignment or a sublease under a previous assignment or an existing sublease.
When Tenant requests Landlord's consent to such assignment or subletting, it
shall notify Landlord in writing of the name and address of the proposed
assignee or subtenant and the nature and character of the business of the
proposed assignee or subtenant and shall provide (A) a fully
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completed Hazardous Materials Disclosure Certificate for such assignee or
subtenant in the form of EXHIBIT E hereto, and (B) current and prior financial
statements for the proposed assignee or subtenant, which financial statements
shall be audited to the extent available and shall in any event be prepared in
accordance with generally accepted accounting principles. Tenant shall also
provide Landlord with a copy of the proposed sublease or assignment agreement,
including all material terms and conditions thereof. Landlord shall have the
option, to be exercised within thirty (30) days of receipt of the foregoing, to
(1) terminate this Lease as of the commencement date stated in the proposed
sublease or assignment, (2) sublease or take an assignment, as the case may be,
from Tenant of the interest, or any portion thereof, in this Lease and/or the
Premises that Tenant proposes to assign or sublease, on the same terms and
conditions as stated in the proposed sublet or assignment agreement, (3) consent
to the proposed assignment or sublease, or (4) refuse its consent to the
proposed assignment or sublease, providing that such consent shall not be
unreasonably withheld so long as Tenant is not then in Default under this Lease
nor is any event then occurring which with the giving of notice or the passage
of time, or both, would constitute a Default hereunder. In the event Landlord
elects to terminate this Lease or sublease or take an assignment from Tenant of
the interest, or portion thereof, in the Lease and/or the Premises that Tenant
proposes to assign or sublease as provided in the foregoing clauses (1) and (2),
respectively, then Landlord shall have the additional right to negotiate
directly with Tenant's proposed assignee or subtenant and to enter into a direct
lease or occupancy agreement with such party on such terms as shall be
acceptable to Landlord in its sole and absolute discretion, and Tenant hereby
waives any claims against Landlord related thereto, including, without
limitation, any claims for any compensation or profit related to such lease or
occupancy agreement.
(b) Without otherwise limiting the criteria upon which Landlord may
withhold its consent, Landlord shall be entitled to consider all reasonable
criteria including, but not limited to, the following: (1) whether or not the
proposed subtenant or assignee is engaged in a business which, and the use of
the Premises will be in an manner which, is in keeping with the then character
and nature of all other tenancies in the Project, (2) whether the use to be made
of the Premises by the proposed subtenant or assignee will conflict with any
so-called "exclusive" use then in favor of any other tenant of the Building or
the Project, and whether such use would be prohibited by any other portion of
this Lease, including, but not limited to, any rules and regulations then in
effect, or under applicable Laws, and whether such use imposes a greater load
upon the Premises and the Building and Project services then imposed by Tenant,
(3) the business reputation of the proposed individuals who will be managing and
operating the business operations of the assignee or subtenant, and the
long-term financial and competitive business prospects of the proposed assignee
or subtenant, and (4) the creditworthiness and financial stability of the
proposed assignee or subtenant in light of the responsibilities involved. In any
event, Landlord may withhold its consent to any assignment or sublease, if (i)
the actual use proposed to be conducted in the Premises or portion thereof
conflicts with the provisions of Paragraph 9(a) or (b) above or with any other
lease which restricts the use to which any space in the Building or the Project
may be put, or (ii) the proposed assignment or sublease requires alterations,
improvements or additions to the Premises or portions thereof.
(c) If Landlord approves an assignment or subletting as herein provided,
Tenant shall pay to Landlord, as Additional Rent, the difference, if any,
between (1) the Base Rent plus Additional Rent allocable to that part of the
Premises affected by such assignment or sublease
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pursuant to the provisions of this Lease, and (2) the rent and any additional
rent payable by the assignee or sublessee to Tenant, less reasonable and
customary market-based leasing commissions, if any, incurred by Tenant in
connection with such assignment or sublease, which commissions shall, for
purposes of the aforesaid calculation, be amortized on a straight-line basis
over the term of such assignment or sublease. The assignment or sublease
agreement, as the case may be, after approval by Landlord, shall not be amended
without Landlord's prior written consent, and shall contain a provision
directing the assignee or subtenant to pay the rent and other sums due
thereunder directly to Landlord upon receiving written notice from Landlord that
Tenant is in default under this Lease with respect to the payment of Rent. In
the event that, notwithstanding the giving of such notice, Tenant collects any
rent or other sums from the assignee or subtenant, then Tenant shall hold such
sums in trust for the benefit of Landlord and shall immediately forward the same
to Landlord. Landlord's collection of such rent and other sums shall not
constitute an acceptance by Landlord of attornment by such assignee or
subtenant. A consent to one assignment, subletting, occupation or use shall not
be deemed to be a consent to any other or subsequent assignment, subletting,
occupation or use, and consent to any assignment or subletting shall in no way
relieve Tenant of any liability under this Lease. Any assignment or subletting
without Landlord's consent shall be void, and shall, at the option of Landlord,
constitute a Default under this Lease.
(d) Notwithstanding any assignment or subletting, Tenant and any
guarantor or surety of Tenant's obligations under this Lease shall at all times
remain fully responsible and liable for the payment of the Rent and for
compliance with all of Tenant's other obligations under this Lease (regardless
of whether Landlord's approval has been obtained for any such assignment or
subletting).
(e) Tenant shall pay Landlord's reasonable fees (including, without
limitation, the fees of Landlord's counsel, not to exceed One Thousand Five
Hundred Dollars ($1,500.00)), incurred in connection with Landlord's review and
processing of documents regarding any proposed assignment or sublease.
(f) Notwithstanding anything in this Lease to the contrary, in the event
Landlord consents to an assignment or subletting by Tenant in accordance with
the terms of this Paragraph 23, Tenant's assignee or subtenant shall have no
right to further assign this Lease or any interest therein or thereunder or to
further sublease all or any portion of the Premises. In furtherance of the
foregoing, Tenant acknowledges and agrees on behalf of itself and any assignee
or subtenant claiming under it (and any such assignee or subtenant by accepting
such assignment or sublease shall be deemed to acknowledge and agree) that no
sub-subleases or further assignments of this Lease shall be permitted at any
time.
(g) Tenant acknowledges and agrees that the restrictions, conditions and
limitations imposed by this Paragraph 23 on Tenant's ability to assign or
transfer this Lease or any interest herein, to sublet the Premises or any part
thereof, to transfer or assign any right or privilege appurtenant to the
Premises, or to allow any other person to occupy or use the Premises or any
portion thereof, are, for the purposes of California Civil Code Section 1951.4,
as amended from time to time, and for all other purposes, reasonable at the time
that the Lease was entered into, and shall be deemed to be reasonable at the
time that Tenant seeks to assign or transfer this Lease or any interest herein,
to sublet the Premises or any part thereof, to transfer or assign any right or
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privilege appurtenant to the Premises, or to allow any other person to occupy or
use the Premises or any portion thereof.
24. TENANT'S DEFAULT
The occurrence of any one of the following events shall constitute an
event of default on the part of Tenant ("DEFAULT"):
(a) The vacation or abandonment of the Premises by Tenant for a period
of ten (10) consecutive days or any vacation or abandonment of the Premises by
Tenant which would cause any insurance policy to be invalidated or otherwise
lapse, or the failure of Tenant to continuously operate Tenant's business in the
Premises, in each of the foregoing cases irrespective of whether or not Tenant
is then in monetary default under this Lease. Tenant agrees to notice and
service of notice as provided for in this Lease and waives any right to any
other or further notice or service of notice which Tenant may have under any
statute or law now or hereafter in effect;
(b) Failure to pay any installment of Rent or any other monies due and
payable hereunder, said failure continuing for a period of three (3) days after
the same is due;
(c) A general assignment by Tenant or any guarantor or surety of
Tenant's obligations hereunder (collectively, "GUARANTOR") for the benefit of
creditors;
(d) The filing of a voluntary petition in bankruptcy by Tenant or any
Guarantor, the filing by Tenant or any Guarantor of a voluntary petition for an
arrangement, the filing by or against Tenant or any Guarantor of a petition,
voluntary or involuntary, for reorganization, or the filing of an involuntary
petition by the creditors of Tenant or any Guarantor, said involuntary petition
remaining undischarged for a period of sixty (60) days;
(e) Receivership, attachment, or other judicial seizure of substantially
all of Tenant's assets on the Premises, such attachment or other seizure
remaining undismissed or undischarged for a period of sixty (60) days after the
levy thereof;
(f) Death or disability of Tenant or any Guarantor, if Tenant or such
Guarantor is a natural person, or the failure by Tenant or any Guarantor to
maintain its legal existence, if Tenant or such Guarantor is a corporation,
partnership, limited liability company, trust or other legal entity;
(g) Failure of Tenant to execute and deliver to Landlord any estoppel
certificate, subordination agreement, or lease amendment within the time periods
and in the manner required by Paragraphs 30 or 31 or 42, and/or failure by
Tenant to deliver to Landlord any financial statement within the time period and
in the manner required by Paragraph 40;
(h) An assignment or sublease, or attempted assignment or sublease, of
this Lease or the Premises by Tenant contrary to the provision of Paragraph 23,
unless such assignment or sublease is expressly conditioned upon Tenant having
received Landlord's consent thereto;
(i) Failure of Tenant to restore the Security Deposit to the amount and
within the time period provided in Paragraph 7 above;
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(j) Failure in the performance of any of Tenant's covenants, agreements
or obligations hereunder (except those failures specified as events of Default
in any other subparagraphs of this Paragraph 24, which shall be governed by such
other Paragraphs), which failure continues for ten (10) days after written
notice thereof from Landlord to Tenant, provided that, if Tenant has exercised
reasonable diligence to cure such failure and such failure cannot be cured
within such ten (10) day period despite reasonable diligence, Tenant shall not
be in default under this subparagraph so long as Tenant thereafter diligently
and continuously prosecutes the cure to completion and actually completes such
cure within thirty (30) days after the giving of the aforesaid written notice;
(k) Chronic delinquency by Tenant in the payment of Rent, or any other
periodic payments required to be paid by Tenant under this Lease. "CHRONIC
DELINQUENCY" shall mean failure by Tenant to pay Rent, or any other payments
required to be paid by Tenant under this Lease within three (3) days after
written notice thereof for any three (3) months (consecutive or nonconsecutive)
during any period of twelve (12) months. In the event of a Chronic delinquency,
in addition to Landlord's other remedies for Default provided in this Lease, at
Landlord's option, Landlord shall have the right to require that Rent be paid by
Tenant quarterly, in advance;
(l) Chronic overuse by Tenant or Tenant's Agents of the number of
undersignated parking spaces set forth in the Basic Lease Information. "CHRONIC
OVERUSE" shall mean use by Tenant or Tenant's Agents of a number of parking
spaces greater than the number of parking spaces set forth in the Basic Lease
Information more than three (3) times during the Term after written notice by
Landlord;
(m) Any insurance required to be maintained by Tenant pursuant to this
Lease shall be canceled or terminated or shall expire or be reduced or
materially changed, except as permitted in this Lease; and
(n) Any failure by Tenant to discharge any lien or encumbrance placed on
the Project or any part thereof in violation of this Lease within ten (10) days
after the date such lien or encumbrance is filed or recorded against the Project
or any part thereof.
Tenant agrees that any notice given by Landlord pursuant to Paragraph
24(j), (k) or (l) above shall satisfy the requirements for notice under
California Code of Civil Procedure Section 1161, and Landlord shall not be
required to give any additional notice in order to be entitled to commence an
unlawful detainer proceeding.
25. LANDLORD'S REMEDIES
(a) TERMINATION. In the event of any Default by Tenant, then in addition
to any other remedies available to Landlord at law or in equity and under this
Lease, Landlord shall have the immediate option to terminate this Lease and all
rights of Tenant hereunder by giving written notice of such intention to
terminate. In the event that Landlord shall elect to so terminate this Lease
then Landlord may recover from Tenant:
(i) the worth at the time of award of any unpaid Rent and any
other sums due and payable which have been earned at the time of such
termination; plus
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(ii) the worth at the time of award of the amount by which the
unpaid Rent and any other sums due and payable which would have been earned
after termination until the time of award exceeds the amount of such rental loss
Tenant proves could have been reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid Rent and any other sums due and payable for the balance of the term of
this Lease after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; plus
(iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course would be likely to result
therefrom, including, without limitation, (A) any costs or expenses incurred by
Landlord (1) in retaking possession of the Premises; (2) in maintaining,
repairing, preserving, restoring, replacing, cleaning, altering, remodeling or
rehabilitating the Premises or any affected portions of the Building or the
Project, including such actions undertaken in connection with the reletting or
attempted reletting of the Premises to a new tenant or tenants; (3) for leasing
commissions, advertising costs and other expenses of reletting the Premises; or
(4) in carrying the Premises, including taxes, insurance premiums, utilities and
security precautions; (B) any unearned brokerage commissions paid in connection
with this Lease; (C) reimbursement of any previously waived or abated Base Rent
or Additional Rent or any free rent or reduced rental rate granted hereunder;
and (D) any concession made or paid by Landlord to the benefit of Tenant in
consideration of this Lease including, but not limited to, any moving
allowances, contributions, payments or loans by Landlord for tenant improvements
or build-out allowances (including, without limitation, any unamortized portion
of the Tenant Improvement Allowance (such Tenant Improvement Allowance to be
amortized over the Term in the manner reasonably determined by Landlord), if
any, and any outstanding balance (principal and accrued interest) of the Tenant
Improvement Loan, if any), or assumptions by Landlord of any of Tenant's
previous lease obligations; plus
(v) such reasonable attorneys' fees incurred by Landlord as a
result of a Default, and costs in the event suit is filed by Landlord to enforce
such remedy; and plus
(vi) at Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by applicable
law.
As used in subparagraphs (i) and (ii) above, the "WORTH AT THE TIME OF AWARD" is
computed by allowing interest at an annual rate equal to twelve percent (12%)
per annum or the maximum rate permitted by law, whichever is less. As used in
subparagraph (iii) above, the "WORTH AT THE TIME OF AWARD" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award, plus one percent (1%). Tenant waives redemption
or relief from forfeiture under California Code of Civil Procedure Sections 1174
and 1179, or under any other pertinent 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.
(b) CONTINUATION OF LEASE. In the event of any Default by Tenant, then
in addition to any other remedies available to Landlord at law or in equity and
under this Lease, Landlord shall have the remedy described in California Civil
Code Section 1951.4 (Landlord may continue this
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Lease in effect after Tenant's Default and abandonment and recover Rent as it
becomes due, provided that Tenant has the right to sublet or assign, subject
only to reasonable limitations). In addition, Landlord shall not be liable in
any way whatsoever for its failure or refusal to relet the Premises. For
purposes of this Paragraph 25(b), the following acts by Landlord will not
constitute the termination of Tenant's right to possession of the Premises:
(i) Acts of maintenance or preservation or efforts to relet the
Premises, including, but not limited to, alterations, remodeling, redecorating,
repairs, replacements and/or painting as Landlord shall consider advisable for
the purpose of reletting the Premises or any part thereof; or
(ii) The appointment of a receiver upon the initiative of
Landlord to protect Landlord's interest under this Lease or in the Premises.
(c) RE-ENTRY. In the event of any Default by Tenant, Landlord shall also
have the right, with or without terminating this Lease, in compliance with
applicable law, to re-enter the Premises and remove all persons and property
from the Premises; such property may be removed and stored in a public warehouse
or elsewhere at the cost of and for the account of Tenant.
(d) RELETTING. In the event of the abandonment of the Premises by Tenant
or in the event that Landlord shall elect to re-enter as provided in Paragraph
25(c) or shall take possession of the Premises pursuant to legal proceeding or
pursuant to any notice provided by law, then if Landlord does not elect to
terminate this Lease as provided in Paragraph 25(a), Landlord may from time to
time, without terminating this Lease, relet the Premises or any part thereof for
such term or terms and at such rental or rentals and upon such other terms and
conditions as Landlord in its sole discretion may deem advisable with the right
to make alterations and repairs to the Premises in Landlord's sole discretion.
In the event that Landlord shall elect to so relet, then rentals received by
Landlord from such reletting shall be applied in the following order: (i) to
reasonable attorneys' fees incurred by Landlord as a result of a Default and
costs in the event suit is filed by Landlord to enforce such remedies; (ii) to
the payment of any indebtedness other than Rent due hereunder from Tenant to
Landlord; (iii) to the payment of any costs of such reletting; (iv) to the
payment of the costs of any alterations and repairs to the Premises; (v) to the
payment of Rent due and unpaid hereunder; and (vi) the residue, if any, shall be
held by Landlord and applied in payment of future Rent and other sums payable by
Tenant hereunder as the same may become due and payable hereunder. Should that
portion of such rentals received from such reletting during any month, which is
applied to the payment of Rent hereunder, be less than the Rent payable during
the month by Tenant hereunder, then Tenant shall pay such deficiency to
Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall
also pay to Landlord, as soon as ascertained, any costs and expenses incurred by
Landlord in such reletting or in making such alterations and repairs not covered
by the rentals received from such reletting.
(e) TERMINATION. No re-entry or taking of possession of the Premises by
Landlord pursuant to this Paragraph 25 shall be construed as an election to
terminate this Lease unless a written notice of such intention is given to
Tenant or unless the termination thereof is decreed by a court of competent
jurisdiction. Notwithstanding any reletting without termination by Landlord
because of any Default by Tenant, Landlord may at any time after such reletting
elect to terminate this Lease for any such Default.
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(f) Cumulative Remedies. The remedies herein provided are not exclusive
and Landlord shall have any and all other remedies provided herein or by law or
in equity.
(g) No Surrender. No act or conduct of Landlord, whether consisting of
the acceptance of the keys to the Premises, or otherwise, shall be deemed to be
or constitute an acceptance of the surrender of the Premises by Tenant prior to
the expiration of the Term, and such acceptance by Landlord of surrender by
Tenant shall only flow from and must be evidenced by a written acknowledgment of
acceptance of surrender signed by Landlord. The surrender of this Lease by
Tenant, voluntarily or otherwise, shall not work a merger unless Landlord elects
in writing that such merger take place, but shall operate as an assignment to
Landlord of any and all existing subleases, or Landlord may, at its option,
elect in writing to treat such surrender as a merger terminating Tenant's estate
under this Lease, and thereupon Landlord may terminate any or all such subleases
by notifying the sublessee of its election so to do within five (5) days after
such surrender.
26. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
(a) Without limiting the rights and remedies of Landlord contained in
Paragraph 25 above, if Tenant shall be in Default in the performance of any of
the terms, provisions, covenants or conditions to be performed or complied with
by Tenant pursuant to this Lease, then Landlord may at Landlord's option,
without any obligation to do so, and without notice to Tenant perform any such
term, provision, covenant, or condition, or make any such payment and Landlord
by reason of so doing shall not be liable or responsible for any loss or damage
thereby sustained by Tenant or anyone holding under or through Tenant or any of
Tenant's Agents.
(b) Without limiting the rights of Landlord under Paragraph 26(a) above,
Landlord shall have the right at Landlord's option, without any obligation to do
so, to perform any of Tenant's covenants or obligations under this Lease without
notice to Tenant in the case of an emergency, as determined by Landlord in its
sole and absolute judgment, or if Landlord otherwise determines in its sole
discretion that such performance is necessary or desirable for the proper
management and operation of the Building or the Project or for the preservation
of the rights and interests or safety of other tenants of the Building or the
Project.
(c) If Landlord performs any of Tenant's obligations hereunder in
accordance with this Paragraph 26, the full amount of the cost and expense
incurred or the payment so made or the amount of the loss so sustained shall
immediately be owing by Tenant to Landlord, and Tenant shall promptly pay to
Landlord upon demand, as Additional Rent, the full amount thereof with interest
thereon from the date of payment by Landlord at the lower of (i) ten percent
(10%) per annum, or (ii) the highest rate permitted by applicable law.
27. ATTORNEYS' FEES
(a) If either party hereto fails to perform any of its obligations under
this Lease or if any dispute arises between the parties hereto concerning the
meaning or interpretation of any provision of this Lease, then the defaulting
party or the party not prevailing in such dispute, as the case may be, shall pay
any and all costs and expenses incurred by the other party on account of such
default and/or in enforcing or establishing its rights hereunder, including,
without
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limitation, court costs and reasonable attorneys' fees and disbursements. Any
such attorneys' fees and other expenses incurred by either party in enforcing a
judgment in its favor under this Lease shall be recoverable separately from and
in addition to any other amount included in such judgment, and such attorneys'
fees obligation is intended to be severable from the other provisions of this
Lease and to survive and not be merged into any such judgment.
(b) Without limiting the generality of Paragraph 27(a) above, if
Landlord utilizes the services of an attorney for the purpose of collecting any
Rent due and unpaid by Tenant or in connection with any other breach of this
Lease by Tenant, Tenant agrees to pay Landlord actual attorneys' fees as
determined by Landlord for such services, regardless of the fact that no legal
action may be commenced or filed by Landlord.
28. TAXES
Tenant shall be liable for and shall pay, prior to delinquency, all
taxes levied against Tenant's Property. If any Alteration installed by Tenant or
any of Tenant's Property is assessed and taxed with the Project or Building,
Tenant shall pay such taxes to Landlord within ten (10) days after delivery to
Tenant of a statement therefor.
29. EFFECT OF CONVEYANCE
The term "Landlord" as used in this Lease means, from time to time, the
then current owner of the Building or the Project containing the Premises, so
that, in the event of any sale of the Building or the Project, Landlord shall be
and hereby is entirely freed and relieved of all covenants and obligations of
Landlord hereunder, and it shall be deemed and construed, without further
agreement between the parties and the purchaser at any such sale, that the
purchaser of the Building or the Project has assumed and agreed to carry out any
and all covenants and obligations of Landlord hereunder.
30. TENANT'S ESTOPPEL CERTIFICATE
From time to time, upon written request of Landlord, Tenant shall
execute, acknowledge and deliver to Landlord or its designee, a written
certificate stating (a) the date this Lease was executed, the Commencement Date
of the Term and the date the Term expires; (b) the date Tenant entered into
occupancy of the Premises; (c) the amount of Rent and the date to which such
Rent has been paid; (d) that this Lease is in full force and effect and has not
been assigned, modified, supplemented or amended in any way (or, if assigned,
modified, supplemented or amended, specifying the date and terms of any
agreement so affecting this Lease); (e) that this Lease represents the entire
agreement between the parties with respect to Tenant's right to use and occupy
the Premises (or specifying such other agreements, if any); (f) that all
obligations under this Lease to be performed by Landlord as of the date of such
certificate have been satisfied (or specifying those as to which Tenant claims
that Landlord has yet to perform); (g) that all required contributions by
Landlord to Tenant on account of Tenant's improvements have been received (or
stating exceptions thereto); (h) that on such date there exist no defenses or
offsets that Tenant has against the enforcement of this Lease by Landlord (or
stating exceptions thereto); (i) that no Rent or other sum payable by Tenant
hereunder has been paid more than one (1) month in advance (or stating
exceptions thereto); (j) that security has been deposited with
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Landlord, stating the original amount thereof and any increases thereto; and (k)
any other matters evidencing the status of this Lease that may be required
either by a lender making a loan to Landlord to be secured by a deed of trust
covering the Building or the Project or by a purchaser of the Building or the
Project. Any such certificate delivered pursuant to this Paragraph 30 may be
relied upon by a prospective purchaser of Landlord's interest or a mortgagee of
Landlord's interest or assignee of any mortgage upon Landlord's interest in the
Premises. If Tenant shall fail to provide such certificate within ten (10) days
of receipt by Tenant of a written request by Landlord as herein provided, such
failure shall, at Landlord's election, constitute a Default under this Lease,
and Tenant shall be deemed to have given such certificate as above provided
without modification and shall be deemed to have admitted the accuracy of any
information supplied by Landlord to a prospective purchaser or mortgagee.
31. SUBORDINATION
Landlord shall have the right to cause this Lease to be and remain
subject and subordinate to any and all mortgages, deeds of trust and ground
leases, if any ("ENCUMBRANCES") that are now or may hereafter be executed
covering the Premises, or any renewals, modifications, consolidations,
replacements or extensions thereof, for the full amount of all advances made or
to be made thereunder and without regard to the time or character of such
advances, together with interest thereon and subject to all the terms and
provisions thereof; provided only, that in the event of termination of any such
ground lease or upon the foreclosure of any such mortgage or deed of trust, so
long as Tenant is not in default, the holder thereof ("HOLDER") shall agree to
recognize Tenant's rights under this Lease as long as Tenant shall pay the Rent
and observe and perform all the provisions of this Lease to be observed and
performed by Tenant. Within ten (10) days after Landlord's written request,
Tenant shall execute, acknowledge and deliver any and all reasonable documents
required by Landlord or the Holder to effectuate such subordination. If Tenant
fails to do so, such failure shall constitute a Default by Tenant under this
Lease. Notwithstanding anything to the contrary set forth in this Paragraph 31,
Tenant hereby attorns and agrees to attorn to any person or entity purchasing or
otherwise acquiring the Premises at any sale or other proceeding or pursuant to
the exercise of any other rights, powers or remedies under such Encumbrance.
32. ENVIRONMENTAL COVENANTS
(a) Prior to executing this Lease, Tenant has completed, executed and
delivered to Landlord a Hazardous Materials Disclosure Certificate ("INITIAL
DISCLOSURE CERTIFICATE"), a fully completed copy of which is attached hereto as
EXHIBIT E and incorporated herein by this reference. Tenant covenants,
represents and warrants to Landlord that the information on the Initial
Disclosure Certificate is true and correct and accurately describes the
Hazardous Materials which will be manufactured, treated, used or stored on or
about the Premises by Tenant or Tenant's Agents. Tenant shall, on each
anniversary of the Commencement Date and at such other times as Tenant desires
to manufacture, treat, use or store on or about the Premises new or additional
Hazardous Materials which were not listed on the Initial Disclosure Certificate,
complete, execute and deliver to Landlord an updated Disclosure Certificate
(each, an "UPDATED DISCLOSURE CERTIFICATE") describing Tenant's then current and
proposed future uses of Hazardous Materials on or about the Premises, which
Updated Disclosure Certificates shall be in the same format as that which is set
forth in EXHIBIT E or in such updated format as Landlord may require
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from time to time. Tenant shall deliver an Updated Disclosure Certificate to
Landlord not less than thirty (30) days prior to the date Tenant intends to
commence the manufacture, treatment, use or storage of new or additional
Hazardous Materials on or about the Premises, and Landlord shall have the right
to approve or disapprove such new or additional Hazardous Materials in its sole
and absolute discretion. Tenant shall make no use of Hazardous Materials on or
about the Premises except as described in the Initial Disclosure Certificate or
as otherwise approved by Landlord in writing in accordance with this Paragraph
32(a).
(b) As used in this Lease, the term "HAZARDOUS MATERIALS" shall mean and
include any substance that is or contains (i) any "hazardous substance" as now
or hereafter defined in section 101(14) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA") (42
U.S.C. section 9601 et seq.) or any regulations promulgated under CERCLA; (ii)
any "hazardous waste" as now or hereafter defined in the Resource Conservation
and Recovery Act, as amended ("RCRA") (42 U.S.C. section 6901 et seq.) or any
regulations promulgated under RCRA; (iii) any substance now or hereafter
regulated by the Toxic Substances Control Act, as amended ("TSCA") (15 U.S.C.
section 2601 et seq.) or any regulations promulgated under TSCA; (iv) petroleum,
petroleum by-products, gasoline, diesel fuel, or other petroleum hydrocarbons;
(v) asbestos and asbestos-containing material, in any form, whether friable or
non-friable; (vi) polychlorinated biphenyls; (vii) lead and lead-containing
materials; or (viii) any additional substance, material or waste (A) the
presence of which on or about the Premises (1) requires reporting, investigation
or remediation under any Environmental Laws (as hereinafter defined), (2) causes
or threatens to cause a nuisance on the Premises or any adjacent area or
property or poses or threatens to pose a hazard to the health or safety of
persons on the Premises or any adjacent area or property, or (3) which, if it
emanated or migrated from the Premises, could constitute a trespass, or (B)
which is now or is hereafter classified or considered to be hazardous or toxic
under any Environmental Laws.
(c) As used in this Lease, the term "ENVIRONMENTAL LAWS" shall mean and
include (i) CERCLA, RCRA and TSCA; and (ii) any other federal, state or local
laws, ordinances, statutes, codes, rules, regulations, orders or decrees now or
hereinafter in effect relating to (A) pollution, (B) the protection or
regulation of human health, natural resources or the environment, (C) the
treatment, storage or disposal of Hazardous Materials, or (D) the emission,
discharge, release or threatened release of Hazardous Materials into the
environment.
(d) Tenant agrees that during its use and occupancy of the Premises it
will (i) not (A) permit Hazardous Materials to be present on or about the
Premises except in a manner and quantity necessary for the ordinary performance
of Tenant's business or (B) release, discharge or dispose of any Hazardous
Materials on, in, at, under, or emanating from, the Premises, the Building or
the Project; (ii) comply with all Environmental Laws relating to the Premises
and the use of Hazardous Materials on or about the Premises and not engage in or
permit others to engage in any activity at the Premises in violation of any
Environmental Laws; and (iii) immediately notify Landlord of (A) any inquiry,
test, investigation or enforcement proceeding by any governmental agency or
authority against Tenant, Landlord or the Premises, Building or Project relating
to any Hazardous Materials or under any Environmental Laws or (B) the occurrence
of any event or existence of any condition that would cause a breach of any of
the covenants set forth in this Paragraph 32.
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(e) If Tenant's use of Hazardous Materials on or about the Premises
results in a release, discharge or disposal of Hazardous Materials on, in, at,
under, or emanating from, the Premises, the Building or the Project, Tenant
agrees to investigate, clean up, remove or remediate such Hazardous Materials in
full compliance with (i) the requirements of (A) all Environmental Laws and (B)
any governmental agency or authority responsible for the enforcement of any
Environmental Laws; and (ii) any additional requirements of Landlord that are
reasonably necessary to protect the value of the Premises, the Building or the
Project.
(f) Upon reasonable notice to Tenant, Landlord may inspect the Premises
and surrounding areas for the purpose of determining whether there exists on or
about the Premises any Hazardous Material or other condition or activity that is
in violation of the requirements of this Lease or of any Environmental Laws.
Such inspections may include, but are not limited to, entering the Premises or
adjacent property with drill rigs or other machinery for the purpose of
obtaining laboratory samples. Landlord shall not be limited in the number of
such inspections during the Term of this Lease. In the event (i) such
inspections reveal the presence of any such Hazardous Material or other
condition or activity in violation of the requirements of this Lease or of any
Environmental Laws, or (ii) Tenant or its Agents contribute or knowingly consent
to the presence of any Hazardous Materials in, on, under, through or about the
Premises, the Building or the Project or exacerbate the condition of or the
conditions caused by any Hazardous Materials in, on, under, through or about the
Premises, the Building or the Project, Tenant shall reimburse Landlord for the
cost of such inspections within ten (10) days of receipt of a written statement
therefor. Tenant will supply to Landlord such historical and operational
information regarding the Premises and surrounding areas as may be reasonably
requested to facilitate any such inspection and will make available for meetings
appropriate personnel having knowledge of such matters. Tenant agrees to give
Landlord at least sixty (60) days' prior notice of its intention to vacate the
Premises so that Landlord will have an opportunity to perform such an inspection
prior to such vacation. The right granted to Landlord herein to perform
inspections shall not create a duty on Landlord's part to inspect the Premises,
or liability on the part of Landlord for Tenant's use, storage, treatment or
disposal of Hazardous Materials, it being understood that Tenant shall be solely
responsible for all liability in connection therewith.
(g) Landlord shall have the right, but not the obligation, prior or
subsequent to a Default, without in any way limiting Landlord's other rights and
remedies under this Lease, to enter upon the Premises, or to take such other
actions as it deems necessary or advisable, to investigate, clean up, remove or
remediate any Hazardous Materials or contamination by Hazardous Materials
present on, in, at, under, or emanating from, the Premises, the Building or the
Project in violation of Tenant's obligations under this Lease or under any
Environmental Laws. Notwithstanding any other provision of this Lease, Landlord
shall also have the right, at its election, in its own name or as Tenant's
agent, to negotiate, defend, approve and appeal, at Tenant's expense, any action
taken or order issued by any governmental agency or authority with regard to any
such Hazardous Materials or contamination by Hazardous Materials. All costs and
expenses paid or incurred by Landlord in the exercise of the rights set forth in
this Paragraph 32 shall be payable by Tenant upon demand.
(h) Tenant shall surrender the Premises to Landlord upon the expiration
or earlier termination of this Lease free of debris, waste or Hazardous
Materials placed on, about or near the Premises by Tenant or Tenant's Agents,
and in a condition which complies with all
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Environmental Laws and any additional requirements of Landlord that are
reasonably necessary to protect the value of the Premises, the Building or the
Project, including, without limitation, the obtaining of any closure permits or
other governmental permits or approvals related to Tenant's use of Hazardous
Materials in or about the Premises. Tenant's obligations and liabilities
pursuant to the provisions of this Paragraph 32 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 Premises, the Building, and/or the
Project is not in compliance with the provisions of this Lease with respect to
Hazardous Materials, including, without limitation, all Environmental Laws, at
the expiration or earlier termination of this Lease, then at Landlord's sole
option, Landlord may require Tenant to hold over possession of the Premises
until Tenant can surrender the Premises to Landlord in the condition in which
the Premises existed as of the Commencement Date and prior to the appearance of
such Hazardous Materials except for normal wear and tear, including, without
limitation, the conduct or performance of any closures as required by any
Environmental Laws. The burden of proof hereunder shall be upon Tenant. For
purposes hereof, the term "normal wear and tear" shall not include any
deterioration in the condition or diminution of the value of any portion of the
Premises, the Building, and/or 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 Paragraph 35 of
this Lease.
(i) Tenant agrees to indemnify and hold harmless Landlord from and
against any and all claims, losses (including, without limitation, loss in value
of the Premises, the Building or the Project, liabilities and expenses
(including attorneys' fees)) sustained by Landlord attributable to (i) any
Hazardous Materials placed on or about the Premises, the Building or the Project
by Tenant or Tenant's Agents, or (ii) Tenant's breach of any provision of this
Paragraph 32.
(j) The provisions of this Paragraph 32 shall survive the expiration or
earlier termination of this Lease.
33. NOTICES
All notices and demands which are required or may be permitted to be
given to either party by the other hereunder shall be in writing and shall be
sent by United States mail, postage prepaid, certified, or by personal delivery
or overnight courier, addressed to the addressee at Tenant's Address or
Landlord's Address as specified in the Basic Lease Information, or to such other
place as either party may from time to time designate in a notice to the other
party given as provided herein. Copies of all notices and demands given to
Landlord shall additionally be sent to Landlord's property manager at the
address specified in the Basic Lease Information or at such other address as
Landlord may specify in writing from time to time. Notice shall be deemed given
upon actual receipt (or attempted delivery if delivery is refused), if
personally delivered, or one (1) business day following deposit with a reputable
overnight courier that provides a receipt, or on the third (3rd) day following
deposit in the United States mail in the manner described above.
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34. WAIVER
The waiver of any breach of any term, covenant or condition of this
Lease shall not be deemed to be a waiver of such term, covenant or condition or
of any subsequent breach of the same or any other term, covenant or condition
herein contained. The subsequent acceptance of Rent by Landlord shall not be
deemed to be a waiver of any preceding breach by Tenant, other than the failure
of Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such Rent. No
delay or omission in the exercise of any right or remedy of Landlord in regard
to any Default by Tenant shall impair such a right or remedy or be construed as
a waiver. Any waiver by Landlord of any Default must be in writing and shall not
be a waiver of any other Default concerning the same or any other provisions of
this Lease.
35. HOLDING OVER
Any holding over after the expiration of the Term, without the express
written consent of Landlord, shall constitute a Default and, without limiting
Landlord's remedies provided in this Lease, such holding over shall be construed
to be a tenancy at sufferance, at a rental rate equal to the greater of one
hundred fifty percent (150%) of the fair market rental value for the Premises as
determined by Landlord or two hundred percent (200%) of the Base Rent last due
in this Lease, plus Additional Rent, and shall otherwise be on the terms and
conditions herein specified, so far as applicable; provided, however, that in no
event shall any renewal or expansion option or other similar right or option
contained in this Lease be deemed applicable to any such tenancy at sufferance.
If the Premises are not surrendered at the end of the Term or sooner termination
of this Lease, and in accordance with the provisions of Paragraphs 11 and 32(h),
Tenant shall indemnify, defend and hold Landlord harmless from and against any
and all loss or liability resulting from delay by Tenant in so surrendering the
Premises including, without limitation, any loss or liability resulting from any
claim against Landlord made by any succeeding tenant or prospective tenant
founded on or resulting from such delay and losses to 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.
36. SUCCESSORS AND ASSIGNS
The terms, covenants and conditions of this Lease shall, subject to the
provisions as to assignment, apply to and bind the heirs, successors, executors,
administrators and assigns of all of the parties hereto. If Tenant shall consist
of more than one entity or person, the obligations of Tenant under this Lease
shall be joint and several.
37. TIME
Time is of the essence of this Lease and each and every term, condition
and provision herein.
38. BROKERS
Landlord and Tenant each represents and warrants to the other that
neither it nor its officers or agents nor anyone acting on its behalf has dealt
with any real estate broker except the
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Broker(s) specified in the Basic Lease Information in the negotiating or making
of this Lease, and each party agrees to indemnify and hold harmless the other
from any claim or claims, and costs and expenses, including attorneys' fees,
incurred by the indemnified party in conjunction with any such claim or claims
of any other broker or brokers to a commission in connection with this Lease as
a result of the actions of the indemnifying party.
39. LIMITATION OF LIABILITY
Tenant agrees that, in the event of any default or breach by Landlord
with respect to any of the terms of the Lease to be observed and performed by
Landlord (a) Tenant shall look solely to the then-current landlord's interest in
the Building for the satisfaction of Tenant's remedies for the collection of a
judgment (or other judicial process) requiring the payment of money by Landlord;
(b) no other property or assets of Landlord, its partners, shareholders,
officers, directors, employees, investment advisors, or any successor in
interest of any of them (collectively, the "LANDLORD PARTIES") shall be subject
to levy, execution or other enforcement procedure for the satisfaction of
Tenant's remedies; (c) no personal liability shall at any time be asserted or
enforceable against the Landlord Parties; and (d) no judgment will be taken
against the Landlord Parties. The provisions of this section shall apply only to
the Landlord and the parties herein described, and shall not be for the benefit
of any insurer nor any other third party.
40. FINANCIAL STATEMENTS
Within ten (10) days after Landlord's request, Tenant shall deliver to
Landlord the then current financial statements of Tenant (including interim
periods following the end of the last fiscal year for which annual statements
are available), prepared or compiled by a certified public accountant, including
a balance sheet and profit and loss statement for the most recent prior year,
all prepared in accordance with generally accepted accounting principles
consistently applied.
41. RULES AND REGULATIONS
Tenant agrees to comply with such reasonable rules and regulations as
Landlord may adopt from time to time for the orderly and proper operation of the
Building and the Project. Such rules may include but shall not be limited to the
following: (a) restriction of employee parking to a limited, designated area or
areas; and (b) regulation of the removal, storage and disposal of Tenant's
refuse and other rubbish at the sole cost and expense of Tenant. The then
current rules and regulations shall be binding upon Tenant upon delivery of a
copy of them to Tenant. Landlord shall not be responsible to Tenant for the
failure of any other person to observe and abide by any of said rules and
regulations. Landlord's current rules and regulations are attached to this Lease
as EXHIBIT D.
42. MORTGAGEE PROTECTION
(a) MODIFICATIONS FOR LENDER. If, in connection with obtaining financing
for the Project or any portion thereof, Landlord's lender shall request
reasonable modifications to this Lease as a condition to such financing, Tenant
shall not unreasonably withhold, delay or defer its consent to such
modifications, provided that such modifications do not materially adversely
affect Tenant's rights or increase Tenant's obligations under this Lease.
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(b) RIGHTS TO CURE. Tenant agrees to give to any trust deed or mortgage
holder ("HOLDER"), by registered mail, at the same time as it is given to
Landlord, a copy of any notice of default given to Landlord, provided that prior
to such notice Tenant has been notified, in writing, (by way of notice of
assignment of rents and leases, or otherwise) of the address of such Holder.
Tenant further agrees that if Landlord shall have failed to cure such default
within the time provided for in this Lease, then the Holder shall have an
additional twenty (20) days after expiration of such period, or after receipt of
such notice from Tenant (if such notice to the Holder is required by this
Paragraph 42(b)), whichever shall last occur within which to cure such default
or if such default cannot be cured within that time, then such additional time
as may be necessary if within such twenty (20) days, any Holder has commenced
and is diligently pursuing the remedies necessary to cure such default
(including, but not limited to, commencement of foreclosure proceedings, if
necessary to effect such cure), in which event this Lease shall not be
terminated.
43. ENTIRE AGREEMENT
This Lease, including the Exhibits and any Addenda attached hereto,
which are hereby incorporated herein by this reference, contains the entire
agreement of the parties hereto, and no representations, inducements, promises
or agreements, oral or otherwise, between the parties, not embodied herein or
therein, shall be of any force and effect.
44. INTEREST
Any installment of Rent and any other sum due from Tenant under this
Lease which is not received by Landlord within ten (10) days from when the same
is due shall bear interest from the date such payment was originally due under
this Lease until paid at an annual rate equal to the maximum rate of interest
permitted by law. Payment of such interest shall not excuse or cure any Default
by Tenant. In addition, Tenant shall pay all costs and attorneys' fees incurred
by Landlord in collection of such amounts.
45. CONSTRUCTION
This Lease shall be construed and interpreted in accordance with the
laws of the State of California. The parties acknowledge and agree that no rule
of construction to the effect that any ambiguities are to be resolved against
the drafting party shall be employed in the interpretation of this Lease,
including the Exhibits and any Addenda attached hereto. All captions in this
Lease are for reference only and shall not be used in the interpretation of this
Lease. Whenever required by the context of this Lease, the singular shall
include the plural, the masculine shall include the feminine, and vice versa. If
any provision of this Lease shall be determined to be illegal or unenforceable,
such determination shall not affect any other provision of this Lease and all
such other provisions shall remain in full force and effect.
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46. REPRESENTATIONS AND WARRANTIES OF TENANT
Tenant hereby makes the following representations and warranties, each
of which is material and being relied upon by Landlord, is true in all respects
as of the date of this Lease, and shall survive the expiration or termination of
the Lease.
(a) If Tenant is an entity, Tenant is duly organized, validly existing
and in good standing under the laws of the state of its organization and the
persons executing this Lease on behalf of Tenant have the full right and
authority to execute this Lease on behalf of Tenant and to bind Tenant without
the consent or approval of any other person or entity. Tenant has full power,
capacity, authority and legal right to execute and deliver this Lease and to
perform all of its obligations hereunder. This Lease is a legal, valid and
binding obligation of Tenant, enforceable in accordance with its terms.
(b) Tenant has not (i) made a general assignment for the benefit of
creditors, (ii) filed any voluntary petition in bankruptcy or suffered the
filing of an involuntary petition by any creditors, (iii) suffered the
appointment of a receiver to take possession of all or substantially all of its
assets, (iv) suffered the attachment or other judicial seizure of all or
substantially all of its assets, (v) admitted in writing its inability to pay
its debts as they come due, or (vi) made an offer of settlement, extension or
composition to its creditors generally.
47. SECURITY
(a) Tenant acknowledges and agrees that, while Landlord may engage
security personnel to patrol the Building or the Project, Landlord is not
providing any security services with respect to the Premises, the Building or
the Project and that Landlord shall not be liable to Tenant for, and Tenant
waives any claim against Landlord with respect to, any loss by theft or any
other damage suffered or incurred by Tenant in connection with any unauthorized
entry into the Premises or any other breach of security with respect to the
Premises, the Building or the Project.
(b) Tenant hereby agrees to the exercise by Landlord and Landlord's
Agents, within their sole discretion, of such security measures as, but not
limited to, the evacuation of the Premises, the Building or the Project for
cause, suspected cause or for drill purposes, the denial of any access to the
Premises, the Building or the Project and other similarly related actions that
it deems necessary to prevent any threat of property damage or bodily injury.
The exercise of such security measures by Landlord and Landlord's Agents, and
the resulting interruption of service and cessation of Tenant's business, if
any, shall not be deemed an eviction or disturbance of Tenant's use and
possession of the Premises, or any part thereof, or render Landlord or
Landlord's Agents liable to Tenant for any resulting damages or relieve Tenant
from Tenant's obligations under this Lease.
48. JURY TRIAL WAIVER
Tenant hereby waives any right to trial by jury with respect to any
action or proceeding (a) brought by Landlord, Tenant or any other party,
relating to (i) this Lease and/or any understandings or prior dealings between
the parties hereto, or (ii) the Premises, the Building or the Project or any
part thereof, or (b) to which Landlord is a party. Tenant hereby agrees that
this Lease constitutes a written consent to waiver of trial by jury pursuant to
the provisions of
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California Code of Civil Procedure Section 631, and Tenant does hereby
constitute and appoint Landlord its true and lawful attorney-in-fact, which
appointment is coupled with an interest, and Tenant does hereby authorize and
empower Landlord, in the name, place and stead of Tenant, to file this Lease
with the clerk or judge of any court of competent jurisdiction as a statutory
written consent to waiver of trial by jury.
Landlord and Tenant have executed and delivered this Lease as of the
Lease Date specified in the Basic Lease Information.
LANDLORD: AETNA LIFE INSURANCE COMPANY,
a Connecticut corporation,
By: UBS Brinson Realty Investors LLC
its Investment Advisor and Agent
By: /s/ Signature Illegible
Cynthia Stevenin
Vice President
TENANT: STANFORD MICRODEVICES, INC.,
a Delaware corporation
By: /s/ Signature Illegible
Name: Susan M. Ocampo
------------------------------
Title: Treasurer
-----------------------------
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[EXHIBIT OMITTED]
<PAGE> 45
EXHIBIT B
TENANT IMPROVEMENTS
This exhibit, entitled "Tenant Improvements", is and shall constitute
Exhibit B to the Lease Agreement, dated as of the Lease Date, by and between
Landlord and Tenant for the Premises. The terms and conditions of this Exhibit B
are hereby incorporated into and are made a part of the Lease. Capitalized terms
used, but not otherwise defined, in this Exhibit B have the meanings ascribed to
such terms in the Lease.
1. LANDLORD'S WORK
Prior to the Commencement Date, Landlord shall, at its sole cost and
expense, construct an insulating wall to Landlord's specifications surrounding
the existing transformer in the rear of the Premises ("LANDLORD'S WORK").
2. TENANT IMPROVEMENTS
In addition to Landlord's Work, subject to the conditions set forth
below, Landlord agrees to construct certain Tenant Improvements in the Premises
pursuant to the terms of this Exhibit B.
3. DEFINITION
"TENANT IMPROVEMENTS" as used in the Lease and this Exhibit B shall
include only those improvements within the interior portions of the Premises
which are depicted on the Final Plans and Specifications (hereafter defined in
Paragraph 4) or described hereinbelow. "TENANT IMPROVEMENTS" shall specifically
not include Landlord's Work, any Alterations installed or constructed by Tenant,
or any of Tenant's Property.
The Tenant Improvements may include:
(a) Partitioning, doors, floor coverings, finishes, ceilings, wall
coverings and painting, millwork and similar items.
(b) Electrical wiring, lighting fixtures, outlets and switches, and
other electrical work.
(c) Duct work, terminal boxes, diffusers and accessories required for
the completion of the heating, ventilation and air conditioning systems serving
the Premises, including the cost of meter and key control for after-hour air
conditioning.
(d) Any additional Tenant requirements including, but not limited to,
odor control, special heating, ventilation and air conditioning, noise or
vibration control or other special systems.
(e) All fire and life safety control systems such as fire walls,
sprinklers, halon, fire alarms, including piping, wiring and accessories
installed within the Building and serving the Premises.
(f) All plumbing, fixtures, pipes, and accessories to be installed
within the Building and serving the Premises.
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4. Plans and Specifications
Landlord shall retain the architect specified in the Basic Lease
Information ("ARCHITECT") for the preparation of preliminary and final working
architectural and engineering plans and specifications for the Tenant
Improvements ("FINAL PLANS AND SPECIFICATIONS"). Landlord reserves the right to
substitute for the Architect another architect of its selection. Tenant shall
cooperate diligently with the Architect and shall furnish within ten (10) days
after request therefor, all information required by the Architect for completion
of the Final Plans and Specifications, and shall provide (in writing, if
requested by Landlord), not later than three (3) business days after request
therefor, any approval or disapproval of preliminary or Final Plans and
Specifications which Tenant is permitted to give under this Exhibit B. The Final
Plans and Specifications shall be subject to Landlord's approval, which approval
shall not be unreasonably withheld. Landlord shall not be deemed to have acted
unreasonably if it withholds its approval of any plans, specifications, drawings
or other details or of any requested changes thereto because, in Landlord's
reasonable opinion, the work as described in any such item, or any requested
change, as the case may be: (a) is likely to adversely affect Building systems,
the structure of the Building or the safety of the Building and/or its
occupants; (b) might impair Landlord's ability to furnish services to Tenant or
other tenants in the Building or the Project; (c) would increase the cost of
operating the Building or the Project; (d) would violate any Laws; (e) contains
or uses Hazardous Materials; (f) would adversely affect the appearance of the
Building or the Project or the marketability of the Premises to subsequent
tenants; (g) might adversely affect another tenant's premises or such other
tenant's use and enjoyment of such premises; (h) is prohibited by any ground
lease affecting the Building and/or the Project, any Private Restrictions or any
mortgage, trust deed or other instrument encumbering the Building and/or the
Project; (i) is likely to be substantially delayed because of unavailability or
shortage of labor or materials necessary to perform such work or the
difficulties or unusual nature of such work; (j) is not, at a minimum in
accordance with Landlord's building standards, or (k) would increase the Tenant
Improvements Cost (defined in Paragraph 7 below) by more than ten percent (10%)
from the cost originally estimated and anticipated by the parties. The foregoing
reasons, however, shall not be the only reasons for which Landlord may withhold
its approval, whether or not such other reasons are similar or dissimilar to the
foregoing. Neither the approval by Landlord of the Final Plans and
Specifications or any other plans, specifications, drawings or other items
associated with the Tenant Improvements nor Landlord's performance, supervision
or monitoring of the Tenant Improvements shall constitute any warranty or
covenant by Landlord to Tenant of the adequacy of the design for Tenant's
intended use of the Premises. Tenant agrees to, and does hereby, assume full and
complete responsibility to ensure that the Tenant Improvements and the Final
Plans and Specifications are adequate to fully meet the needs and requirements
of Tenant's intended operations of its business within the Premises and Tenant's
use of the Premises. Landlord and Tenant shall indicate their approval of the
Final Plans and Specifications by initialing them and attaching them to the
Lease as Exhibit B-1. Upon completion of the Final Plans and Specifications and
approval thereof by Landlord and Tenant, Landlord will obtain subcontractor
trade bids and furnish a cost breakdown to Tenant. In the event the estimated
Tenant Improvements Cost, based on such bids and the reasonably anticipated
costs of other items constituting the Tenant Improvements Cost, exceeds the
Tenant Improvements Allowance (hereafter defined in Paragraph 6), plus any
amounts which Tenant desires to pay as an Excess Tenant Improvements Cost
(hereafter defined in Paragraph 8) ("TENANT'S T.I. BUDGET"), at Tenant's
request, the Final Plans and Specifications may be revised once, at Tenant's
cost and
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expense. Any such revisions shall be subject to Landlord's approval, and the
amended Final Plans and Specifications, as approved by Landlord and Tenant,
shall thereafter be deemed to be the Final Plans and Specifications for the
Tenant Improvements. The amended Final Plans and Specifications shall be
approved by Tenant (in writing, if requested by Landlord) not later than three
(3) days after Landlord's request therefor. Landlord shall thereafter submit
such amended Final Plans and Specifications to its contractor and subcontractor
for re-bidding, and shall furnish a cost breakdown to Tenant. If the estimated
Tenant Improvements Cost, as determined by the bids based on the amended Final
Plans and Specifications and the reasonably anticipated costs of other items
constituting the Tenant Improvements Cost, result in an Excess Tenant
Improvements Cost, then Tenant shall pay such Excess Tenant Improvements Cost as
and when required by Paragraph 8. Tenant's failure to approve or disapprove any
matters which Tenant shall be entitled to approve or disapprove pursuant to this
Paragraph 4 shall be conclusively deemed to be approval of same by Tenant.
5. LANDLORD TO CONSTRUCT IMPROVEMENTS
When the Final Plans and Specifications (as amended, if required by
Paragraph 4 above) have been approved by Landlord and Tenant, Landlord shall
submit such Final Plans and Specifications to all governmental authorities
having rights of approval over the Tenant Improvement work and shall apply for
all governmental approvals and building permits. Subject to satisfaction of all
conditions precedent and subsequent to its obligations under this Exhibit B, and
further subject to the provisions of Paragraph 8, Landlord shall thereafter
commence and proceed to complete construction of the Tenant Improvements.
6. TENANT IMPROVEMENTS ALLOWANCE
Landlord shall provide an allowance for the planning and construction of
the Tenant Improvements in the amount specified in the Basic Lease Information
("TENANT IMPROVEMENTS ALLOWANCE"). The Tenant Improvements Allowance shall be
the maximum contribution by Landlord for the Tenant Improvements Cost. Should
the actual cost of planning and constructing those Tenant Improvements depicted
on the Final Plans and Specifications be less than the Tenant Improvements
Allowance, the Tenant Improvements Allowance shall be reduced to an amount equal
to said actual cost.
7. TENANT IMPROVEMENTS COST
The Tenant Improvements Cost ("TENANT IMPROVEMENTS COST") shall include
all costs and expenses associated with the design, preparation, approval and
construction of the Tenant Improvements, including, but not limited to, the
following:
(a) All costs of preliminary and final architectural and engineering
plans and specifications for the Tenant Improvements, and engineering costs
associated with completion of the State of California energy utilization
calculations under Title 24 legislation;
(b) All costs of obtaining building permits and other necessary
authorizations and approvals from local governmental authorities;
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(c) All costs of interior design and finish schedule plans and
specifications including as-built drawings;
(d) 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 Landlord, Landlord's consultants and property manager and Landlord's
contractor in connection with construction of the Tenant Improvements and all
labor (including overtime) and materials constituting the Tenant Improvements;
(e) All fees payable to the Architect, general contractor,
subcontractors and Landlord's engineering firm if they are required by Tenant
and/or any governmental authorities to redesign any portion of the Tenant
Improvements following Tenant's approval of the Final Plans and Specifications;
(f) All construction and project management fees payable by Landlord to
Landlord's property management company or any other individual or entity; and
(g) Utility connection fees.
In no event shall the Tenant Improvements Cost include any costs of
procuring, constructing or installing in the Premises any of Tenant's Property.
8. EXCESS TENANT IMPROVEMENTS COST
If the Tenant Improvements Cost is more than the Tenant Improvements
Allowance, then the difference between the Tenant Improvements Cost and the
Tenant Improvements Allowance ("EXCESS TENANT IMPROVEMENTS COST") shall be paid
by Tenant to Landlord in cash, within ten (10) days of delivery of statements
from Landlord to Tenant therefor. If construction of the Tenant Improvements
will result in an Excess Tenant Improvements Cost, Landlord shall not be
obligated to commence or continue construction of the Tenant Improvements if
payment of the Excess Tenant Improvements Costs by Tenant is not received within
ten (10) days after delivery by Landlord to Tenant of a statement therefor;
provided, however, that Landlord may, at its option, commence or continue
construction of the Tenant Improvements, in which event Tenant shall pay the
Excess Tenant Improvements Cost within ten (10) days after delivery by Landlord
to Tenant of the statement therefor. If Landlord so elects to commence
construction of the Tenant Improvements or has already commenced construction of
the Tenant Improvements when there occurs an Excess Tenant Improvements Cost,
then Landlord shall be entitled to suspend or terminate construction of the
Tenant Improvements if payment by Tenant to Landlord of the Excess Tenant
Improvement Costs has not been received within ten (10) days after delivery by
Landlord to Tenant of a statement therefor.
9. CHANGE REQUEST
When the Final Plans and Specifications have been approved by Landlord,
there shall be no changes without Landlord's prior written consent, except for
(a) necessary on-site installation variations or minor changes necessary to
comply with building codes and other governmental regulations; (b) one revision,
if requested by Tenant, to adjust the estimated Tenant
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Improvements Cost to Tenant's T.I. Budget therefor, as permitted by Paragraph 4
above; and (c) changes approved in writing by both parties. Any costs related to
such governmentally required or requested and approved changes shall be added to
the Tenant Improvements Cost and, to the extent such cost results in Excess
Tenant Improvements Cost, shall be paid for by Tenant as and with any Excess
Tenant Improvements Cost as set forth in Paragraph 8. The billing for such
additional costs to Tenant shall be accompanied by evidence of the amounts
billed as is customarily used in the business. Costs related to changes shall
include, without limitation, any architectural or design fees, construction
management fees and Landlord's general contractor's price for effecting the
change.
10. TERMINATION
If the Lease is terminated prior to completion of the Tenant
Improvements for any reason due to the Default of Tenant under the Lease, in
addition to any other damages available to Landlord, Tenant shall pay to
Landlord, within five (5) days of receipt of a statement therefor, all costs
incurred by Landlord through the date of termination in connection with the
Tenant Improvements. Landlord shall have the right to terminate the Lease, upon
written notice to Tenant, if Landlord is unable to obtain a building permit for
the Tenant Improvements within one hundred twenty (120) days from the date the
Lease is mutually executed.
11. INTEREST
Any payments required to be made by Tenant hereunder which are not paid
when due shall bear interest at the maximum rate permitted by law from the due
date therefor until paid.
12. DISCLAIMER
Landlord shall have no liability to Tenant in the event construction of
the Tenant Improvements is delayed or prevented due to any cause beyond
Landlord's reasonable control. If Tenant is entitled or permitted to enter the
Premises prior to completion of the Tenant Improvements, Landlord shall not be
liable to Tenant or Tenant's Agents for any loss or damage to property, or
injury to person, arising from or related to construction of the Tenant
Improvements. Tenant shall take all reasonable precautions to protect against
such loss, damage or injury during construction of the Tenant Improvements, and
shall not interfere with the conduct of the Tenant Improvement work. Tenant
shall cooperate with all reasonable directives of Landlord and Landlord's
contractor in order to minimize any disruption or delay in completion of the
Tenant Improvements work.
13. 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. 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.
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EXHIBIT B-1
FINAL PLANS AND SPECIFICATIONS
Reference is hereby made to that certain Lease Agreement dated January
14, 2000 by and between AETNA LIFE INSURANCE COMPANY, a Connecticut corporation,
as landlord ("LANDLORD"), and STANFORD MICRODEVICES, INC., a Delaware
corporation, as tenant ("TENANT") ("LEASE AGREEMENT").
The Final Plans and Specifications (as defined in Exhibit B to the Lease
Agreement) consists of the following described drawings, specifications and
other documents:
Title of Drawing, Specification or
Other Document Date
The Final Plans and Specifications have been initiated by both Landlord
and Tenant and are on file with Landlord.
INITIALS: ________________ ______________
Landlord Tenant
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EXHIBIT C
COMMENCEMENT AND EXPIRATION DATE MEMORANDUM
LANDLORD: AETNA LIFE INSURANCE COMPANY
TENANT: STANFORD MICRODEVICES, INC.
LEASE DATE: January 14, 2000
PREMISES: Located at 726 Palomar Avenue, Sunnyvale, California
Tenant hereby accepts the Premises as being in the condition required
under the Lease, with all Tenant Improvements completed (except for minor
punchlist items which Landlord agrees to complete).
The Commencement Date of the Lease is hereby established as ___________,
________ and the Expiration Date is ____________________, ______.
TENANT: STANFORD MICRODEVICES, INC.,
a Delaware corporation
By: ___________________________
Name:__________________________
Title:_________________________
Approved and Agreed:
LANDLORD:
AETNA LIFE INSURANCE COMPANY,
a Connecticut corporation,
By: UBS Brinson Realty Investors LLC
its Investment Advisor and Agent
By:_______________________________
Cynthia Stevenin
Vice President
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<PAGE> 52
EXHIBIT D
RULES AND REGULATIONS
This exhibit, entitled "Rules and Regulations," is and shall constitute
Exhibit D to the Lease Agreement, dated as of the Lease Date, by and between
landlord and Tenant for the Premises. The terms and conditions of this Exhibit D
are hereby incorporated into and are made a part of the Lease. Capitalized terms
used, but not otherwise defined, in this Exhibit D have the meanings ascribed to
such terms in the Lease.
1. Tenant shall not use any method of heating or air conditioning other
than that supplied by Landlord without the consent of Landlord.
2. All window coverings installed by Tenant and visible from the outside
of the building require the prior written approval of Landlord.
3. 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, except to the extent that Tenant is permitted to use the same
under the terms of Paragraph 32 of the Lease.
4. 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.
5. Tenant shall not make any duplicate keys without the prior consent of
Landlord.
6. Tenant shall park motor vehicles in parking areas designated by
Landlord except for loading and unloading. During those periods of loading and
unloading, Tenant shall not unreasonably interfere with traffic flow around the
Building or the Project and loading and unloading areas of other tenants. Tenant
shall not park motor vehicles in designated parking areas after the conclusion
of normal daily business activity.
7. Tenant shall not disturb, solicit or canvas any tenant or other
occupant of the Building or Project and shall cooperate to prevent same.
8. No person shall go on the roof without Landlord's permission.
9. 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 in noise-dampening housing or other devices sufficient to
eliminate noise or vibration.
10. 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.
11. 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
D-1
<PAGE> 53
damage to the asphalt paving surfaces. No parking or storing of such trailers
will be permitted in the auto parking areas of the Project or on streets
adjacent thereto.
12. Forklifts which operate on asphalt paving areas shall not have solid
rubber tires and shall only use tires that do not damage the asphalt.
13. 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.
14. Tenant shall not store or permit the storage or placement of goods
or merchandise in or around the common areas surrounding the Premises. No
displays or sales of merchandise shall be allowed in the parking lots or other
common areas.
15. 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 Project or any of the common areas.
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<PAGE> 54
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 to evaluate your proposed uses of the premises
(the "PREMISES") and to determine whether to enter into a lease agreement with
you as tenant. If a lease agreement is signed by you and the Landlord (the
"LEASE AGREEMENT"), on an annual basis in accordance with the provisions of
Paragraph 32 of the Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. Any questions
regarding this certificate should be directed to, and when completed, the
certificate should be delivered to:
Landlord: Aetna Life Insurance Company
c/o Allegis Realty Investors LLC
455 Market Street, Suite 1540
San Francisco, California 94105
Attention: Cynthia Stevenin
Phone: (415) 538-4800
Name of (Prospective) Tenant: Stanford Microdevices
---------------------
Mailing Address: 726 Palomar Avenue
------------------
Sunnyvale, CA 94086
-------------------
Contact Person, Title and Telephone Number(s):
Guy Krevet, V.P. Operation (408) 616-5413
-----------------------------------------
Contact Person for Hazardous Waste Materials Management and Manifests
and Telephone Number(s): Don Scheel (408) 616-5433
-------------------------
Address of (Prospective) Premises: 726 Palomar Avenue
------------------
Length of (Prospective) initial Term: 5 years
-------
1. GENERAL INFORMATION:
Describe the proposed operations to take place in, on, or about
the Premises, including, without limitation, principal products
processed, manufactured or assembled, and services and activities to be
provided or otherwise conducted. Existing tenants should describe any
proposed changes to on-going operations.
Office functions for sales, administration and application engineering.
-----------------------------------------------------------------------
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<PAGE> 55
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials (as hereinafter defined) be used,
generated, treated, stored or disposed of in, on or about the
Premises? Existing tenants should describe any Hazardous
Materials which continue to be used, generated, treated, stored
or disposed of in, on or about the Premises.
Wastes Yes [ ] No [X]
Chemical Products Yes [ ] No [X]
Other Yes [ ] No [X]
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, treated, 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 to be present on or about the Premises 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, as hereinafter defined); and
the proposed location(s) and method(s) of treatment or 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 or treatment 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 [X]
If yes, please explain: _________________________________________
_________________________________________________________________
_________________________________________________________________
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<PAGE> 56
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 [X]
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 [X]
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:
______ storm drain? _____ sewer?
______ surface water? [X] no wastewater or other wastes
discharged.
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 [X]
If yes, describe the type of treatment proposed to be conducted.
Existing tenants should describe the actual treatment conducted.
_________________________________________________________________
_________________________________________________________________
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<PAGE> 57
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 [X]
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) [X] No Equipment Requiring Air Permits
If yes, please describe: ________________________________________
_________________________________________________________________
_________________________________________________________________
6.3 Please describe (and submit copies of with this Hazardous
Materials Disclosure Certificate) any reports you have filed in
the past [thirty-six] months with any governmental or
quasi-governmental agencies or authorities related to air
discharges or clean air requirements and any such reports which
have been issued during such period by any such agencies or
authorities with respect to you or your business operations.
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<PAGE> 58
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan. ("MANAGEMENT PLAN") or
Hazardous Materials Business Plan and Inventory ("BUSINESS 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 [X]
If yes, attach a copy of the Management Plan or Business Plan.
Existing tenants should attach a copy of any required updates to
the Management Plan or Business 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 listed or regulated under Proposition 65? Existing
tenants should indicate whether or not there are any new
Hazardous Materials being so used which are listed or regulated
under Proposition 65.
Yes [ ] No [X]
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 [X]
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
Paragraph 32 of the Lease Agreement.
_________________________________________________________________
_________________________________________________________________
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<PAGE> 59
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 [X]
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and 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
Paragraph 32 of the 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 and the current status
of any such problems or complaints.
Yes [ ] No [X]
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 and the
current status of any such problems or complaints.
_________________________________________________________________
_________________________________________________________________
9. PERMITS AND LICENSES
9.1 Attach copies of all permits and licenses issued to your company
with respect to its proposed operations in, on or about the
Premises, including, without limitation, any Hazardous Materials
permits, 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.
As used herein, "HAZARDOUS MATERIALS" shall mean and include any
substance that is or contains (a) any "hazardous substance" as now or hereafter
defined in section 101(14) of the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA") (42 U.S.C.
section 9601 et seq.) or any regulations promulgated under CERCLA; (b) any
"hazardous waste" as now or hereafter defined in the Resource Conservation and
Recovery Act, as amended ("RCRA") (42 U.S.C. section 6901 et seq.) or any
regulations promulgated under RCRA;
E-6
<PAGE> 60
(c) any substance now or hereafter regulated by the Toxic Substances Control
Act, as amended ("TSCA") (15 U.S.C. section 2601 et seq.) or any regulations
promulgated under TSCA; (d) petroleum, petroleum by-products, gasoline, diesel
fuel, or other petroleum hydrocarbons; (e) asbestos and asbestos-containing
material, in any form, whether friable or non-friable; (f) polychlorinated
biphenyls; (g) lead and lead-containing materials; or (h) any additional
substance, material or waste (A) the presence of which on or about the Premises
(i) requires reporting, investigation or remediation under any Environmental
Laws (as hereinafter defined), (ii) causes or threatens to cause a nuisance on
the Premises or any adjacent property or poses or threatens to pose a hazard to
the health or safety of persons on the Premises or any adjacent property, or
(iii) which, if it emanated or migrated from the Premises, could constitute a
trespass, or (B) which is now or is hereafter classified or considered to be
hazardous or toxic under any Environmental Laws; and "ENVIRONMENTAL LAWS" shall
mean and include (a) CERCLA, RCRA and TSCA; and (b) any other federal, state or
local laws, ordinances, statutes, codes, rules, regulations, orders or decrees
now or hereinafter in effect relating to (i) pollution, (ii) the protection or
regulation of human health, natural resources or the environment, (iii) the
treatment, storage or disposal of Hazardous Materials, or (iv) the emission,
discharge, release or threatened release of Hazardous Materials into the
environment.
The undersigned hereby acknowledges and agrees that this Hazardous
Materials Disclosure Certificate is being delivered to Landlord in connection
with the evaluation of a Lease Agreement and, if such Lease Agreement is
executed, will be attached thereto as an exhibit. The undersigned further
acknowledges and agrees that if such Lease Agreement is executed, this Hazardous
Materials Disclosure Certificate will be updated from time to time in accordance
with Paragraph 32 of the Lease Agreement. The undersigned further acknowledges
and agrees that the 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] Guy Krevet, 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.
(PROSPECTIVE) TENANT:
STANFORD MICRODEVICES, INC.,
a __________________________________ corporation
By: /s/ Signature Illegible
Name: Guy Krevet
----------------------------
Title: V.P. Operation
---------------------------
Date: January 20, 2000
----------------------------
E-7
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 16, 2000 (except for the fourth paragraph of Note 11, as to which the
date is April 10, 2000) in the Registration Statement (Form S-1 No. 333-31382)
and related Prospectus of Stanford Microdevices, Inc.
Our audits also included the financial statement schedule of Stanford
Microdevices, Inc. for each of the three years in the period ended December 31,
1999 listed in Item 16(b) of this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
April 11, 2000
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