<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to_____________
---------------
Commission File Number 0-9653
XICOR, INC.
(Exact name of registrant as specified in its charter)
California 94-2526781
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1511 Buckeye Drive, Milpitas, California 95035
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 432-8888
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
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NUMBER OF SHARES OUTSTANDING AT APRIL 2, 2000
21,110,735
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XICOR, INC.
FORM 10-Q
QUARTER ENDED APRIL 2, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at April 2, 2000 1
and December 31, 1999
Consolidated Statements of Operations for the three 2
months ended April 2, 2000 and April 4, 1999
Consolidated Statements of Cash Flows for the three 3
months ended April 2, 2000 and April 4, 1999
Notes to Consolidated Financial Information 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 5
CONDITION AND RESULTS OF OPERATIONS
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 18
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
XICOR, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 2, December 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 25,779,000 $ 22,233,000
Accounts receivable 12,008,000 8,508,000
Inventories 11,058,000 13,003,000
Prepaid expenses and other current assets 445,000 380,000
------------- -------------
Total current assets 49,290,000 44,124,000
Property, plant and equipment,
at cost less accumulated depreciation 8,726,000 8,835,000
Other assets 1,835,000 1,835,000
------------- -------------
$ 59,851,000 $ 54,794,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,569,000 $ 8,018,000
Accrued expenses 14,086,000 14,343,000
Deferred income on shipments to distributors 13,426,000 12,828,000
Current portion of long-term obligations 5,277,000 5,362,000
------------- -------------
Total current liabilities 42,358,000 40,551,000
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Long-term obligations 8,509,000 9,794,000
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Shareholders' equity:
Preferred stock; 5,000,000 shares authorized -- --
Common stock; 75,000,000 shares authorized;
21,110,735 and 20,595,261 shares outstanding 130,517,000 129,005,000
Accumulated deficit (121,533,000) (124,556,000)
------------- -------------
8,984,000 4,449,000
------------- -------------
$ 59,851,000 $ 54,794,000
============= =============
</TABLE>
See accompanying notes to consolidated financial information
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XICOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------------------------
April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
Net sales $ 32,145,000 $ 25,656,000
Cost of sales 18,546,000 21,001,000
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Gross profit 13,599,000 4,655,000
------------ ------------
Operating expenses:
Research and development 4,074,000 3,559,000
Selling, general and administrative 6,395,000 5,262,000
------------ ------------
10,469,000 8,821,000
------------ ------------
Income (loss) from operations 3,130,000 (4,166,000)
Interest expense (265,000) (392,000)
Interest income 317,000 161,000
------------ ------------
Income (loss) before income taxes 3,182,000 (4,397,000)
Provision for income taxes 159,000 --
------------ ------------
Net income (loss) $ 3,023,000 $ (4,397,000)
============ ============
Net income (loss) per common share:
Basic $ 0.14 $ (0.22)
============ ============
Diluted $ 0.13 $ (0.22)
============ ============
Shares used in per share calculations:
Basic 20,894,000 20,173,000
============ ============
Diluted 23,306,000 20,173,000
============ ============
</TABLE>
See accompanying notes to consolidated financial information
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XICOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
April 2, 2000 April 4, 1999
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,023,000 $ (4,397,000)
Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:
Depreciation 991,000 3,340,000
Changes in assets and liabilities:
Accounts receivable (3,500,000) (548,000)
Inventories 1,945,000 1,576,000
Prepaid expenses and other current assets (65,000) 177,000
Other assets -- (2,000)
Accounts payable and accrued expenses 1,294,000 (1,246,000)
Deferred income on shipments to distributors 598,000 167,000
------------ ------------
Net cash provided by (used in) operating activities 4,286,000 (933,000)
------------ ------------
Cash flows from investing activities:
Investments in plant and equipment, net (882,000) (331,000)
------------ ------------
Net cash used in investing activities (882,000) (331,000)
------------ ------------
Cash flows from financing activities:
Repayments of long-term obligations (1,370,000) (1,752,000)
Net proceeds from sale of common stock 1,512,000 96,000
------------ ------------
Net cash provided by (used in) financing activities 142,000 (1,656,000)
------------ ------------
Increase (decrease) in cash and cash equivalents 3,546,000 (2,920,000)
Cash and cash equivalents at beginning of year 22,233,000 17,881,000
------------ ------------
Cash and cash equivalents at end of period $ 25,779,000 $ 14,961,000
============ ============
Supplemental information:
Cash paid during the year for:
Interest expense $ 263,000 $ 397,000
Income taxes 31,000 5,000
</TABLE>
See accompanying notes to consolidated financial information
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XICOR, INC.
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
NOTE 1 - THE COMPANY:
In the opinion of management, all adjustments necessary for a fair
statement of the results of the interim periods presented (consisting only of
normal recurring adjustments) have been included. These financial statements,
notes and analyses should be read in conjunction with Xicor's Annual Report on
Form 10-K for the year ended December 31, 1999 filed with the Securities and
Exchange Commission.
NOTE 2 - NET INCOME (LOSS) PER SHARE:
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding. Diluted net income (loss) per share is
computed using the weighted average number of common shares and all dilutive
potential common shares outstanding. Options to purchase 2,324,425 shares of
common stock were outstanding at April 4, 1999, but were excluded from the
earnings per share (EPS) computation for the three months ended April 4, 1999 as
they were antidilutive.
NOTE 3 - COMPREHENSIVE INCOME (LOSS):
The net income (loss) for the periods reported also approximated the
comprehensive net income (loss) for such periods.
NOTE 4 - BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
April 2, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Inventories:
Raw materials and supplies $ 811,000 $ 1,061,000
Work in process 5,732,000 7,419,000
Finished goods 4,515,000 4,523,000
------------ ------------
$ 11,058,000 $ 13,003,000
============ ============
Property, plant and equipment:
Leasehold improvements $ 2,582,000 $ 2,582,000
Equipment 42,910,000 42,485,000
Furniture and fixtures 1,343,000 1,343,000
Construction in progress 1,524,000 1,223,000
------------ ------------
48,359,000 47,633,000
Accumulated depreciation (39,633,000) (38,798,000)
------------ ------------
$ 8,726,000 $ 8,835,000
============ ============
Accrued expenses:
Accrued wages and employee benefits $ 3,694,000 $ 3,907,000
Accrued restructuring liabilities 6,249,000 6,289,000
Other accrued expenses 4,143,000 4,147,000
------------ ------------
$ 14,086,000 $ 14,343,000
============ ============
</TABLE>
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Accounts receivable:
Accounts receivable at April 2, 2000 and December 31, 1999 are presented
net of an allowance for doubtful accounts of $500,000.
Accrued restructuring costs:
During 1998 Xicor began to revise its manufacturing and procurement
strategies to significantly increase outsourcing of wafer fabrication and
product testing to overseas subcontractors and to streamline operations.
Throughout 1999, products manufactured by the outside foundry comprised an
increasing proportion of Xicor's production and during the fourth quarter of
1999, two other foundries successfully produced initial wafers based on
specifications provided by Xicor. Since Xicor now had multiple third-party
locations able to produce its products, at significantly lower unit costs than
the Milpitas in-house facility, Xicor decided to close its Milpitas in-house
wafer fabrication facility and use third party foundries for all of Xicor's
wafer fabrication production. The decision to close the Milpitas facility was
approved by Xicor's Board of Directors in December 1999 and the production at
the Milpitas facility is expected to cease around the end of the summer of 2000.
Related reductions in workforce of approximately 200 employees, primarily in
manufacturing and related support groups, are planned to occur primarily in the
second half of 2000. The following table sets forth charges taken against the
accrual and the remaining restructuring accrual balance at April 2, 2000:
<TABLE>
<CAPTION>
Restructuring Accrual
----------------------------------------------------------------------------
Three Months Ended
April 2, 2000
---------------------------------
December 31, April 2,
1999 Expense Utilized 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fab closure costs $ 3,555,000 $ -- $ -- $ 3,555,000
Employee severance and other 2,365,000 -- 40,000 2,325,000
Equipment lease costs 1,484,000 -- -- 1,484,000
Idle facilities charge 878,000 -- -- 878,000
----------- ----------- ----------- -----------
8,282,000 $ -- $ 40,000 8,242,000
=========== ===========
Less: long-term obligations (1,993,000) (1,993,000)
=========== ===========
$ 6,289,000 $ 6,249,000
=========== ===========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Quarterly Financial Information and Notes thereto and Xicor's
Annual Report on Form 10-K for the year ended December 31, 1999. The results of
operations for the three months ended April 2, 2000 are not necessarily
indicative of results to be expected in future periods.
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RESULTS OF OPERATIONS
Sales for the three months ended April 2, 2000 increased 25% compared to
the comparable prior year quarter primarily due to increased unit shipments and
higher average selling prices. Sales of mixed signal products grew from
approximately 25% of sales in the first quarter of 1999 to 29% of sales in the
first quarter of 2000. Based on revenues to date in the second quarter combined
with an analysis of recent bookings, sales for the second quarter of 2000 are
currently projected to be flat or lower than during the first quarter of 2000.
Gross profit as a percentage of sales improved from 18% in the first
quarter of 1999 to 42% in the first quarter of 2000. The gross profit percentage
improved each quarter in 1999 primarily due to product mix, more stable average
selling prices and a reduction in the overall average cost of products shipped
due to increased outsourcing and cost reductions at Xicor's in-house
manufacturing operations. Reduced depreciation expense due to the planned
closure of the Milpitas in-house wafer fabrication plant was the primary cause
of the sequential gross profit percentage improvement from 38% in the fourth
quarter of 1999 to 42% in the first quarter of 2000.
Research and development expenses were 13% of sales in the three months
ended April 2, 2000 compared to 14% in the comparable prior year quarter.
Research and development expenses decreased as a percentage of sales primarily
due to higher sales. Research and development activities entail a high degree of
complexity of design and manufacturing process technology and consequently more
funds are expected to be invested in research and development in 2000 than were
invested in 1999.
Selling, general and administrative expenses were 20% of sales for the
three months ended April 2, 2000 compared to 21% for the comparable prior year
quarter. Selling, general and administrative expenses declined as a percentage
of sales in 2000 primarily due to higher sales. In absolute dollars selling,
general and administrative expenses increased in the first quarter of 2000
compared to the first quarter of 1999 primarily due to higher commission expense
resulting from the significantly increased sales and to intensified sales and
marketing activities.
Interest expense decreased in the three months ended April 2, 2000
compared to the comparable 1999 quarter due to normal principal payments of
outstanding lease debt.
Interest income increased in the three months ended April 2, 2000
compared to the comparable prior year quarter due to an increase in the average
balance invested caused primarily by funds generated from operating activities
and employee stock plans in 1999 and the first quarter of 2000 and, to a lesser
extent, due to higher interest rates.
The provision for income taxes for the first quarter of 2000 consisted
primarily of federal and state minimum taxes, which resulted from limitations on
the use of net operating loss carryforwards, and foreign taxes. No taxes were
provided in 1999 due to the net loss. Net
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deferred tax assets of $54.5 million at December 31, 1999 remain fully reserved
because of the uncertainty regarding the ultimate realization of these assets.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended April 2, 2000, Xicor generated $4.3
million of cash from operating activities and $1.5 million from employee stock
plans. Xicor used $1.4 million to repay long-term obligations and $0.9 million
for equipment purchases.
During 2000 Xicor expects to use cash to fund costs associated with the
planned closure of the wafer fabrication plant, to repay long-term obligations
and purchase equipment and software. Capital expenditures for 2000 are currently
planned at approximately $6 million and are primarily related to product design,
information technology, product testing and leasehold improvements relating to
the planned move of certain operations to a smaller facility. At April 2, 2000,
Xicor had entered into commitments for equipment purchases aggregating less than
$1 million.
Xicor has a line of credit agreement with a financial institution that
expires March 31, 2001, provides for borrowings of up to $7.5 million against
eligible accounts receivable and is secured by all of Xicor's assets. Interest
on borrowings is charged at the prime lending rate plus 2% and is payable
monthly. At April 2, 2000, the entire $7.5 million was available to Xicor based
on the eligible accounts receivable balances and the borrowing formulas. To
date, no amounts have been borrowed under this line of credit. At April 2, 2000,
$1.7 million of the line of credit was reserved to secure a standby letter of
credit. Management believes that currently available cash and the existing line
of credit facility will be adequate to support Xicor's operations for the next
twelve months.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This quarterly report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding Xicor's plan to
cease production at its Milpitas in-house wafer fabrication facility around the
end of the summer of 2000 with approximately 200 employees to be impacted by the
planned reduction in workforce, the projection of flat or lower sales in the
second quarter of 2000 compared to the first quarter of 2000, the projection
that the second quarter of 2000 will be profitable but that the profitability
will be below analyst expectations, the expectation of higher research and
development expenses in 2000, the expected manufacturing challenge in the third
quarter of 2000, and the expectation that sufficient cash, working capital, and
credit will be available to support operations for the next twelve months,
including costs associated with the planned closure of the wafer fabrication
plant, repayment of long-term obligations and the purchase of equipment,
software and leasehold improvements. Except for historical information, the
matters discussed in this quarterly report are forward-looking statements that
are subject to certain risks and uncertainties that could cause the actual
results to differ materially from those projected. Factors that could cause
actual results to differ materially include the following;
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general economic conditions and conditions specific to the semiconductor
industry; fluctuations in customer demand, including loss of key customers,
order cancellations or reduced bookings; product mix; competitive factors such
as pricing pressures on existing products and the timing and market acceptance
of new product introductions (both by Xicor and its competitors); Xicor's
ability to have available an appropriate amount of low cost foundry production
capacity in a timely manner; our foundry partners' timely ability to
successfully manufacture products for Xicor using Xicor's proprietary
technology; any disruptions of our foundry relationships; manufacturing
efficiencies; the ability to continue effective cost reductions; currency
fluctuations; the timely development and introduction of new products and
submicron processes, and the risk factors listed from time to time in Xicor's
SEC reports, including but not limited to the "Factors Affecting Future Results"
section following and Part I, Item 1. of Xicor's Annual Report on Form 10-K for
the year ended December 31,1999. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Xicor undertakes no obligation to publicly release or otherwise disclose
the result of any revision to these forward-looking statements that may be made
as a result of events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
FACTORS AFFECTING FUTURE RESULTS
OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY, AND AN UNANTICIPATED DECLINE IN
REVENUE MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A DECLINE
IN OUR STOCK PRICE. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR
COMPANY. ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY BELIEVE
ARE NOT MATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. WE RECENTLY ANNOUNCED
THAT AFTER A REVIEW OF THE REVENUES FOR THE FIRST MONTH OF THE SECOND QUARTER
ENDING JULY 2, 2000 COMBINED WITH AN ANALYSIS OF RECENT BOOKINGS, REVENUES FOR
THE SECOND QUARTER OF 2000 WILL MOST LIKELY BE FLAT OR LOWER THAN DURING THE
FIRST QUARTER OF 2000 AND ALTHOUGH WE EXPECT THE QUARTER TO BE PROFITABLE, THE
PROFITABILITY WILL BE BELOW ANALYST EXPECTATIONS. FURTHER, THE BOOKINGS FOR THE
THIRD QUARTER OF 2000 SHIPMENTS INCLUDE A LARGE QUANTITY OF LOW DENSITY SERIAL
EEPROMS WHICH PRESENTS A MANUFACTURING CHALLENGE.
The level of revenues in any one quarter is impacted by orders received during
that quarter for same quarter shipments as well as orders previously scheduled
to ship in that quarter. Although total bookings have increased during the year,
so far during the second quarter of 2000 the percentage of bookings for same
quarter shipments has been lower than projected. In addition, two key customers
recently requested us to delay our shipments to them.
You should not use our past financial performance to predict future operating
results. We have incurred net losses for the past three fiscal years. Our recent
quarterly and annual operating results
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have fluctuated, and will continue to fluctuate, due to the following factors,
all of which are difficult to forecast and many of which are out of our control:
- - the cyclical nature of both the semiconductor industry and the markets
addressed by our products;
- - competitive pricing pressures and related changes in selling prices;
- - new product announcements and introductions for competing products by us
or our competitors;
- - market acceptance and subsequent design-in of new products;
- - unpredictability of changes in demand for, or in the mix of, our
products;
- - the timing of significant orders including the fact that the sales level
in any specific quarter depends significantly on orders received during
that quarter;
- - the gain or loss of significant customers;
- - the availability, timely deliverability and cost of wafers and other
materials from our suppliers;
- - fluctuations in manufacturing yields and significant yield losses which
affect our ability to fulfill orders;
- - product obsolescence;
- - lower of cost or market inventory adjustments;
- - changes in the channels through which our products are distributed;
- - exchange rate fluctuations;
- - general economic, political and environmental-related conditions, such
as natural disasters;
- - difficulties in forecasting, planning and management of inventory
levels; and
- - unanticipated research and development expenses associated with new
product introductions.
BECAUSE A SMALL NUMBER OF CUSTOMERS HAVE ACCOUNTED FOR A SUBSTANTIAL PORTION OF
OUR SALES, OUR SALES COULD DECLINE SIGNIFICANTLY DUE TO THE LOSS OF ONE OF
THESE CUSTOMERS.
During 1999, 25% of our sales came from two customers. One distributor
accounted for 14% of our sales and one OEM customer accounted for 11% of our
sales. Distributors are not themselves end users, but rather serve as a
channel of sale to many end users of our products. If we were to lose either of
these customers or experience any substantial reduction in orders from these
customers, our sales and operating results could suffer. In addition, the
composition of our major customer base changes from year to year as the market
demand for our customers' products change.
WE DO NOT TYPICALLY ENTER INTO LONG-TERM CONTRACTS WITH OUR CUSTOMERS AND THE
LOSS OF A MAJOR CUSTOMER COULD SERIOUSLY HARM OUR BUSINESS.
We do not typically enter into long-term contracts with our customers, and we
cannot be certain as to future order levels from our customers. When we do enter
into a long-term contract, the contract is generally terminable at the
convenience of the customer. An early termination or delay
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<PAGE> 12
in shipments by one of our major customers would harm our financial results as
it is unlikely that we would be able to rapidly replace that revenue source.
OUR BACKLOG MAY NOT RESULT IN FUTURE REVENUE, WHICH WOULD SERIOUSLY HARM OUR
BUSINESS.
Due to possible customer changes in delivery schedules and cancellations of
orders, our backlog at any particular date is not necessarily indicative of
actual sales for any succeeding period. A reduction of backlog during any
particular period, or the failure of our backlog to result in future revenue,
could harm our business.
WE ARE IN THE PROCESS OF SHIFTING OUR MANUFACTURING STRATEGY TO A FABLESS
BUSINESS MODEL AND WILL DEPEND ON A LIMITED NUMBER OF FOREIGN FOUNDRIES TO
MANUFACTURE OUR PRODUCTS. THESE FOUNDRIES MAY NOT BE ABLE TO SATISFY OUR
MANUFACTURING REQUIREMENTS, WHICH COULD CAUSE OUR SALES TO DECLINE.
We plan to outsource all of our manufacturing during the second half of 2000
with the exception of limited testing activities. During 1999, substantially all
of our wafers were manufactured at our wafer fabrication plant in Milpitas,
California or Yamaha Corporation in Japan. During 2000 we plan to close our
wafer fabrication plant in Milpitas and ramp up manufacturing at two additional
wafer foundries, Sanyo in Japan and ZMD in Germany. If these suppliers fail to
satisfy our requirements on a timely basis and at competitive prices we could
suffer manufacturing delays, a possible loss of sales and higher than
anticipated costs of sales, any of which could seriously harm our operating
results.
As Xicor shifts manufacturing of existing products to subcontractors, certain
customers will requalify such products prior to accepting delivery. Delays in
customer qualification schedules or lack of qualification of such products could
result in the loss of sales which could seriously harm our operating results.
WE COULD EXPERIENCE PROBLEMS IN THE MANUFACTURING PROCESS AT OUR WAFER
FABRICATION PLANT PRIOR TO CLOSURE WHICH WOULD IMPACT THE SUPPLY OF VARIOUS
PRODUCTS, INCLUDING THOSE BUILT ON AN OLD PROCESS WHICH WILL NOT BE INSTALLED AT
THE FOUNDRIES, WHICH WE PLAN TO MANUFACTURE AND CAUSE OUR SALES TO DECLINE
AND COSTS TO INCREASE.
Through the end of the summer of 2000, we plan to manufacture wafers at our
wafer fabrication plant in Milpitas, California to produce sufficient inventory
levels of certain products to prevent delays in meeting customer demands as the
foundries ramp up the production of our products. Manufacturing problems during
the final months of operations of the facility would reduce yields and increase
costs. Due to the complex nature of the manufacturing process, some
manufacturing
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<PAGE> 13
problems may not be detected until the products are near completion. Significant
yield loss could affect our ability to fulfill orders and result in reduced
sales and gross margins.
OUR FUTURE SUCCESS DEPENDS IN PART ON THE CONTINUED SERVICES OF OUR KEY DESIGN,
ENGINEERING, SALES, MARKETING AND EXECUTIVE PERSONNEL AND OUR ABILITY TO
IDENTIFY, RECRUIT AND RETAIN PERSONNEL.
There is intense competition for qualified personnel in the semiconductor
industry, in particular for the highly skilled engineers involved in the
development of our products. Competition is especially intense in Silicon
Valley, where our design, research and development, and corporate headquarters
are located. We may not be able to continue to attract and retain engineers or
other qualified personnel necessary for the development of our business or to
replace engineers or other qualified personnel who may leave our employ in the
future. The failure to recruit and retain key design engineers or other
technical and management personnel could harm our business. We are currently
beginning the search process for an individual to fill the position of President
and Chief Executive Officer. Our future success depends in part on filling this
position.
OUR COST OF SALES MAY INCREASE IF WE ARE REQUIRED TO PURCHASE ADDITIONAL
MANUFACTURING CAPACITY IN THE FUTURE.
To obtain additional manufacturing capacity, we may be required to make
deposits, equipment purchases, loans, enter into joint ventures, equity
investments or technology licenses in or with wafer fabrication companies. These
transactions could involve a commitment of substantial amounts of our capital
and technology licenses in return for production capacity. We may be required to
seek additional debt or equity financing in order to secure this capacity and we
may not be able to obtain such financing.
IF OUR FOUNDRIES FAIL TO ACHIEVE ACCEPTABLE WAFER MANUFACTURING YIELDS, WE WILL
EXPERIENCE HIGHER COSTS OF SALES AND REDUCED PRODUCT AVAILABILITY.
The fabrication of our products requires wafers to be produced in a highly
controlled and ultra-clean environment. Semiconductor foundries that supply our
wafers have at times experienced problems achieving acceptable wafer
manufacturing yields. Semiconductor manufacturing yields are a function of both
design technology and manufacturing process technology. Low yields may result
from marginal designs or manufacturing process drifts. Yield problems may not be
identified until the wafers are well into the production process, which often
makes these problems difficult, time consuming and costly to correct or replace.
Furthermore, we rely on independent foreign foundries for our wafers which
increases the effort and time required to identify, communicate and resolve
manufacturing yield problems. If our foundries fail to achieve acceptable
manufacturing yields, we will experience higher costs of sales and reduced
product availability, which would harm our operating results.
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OUR DEPENDENCE ON THIRD-PARTY SUBCONTRACTORS TO SORT, ASSEMBLE AND TEST OUR
PRODUCTS AND SHIP OUR PRODUCTS TO CUSTOMERS SUBJECTS US TO A NUMBER OF RISKS,
INCLUDING AN INADEQUATE SUPPLY OF PRODUCTS AND HIGHER COSTS OF MATERIALS.
We depend on independent subcontractors to sort, assemble and test our products
and ship our products to customers. Our reliance on these subcontractors
involves the following significant risks:
- - reduced control over delivery schedules and quality;
- - the potential lack of adequate capacity during periods of strong demand;
- - difficulties selecting and integrating new subcontractors;
- - limited warranties by subcontractors on products supplied to us; and
- - potential increases in prices due to capacity shortages and other
factors.
These risks may lead to increased costs, delayed product delivery or loss of
competitive advantage, which would harm our profitability and customer
relationships.
OUR OPERATING EXPENSES ARE RELATIVELY FIXED, AND WE ORDER MATERIALS IN ADVANCE
OF ANTICIPATED CUSTOMER DEMAND. THEREFORE, WE HAVE LIMITED ABILITY TO REDUCE
EXPENSES QUICKLY IN RESPONSE TO ANY REVENUE SHORTFALLS.
Our operating expenses are relatively fixed, and we therefore have limited
ability to reduce expenses quickly in response to any revenue shortfalls.
Consequently, our operating results will be harmed if our sales do not meet
our revenue projections. We may experience revenue shortfalls for the following
reasons:
- - significant pricing pressures that occur because of declines in selling
prices over the life of a product;
- - sudden shortages of raw materials or fabrication, sort, test or assembly
capacity constraints that lead our suppliers to allocate available
supplies or capacity to other customers which, in turn, harm our ability
to meet our sales obligations; and
- - the reduction, rescheduling or cancellation of customer orders.
In addition, we typically plan our production and inventory levels based on
internal forecasts of customer demand, which are highly unpredictable and can
fluctuate substantially. From time to time, in response to anticipated long lead
times to obtain inventory and materials from our outside suppliers and
foundries, we may order materials and produce finished products in advance of
anticipated customer demand. This advance ordering and production may result in
excess inventory levels or unanticipated inventory write-downs if expected
orders fail to materialize.
BECAUSE OUR PRODUCTS TYPICALLY HAVE LENGTHY SALES CYCLES, WE MAY EXPERIENCE
SUBSTANTIAL DELAYS BETWEEN INCURRING EXPENSES RELATED TO RESEARCH AND
DEVELOPMENT AND THE GENERATION OF SALES.
-12-
<PAGE> 15
Due to the length of the product design-in cycle we usually require more than
nine months to realize volume shipments after a customer first samples our
product. We first work with customers to achieve a design win, which may take
three months or longer. Our customers then complete the design, testing and
evaluation process and begin to ramp up production, a period which typically
lasts an additional six months or longer. As a result, a significant period of
time may elapse between our research and development efforts and our realization
of revenue, if any, from volume purchasing of our products by our customers.
WE FACE INTENSE COMPETITION FROM COMPANIES WITH SIGNIFICANTLY GREATER FINANCIAL,
TECHNICAL AND MARKETING RESOURCES THAT COULD ADVERSELY AFFECT OUR ABILITY TO
INCREASE SALES OF OUR PRODUCTS.
We compete with major domestic and international semiconductor companies such as
Atmel Corporation, ST Microelectronics, Dallas Semiconductor, Maxim and Texas
Instruments, all of whom have substantially greater financial, technical,
marketing, distribution, and other resources than we do. Many of our competitors
have their own facilities for the production of semiconductor components and
have recently added significant capacity for such production. In addition, we
may in the future experience direct competition from our foundry partners. Some
of our foundry partners have the right to fabricate certain products based on
our process technology and co-developed circuit design, and to sell such
products worldwide.
OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND, THEREFORE, OUR
SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP AND INTRODUCE NEW PRODUCTS.
The markets for our products are characterized by:
- - rapidly changing technologies;
- - evolving and competing industry standards;
- - changing customer needs;
- - frequent new product introductions and enhancements;
- - increased integration with other functions; and
- - rapid product obsolescence.
To develop new products for our target markets, we must develop, gain access to
and use leading technologies in a cost-effective and timely manner and continue
to expand our technical and design expertise. In addition, we must have our
products designed into our customers' future products and maintain close working
relationships with key customers in order to develop new products that meet
their rapidly changing needs.
Products for communications applications are based on continually evolving
industry standards. Our ability to compete will depend on our ability to
identify and ensure compliance with these industry standards. As a result, we
could be required to invest significant time and effort and incur significant
expense to redesign our products to ensure compliance with relevant standards.
-13-
<PAGE> 16
We cannot assure you that we will be able to identify new product opportunities
successfully, develop and bring to market new products at competitive costs,
achieve design wins or respond effectively to new technological changes or
product announcements by our competitors. Furthermore, we may not be successful
in developing or using new technologies or in developing new products or product
enhancements that achieve market acceptance. Our pursuit of necessary
technological advances may require substantial time and expense. Failure in any
of these areas could harm our operating results.
OUR ABILITY TO COMPETE SUCCESSFULLY WILL DEPEND, IN PART, ON OUR ABILITY TO
PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH WE MAY NOT BE ABLE TO DO
SUCCESSFULLY.
We rely on a combination of patents, trade secrets, copyright and mask work
production laws and rights, nondisclosure agreements and other contractual
provisions and technical measures to protect our intellectual property rights.
Policing unauthorized use of our products, however, is difficult, especially in
foreign countries. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Litigation could result in substantial
costs and diversion of resources and could harm our business, operating results
and financial condition regardless of the outcome of the litigation.
We hold numerous United States patents and corresponding foreign patents
covering various circuit designs and the structure of its devices. Further,
additional patent applications for such products are pending in the United
States and abroad. However, patents granted or pending may not provide us with
any meaningful protection. Our operating results could be seriously harmed by
the failure to be able to protect our intellectual property.
IF WE ARE ACCUSED OF INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHER
PARTIES, WE MAY BECOME SUBJECT TO TIME-CONSUMING AND COSTLY LITIGATION. IF WE
LOSE OR SETTLE CLAIMS, WE COULD SUFFER A SIGNIFICANT IMPACT ON OUR BUSINESS AND
BE FORCED TO PAY DAMAGES.
Third parties have and may continue to assert that our products infringe their
proprietary rights, or may assert claims for indemnification resulting from
infringement claims against us. Any such claims may cause us to delay or cancel
shipment of our products or pay damages that could seriously harm our business,
financial condition and results of operations. In addition, irrespective of the
validity or the successful assertion of such claims, we could incur significant
costs in defending against such claims.
We have received notices claiming infringement of patents from several
semiconductor manufacturers with respect to certain aspects of our processes and
devices and these matters are under investigation and review. Although patent
holders typically offer licenses and we have entered into such license
agreements, we may not be able to obtain licenses on acceptable terms, and
disputes may not be resolved without costly litigation.
-14-
<PAGE> 17
OUR BUSINESS MAY SUFFER DUE TO RISKS ASSOCIATED WITH INTERNATIONAL SALES AND
OPERATIONS.
Our international sales accounted for approximately 56% of sales in 1999; 46%
in 1998; and 44% in 1997. Our international business activities are subject to
a number of risks, any of which could impose unexpected costs on us that would
have an adverse effect on our operating results. These risks include:
- - difficulties in complying with regulatory requirements and standards;
- - tariffs and other trade barriers;
- - costs and risks of localizing products for foreign countries;
- - severe currency fluctuation and economic deflation;
- - reliance on third parties to distribute our products;
- - longer accounts receivable payment cycles;
- - potentially adverse tax consequences; and
- - burdens of complying with a wide variety of foreign laws.
IF AN EARTHQUAKE OR OTHER NATURAL DISASTER STRIKES OUR MANUFACTURING FACILITY OR
THOSE OF OUR FOUNDRIES OR OTHER MANUFACTURING SUBCONTRACTORS, WE WOULD BE UNABLE
TO MANUFACTURE OUR PRODUCTS FOR A SUBSTANTIAL AMOUNT OF TIME AND WE WOULD
EXPERIENCE LOST SALES.
Our corporate headquarters are located in California near major earthquake
faults. In addition, some of our foundries and suppliers are located near fault
lines. In the event of a major earthquake or other natural disaster near our
headquarters, our operations could be harmed.
Similarly, a major earthquake or other natural disaster near one or more of our
major manufacturing subcontractors could disrupt the operations of those
subcontractors, which could limit the supply of our products and harm our
business. Xicor has been unable to obtain earthquake insurance at reasonable
costs and limits.
WE MAY REQUIRE ADDITIONAL CAPITAL IN ORDER TO BRING NEW PRODUCTS TO MARKET, AND
THE ISSUANCE OF NEW EQUITY SECURITIES WILL DILUTE YOUR INVESTMENT IN OUR COMMON
STOCK.
To implement our strategy of diversified product offerings, we need to bring new
products to market. Bringing new products to market and ramping up production
requires significant working capital. We have in place a credit agreement with
Coast Business Credit Corporation to provide up to $7.5 million of additional
capital to support potential ongoing working capital requirements. We may need
to borrow under this credit facility at some time. We may also sell additional
shares of our stock or seek additional borrowings or outside capital infusions.
We cannot assure you that such financing options will be available on terms
acceptable to us, if at all. In addition, if we issue shares of our common
stock, our shareholders will experience dilution with respect to their
investment.
-15-
<PAGE> 18
WE DEPEND ON MANUFACTURERS' REPRESENTATIVES AND DISTRIBUTORS TO GENERATE A
MAJORITY OF OUR SALES.
We rely on manufacturers' representatives and distributors to sell our products
and these entities could discontinue selling our products at any time. The loss
of any significant manufacturers' representative or distributor could seriously
harm our operating results by impairing our ability to sell our products.
THE SELLING PRICES FOR OUR PRODUCTS ARE VOLATILE AND HAVE HISTORICALLY DECLINED
OVER THE LIFE OF A PRODUCT. IN ADDITION, THE CYCLICAL NATURE OF THE
SEMICONDUCTOR INDUSTRY COULD CREATE FLUCTUATIONS IN OUR OPERATING RESULTS, AS WE
EXPERIENCED IN 1997 AND 1998.
The semiconductor industry has historically been cyclical, characterized by wide
fluctuations in product supply and demand. From time to time, the industry has
also experienced significant downturns, often in connection with, or in
anticipation of, maturing product cycles and declines in general economic
conditions. Downturns of this type occurred in 1997 and 1998. These downturns
have been characterized by diminished product demand, production over-capacity
and accelerated decline of average selling prices, and in some cases have lasted
for more than a year. Our continued success depends in large part on the
continued growth of various electronics industries that use semiconductors,
including manufacturers of computers, telecommunications equipment, automotive
electronics, industrial controls, consumer electronics, data networking and
military equipment, and a better supply and demand balance within the industry.
Our business could be harmed in the future by cyclical conditions in the
semiconductor industry or by slower growth in any of the markets served by our
customer products.
IF WE DID NOT ADEQUATELY PREPARE FOR THE TRANSITION TO THE YEAR 2000, OUR
BUSINESS COULD BE HARMED.
Xicor uses a significant number of computer software programs and operating
systems and intelligent hardware devices in its internal operations, including
information technology (IT) systems and non-IT systems used in the design,
manufacture and marketing of company products. Xicor completed all Year 2000
readiness work and to date has not experienced disruption in its business
related to the Year 2000 issue. However, Xicor cannot provide any assurance that
no Year 2000 issues will impact its IT and non-IT systems or other aspects of
its business in the future. Xicor's key suppliers have not experienced major
disruptions in their businesses related to the Year 2000 issue. However, Xicor
cannot provide any assurance that no Year 2000 issue will affect our suppliers
in the future.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Xicor does not use derivative financial instruments in its investment portfolio.
Xicor has an investment portfolio of fixed income securities that are classified
as "held-to-maturity securities".
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<PAGE> 19
These securities, like all fixed income instruments, are subject to interest
rate risk and will fall in value if market interest rates increase. Xicor
attempts to limit this exposure by investing primarily in short-term securities.
Due to the short duration and conservative nature of Xicor's investment
portfolio a movement of 10% by market interest rates would not have a material
impact on Xicor's operating results and the total value of the portfolio over
the next fiscal year.
Xicor is exposed to risks associated with foreign exchange rate fluctuations due
to our international manufacturing and sales activities. Xicor generally has not
hedged currency exposures. These exposures may change over time as business
practices evolve and could negatively impact our operating results and financial
condition. All of our sales are denominated in U.S. dollars. An increase in the
value of the U.S. dollar relative to foreign currencies could make our products
more expensive and therefore reduce the demand for our products. Such a decline
in the demand could reduce sales and/or result in operating losses.
-17-
<PAGE> 20
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.5 Lease dated March 24, 2000 is filed herewith as Exhibit 10.5
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended April 2, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XICOR, INC., a
California Corporation
By /s/ Raphael Klein
-----------------------------------
Raphael Klein
Chief Executive Officer
(Principal Executive Officer)
By /s/ Geraldine N. Hench
-----------------------------------
Geraldine N. Hench
Vice President, Finance
(Principal Financial Officer)
Date: May 15, 2000
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<PAGE> 1
EXHIBIT 10.5
LEASE
(SINGLE-TENANT SINGLE-BUILDING MODIFIED NET)
by and between
CALLAHAN-PENTZ PROPERTIES, McCarthy FOUR
("Landlord")
and
XICOR, INC.
("Tenant")
For the approximately 30,968 SF Premises at
801 Buckeye Court, Milpitas, CA 95035
<PAGE> 2
LEASE SUMMARY
Lease Date: March 24, 2000
Landlord: Callahan-Pentz Properties, McCarthy Four
Address of Landlord: c/o CPS Realty Group
60 Los Gatos Saratoga Road
Los Gatos, CA 95030-5317
Tenant: Xicor, Inc.
Address of Tenant: 1511 Buckeye Drive, MS 114
Milpitas, CA 95035
Contact: Klaus Hendig,
Senior Vice President
Telephone: (408) 546-3505
Building Address: 801 Buckeye Court
Milpitas, CA 95035
Premises Square Footage: approximately 30,968 square feet
Anticipated Commencement Date: July 1, 2000
Term: Ten (10) years
<TABLE>
<CAPTION>
Monthly Rent: Months of Term Monthly Rent
-------------- ------------
<S> <C> <C>
1 through 12 $42,000.00/month
13 through 24 $43,365.00/month
25 through 36 $44,774.00/month
37 through 48 $46,229.00/month
49 through 60 $47,731.00/month
61 through 72 $49,283.00/month
73 through 84 $50,884.00/month
85 through 96 $52,538.00/month
97 through 108 $54,246.00/month
109 through 120 $57,009.00/month
</TABLE>
Security Deposit: None
i
<PAGE> 3
(SINGLE-TENANT BUILDING ON SINGLE-BUILDING PROPERTY)
1. Parties.
THIS LEASE (the "Lease"), dated March 24, 2000, is entered into by
and between Callahan-Pentz Properties, McCarthy Four, a California general
partnership ("Landlord"), whose address is c/o CPS Realty Group, 260 Los Gatos
Saratoga Road, Los Gatos, CA 95050-5317 and Xicor, Inc., a California
corporation ("Tenant"), whose address is 1511 Buckeye Drive, Milpitas, CA 95035.
2. Premises.
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises consisting of approximately thirty thousand nine
hundred sixty-eight (30,968) square feet, as shown in EXHIBIT A (the "Premises")
in that certain building, commonly known as 801 Buckeye Court (the "Building"),
in the City of Milpitas, County of Santa Clara (the "County"), California,
located on that certain real property consisting of approximately 2.253 acres
and more particularly described in EXHIBIT B (the "Property"). Tenant shall also
have the right to use the Outside Area as defined in Paragraph 3.H. Landlord
shall at all times have exclusive control of the Outside 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 Outside 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 Outside Area. In exercising any such rights, Landlord shall make
a reasonable effort to minimize any disruption of Tenant's business.
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 Premises after the Commencement Date, including, but not limited
to, lighting, heating, ventilating, air conditioning, electrical, partitioning,
drapery and carpentry installations.
B. CC&R's. Those certain covenants, conditions and restrictions recorded
at Page 189, Book E545, of the Official Records of the County, State of
California, on June 5, 1977, as amended.
C. Commencement Date. The Commencement Date of this Lease shall be the
first day of the Term determined in accordance with Paragraph 4.A.
D. HVAC. Heating, ventilating and air conditioning.
-1-
<PAGE> 4
E. Interest Rate. Eight percent (8%) per annum, however, in no event to
exceed the maximum rate of interest permitted by law.
F. Landlord's Agents. Landlord's authorized agents, partners,
subsidiaries, directors, officers, and employees.
G. Monthly Rate. The rent payable pursuant to Paragraph 5.A., as
adjusted from time to time pursuant to the terms of this Lease.
H. Outside Area. All areas and facilities within the Property exclusive
of the Building, including 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 Outside Area.
I. 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
Property or any part thereof or the rent and other sums payable hereunder by
Tenant, 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 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 Property; (iv) levied or assessed in lieu of, in substitution for, or in
addition to, existing or additional taxes against the Property whether or not
now customary or within the contemplation of the parties; or (v) surcharged
against the parking area.
J. Rent. Monthly Rent plus the Additional Rent defined in Paragraph 5.B.
K. Security Deposit. That amount paid by Tenant pursuant to Paragraph 7.
L. Sublet. Any transfer, sublet, assignment, license or concession
agreement, change of ownership, mortgage, or hypothecation of this Lease or the
Tenant's interest in the Lease or in and to all or a portion of the Premises.
M. Subrent. Any consideration of any kind received, or to be received,
by Tenant from a subtenant if such sums are related to Tenant's interest in this
Lease or in the Premises, excluding, however, bonus money and payments (in
excess of book value) for Tenant's assets including its trade fixtures,
equipment and other personal property, goodwill, general intangibles, and any
capital stock or other equity ownership of Tenant for which Tenant is
compensated separately from the rent paid under any Sublet.
N. Subtenant. The person or entity with whom a Sublet agreement is
proposed to be or is made.
-2-
<PAGE> 5
O. Tenant Improvements. Those certain improvements to the Premises to be
constructed by Landlord pursuant to Paragraph 9.
P. Tenant Improvements Allowance. None.
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 ten (10) years, commencing on the
date ("Commencement Date") which is sixty (60) days after the date Sun
Microsystems vacates the Premises, but in no event before July 1, 2000, and
terminating ten (10) years thereafter, unless sooner terminated in accordance
with the provisions of the Lease. Landlord and Tenant anticipate that the
Commencement Date will occur on or about July 1, 2000. 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. Tenant agrees
that if Landlord, for any reason whatsoever, is unable to deliver possession of
the Premises by May 1, 2000, Landlord shall not be liable to Tenant for any loss
or damage therefrom, nor shall this Lease be void or voidable. In such event,
the Commencement Date, termination date and all other dates of this Lease shall
be extended to conform to the date 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. Notwithstanding the foregoing, if Landlord is unable to deliver
possession of the Premises to Tenant by May 1, 2000, Tenant shall be entitled to
two months of free Rent for each month after such date that delivery of
possession is delayed, with any partial months of any such delay to be
compensated for with an equivalent partial two months of free Rent.
B. Early Entry. If 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.
5. Rent.
A. Monthly Rent. Tenant shall pay to Landlord, in lawful money of the
United States, for each calendar month of the Term, net Monthly Rent in
accordance with the schedule set forth below, in advance, on the first day of
each calendar month, without abatement, deduction, claim, offset, prior notice
or demand.
-3-
<PAGE> 6
<TABLE>
<CAPTION>
Months of Term Monthly Rent
-------------- ------------
<S> <C>
1 through 12 $42,000.00/month
13 through 24 $43,365.00/month
25 through 36 $44,774.00/month
37 through 48 $46,229.00/month
49 through 60 $47,731.00/month
61 through 72 $49,283.00/month
73 through 84 $50,884.00/month
85 through 96 $52,538.00/month
97 through 108 $54,246.00/month
109 through 120 $57,009.00/month
</TABLE>
Additionally, Tenant shall pay, as and with the net Monthly Rent, the
estimated monthly Operating Expenses. Tenant shall deposit with Landlord upon
execution of this Lease the following amounts to be applied toward the Rent due
for the first month of the Term:
<TABLE>
<S> <C>
Monthly Rent (net) $42,000.00/month
Operating Expenses $3,256.00/month
TOTAL $45,256.00/month
</TABLE>
B. Additional Rent. All monies required to be paid by Tenant under this
Lease, including, without limitation, Real Property Taxes pursuant to Paragraph
15, and Operating Expenses pursuant to Paragraph 17, shall be deemed Additional
Rent.
C. 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. Therefore, if any installment of
Rent or any other charge due from Tenant is not received by Landlord within five
(5) business days of the due date, equal to five percent (5%) of the amount
overdue as a late charge. The parties agree that this late charge represents a
fair and reasonable estimate of the costs that Landlord will incur by reason of
the late payment by Tenant. In addition, if any Rent or other sum due hereunder
is not paid by Tenant within thirty (30) days after the date such Rent or other
-4-
<PAGE> 7
payment is due, then Tenant shall pay interest on the amount due at the maximum
rate permitted by law from the date such Rent or other sum was due until paid.
Initials:
/s/ GBP /s/ RK BG
- ------------------------------ ------------------------------
Landlord Tenant
7. Security Deposit. None.
8. Holding Over.
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. If Tenant remains in possession either with or
without Landlord's consent, Monthly Rent shall be increased to an amount equal
to one hundred fifty percent (150%) of the Monthly Rent payable during the last
month of the Term, and any other sums due under this Lease 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.
If Tenant fails to surrender the Premises upon the expiration of the Term
despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord
harmless from all loss or liability, including without limitation any claim made
by a succeeding tenant, resulting from Tenant's failure to surrender.
9. Tenant Improvements.
Landlord shall construct at Landlord's expense the following
improvements to the Premises: (i) upgrade Building structural elements to 1997
Uniform Building Code requirements; (ii) remove all "pony" walls and patch or
replace damaged carpet in the areas where the "pony" walls are removed from and
in other areas of the Building where the carpet is damaged, if necessary; (iii)
upgrade existing restrooms to meet current requirements of the Americans with
Disabilities Act (if reasonably feasible); and (iv) upgrade existing computer
wiring to CAT 5, if not existing or if not complete (collectively, the "Tenant
Improvements").
10. Condition of Premises.
Landlord shall deliver the Premises to Tenant with all Building
systems in good condition and repair. If Landlord has agreed to construct any
Tenant Improvements, within ten (10) days after completion of the Tenant
Improvements, Tenant shall conduct a walkthrough inspection of the Premises with
Landlord and complete a punchlist of items needing additional work by Landlord.
Subject to the foregoing, 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 the
upgrade of the Building structural elements to the 1997 Uniform Building Code
requirements. Any damage to the Premises caused by Tenant's
-5-
<PAGE> 8
move-in 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 Tenant Improvement items needing additional work or repair.
Landlord's contractor shall complete all reasonable punchlist items within
thirty (30) days after the walk-through inspection or as soon as practicable
thereafter. Upon completion of such punchlist items, Tenant shall approve such
completed items in writing to Landlord. If Tenant fails to approve such items
within fourteen (14) days of completion, such items shall be deemed approved by
Tenant, unless such approval is withheld by Tenant due to unsatisfactory
completion by Landlord's contractor. If such items are not completed within
sixty (60) days after the walk-through inspection, Tenant has the right to
complete the punchlist items and Landlord shall reimburse Tenant for such costs.
11. Use of the Premises.
A. Tenant's Use. Tenant shall use the Premises solely for semiconductor
wafer manufacturing offices, research and development and warehousing, and shall
not use the Premises for any other purpose without the prior written consent of
Landlord. Tenant acknowledges that the Property is subject and this Lease is
subordinate to the CC&R's. Tenant acknowledges that it has read the CC&R's and
knows the contents thereof. Throughout the Term, Tenant shall faithfully and
timely perform and comply with the CC&R's and any modification or amendments
thereof, including the payment by Tenant of any periodic or special dues,
assessments, and owners' association fees against the Property. Tenant shall
indemnify and hold Landlord and it Agents harmless from and against any
liability, loss, expense, damage, attorneys' fees and costs arising out of or in
connection with Tenant's failure to perform or comply with the CC&R's.
B. Compliance.
(i) Tenant shall not use the Premises or suffer or permit
anything to be done in or about the Premises or the Property which will in any
way conflict with any law, statute, zoning restriction, ordinance or
governmental law, rule, regulation or requirement of public authorities now in
force or which may hereafter be in force, relating to or affecting the
condition, use or occupancy of the Premises or the Property. 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 relating to the storage, use and disposal of hazardous, toxic or
radioactive matter, including those
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materials identified in 22 California Code of Regulations Sections 66261.1 et
seq., as they may be amended from time to time (collectively "Toxic Materials").
Tenant does store, use or dispose of small quantities of Toxic Materials, such
as, but not limited to, Acetone, Isopropyl Alcohol and other cleaning solvents.
If requested by Landlord, Tenant shall provide a copy of Tenant's Hazardous
Material Business Plan for Landlord's review. 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
and all claims, costs, and liabilities, including attorneys' fees and costs,
arising out of or in connection with the removal, clean-up and restoration work
and materials necessary to return the Premises and the Property and any other
property of whatever nature to their condition existing prior to the appearance
of the Toxic Materials on the Premises. If any governmental agency or the
beneficiary of any deed of trust covering the Property reasonably requires any
testing of the Premises or the Property, including the soil or groundwater of
the Property, to ascertain whether there has been any release of Toxic Materials
in, on or about the Premises or the Property, Landlord shall have the right to
install monitoring wells on or about the Outside Area and to perform such other
tests and investigations of the Premises and the Property for such purpose.
Tenant shall reimburse Landlord as Additional Rent for the reasonable cost of
such tests and investigations and of the installation, maintenance, repair and
replacement of such monitoring wells or other measuring devices if the results
of such tests and investigations disclose the existence of facts which give rise
to the liability of Tenant pursuant to the indemnity provisions of this
Paragraph 11.B(ii). 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.
After the Commencement Date, Tenant shall not make or permit any
Alterations in, on or about the Premises, except for nonstructural Alterations
not exceeding Twenty Thousand Dollars ($20,000.00) 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.
Landlord acknowledges that some Tenant Alterations may be beneficial to future
tenants and Landlord may like to retain such Alterations after Tenant surrenders
the Premises upon termination of the Lease. Therefore, Landlord agrees, as part
of the written approval of such Alterations, to inform the Tenant if such
Alterations shall remain after termination or must be removed in accordance with
Paragraph 14. 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 Outside Area,
to which Landlord may withhold Landlord's consent on wholly aesthetic grounds.
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All Alterations shall be installed at Tenant's sole expense, in
compliance with all applicable laws and the CC&R's, 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, remove any or all 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 23. 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. Tenant shall give Landlord
written notice of Tenant's intention to perform work on the Premises at least
twenty (20) days prior to the commencement of such work to enable Landlord to
post and record a Notice of Nonresponsibility or other notice deemed proper
before the commencement of any such work.
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 and repainted if marked or damaged, all carpets
shampooed and cleaned, all broken, marred or nonconforming acoustical ceiling
tiles replaced, all windows washed, the plumbing and electrical systems and
lighting in good order and repair, including replacement of any burned out or
broken light bulb or ballasts, the HVAC equipment serviced and repaired by a
reputable and licensed service firm, and all floors cleaned and waxed, all to
the reasonable satisfaction of Landlord. Except for the Tenant Alterations
approved for retention in accordance with Paragraph 13, 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. If the Premises are not
so surrendered at the termination of this Lease, Tenant shall indemnify Landlord
and its Agents against all loss or liability, including attorneys' fees and
costs, resulting from delay by Tenant in so surrendering the Premises.
Normal wear and tear, for the purposes of this Lease, shall be construed
to mean wear and tear caused to the Premises by a natural aging process and
normal use which occurs in spite of prudent application of the best standards
for maintenance, repair and janitorial practices. It is not intended, nor shall
it be construed, to include items of neglected or deferred maintenance which
would have or should have been attended to during the Term of the Lease if the
best standards had been applied to properly maintain and keep the Premises at
all times in good condition and repair.
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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,
the Real Property Taxes as set forth on the county assessor's tax statement for
the Property. Landlord shall give Tenant at least thirty (30) days' prior
written notice of the amount so due. Upon Landlord's receipt of the Real
Property Tax payment from Tenant, Landlord shall pay the taxes to the county. If
Tenant fails to pay 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 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. 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 such taxes shall be
at least ten (10) days prior to the delinquency dates. If Tenant fails to make
any payment of Real Property Taxes by the date provided hereunder, Landlord
shall have the right to require that Tenant pay one-twelfth (1/12th) of the Real
Property Taxes to Landlord directly, on the first (1st) day of each calendar
month. 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 are to be included
within the definition of Real Property Taxes for purposes of this Lease. Tenant
shall have the right to appeal the assessed value with the County Tax Assessor
at its sole cost and expense provided that it continues to make all required
payments pending the outcome of such appeal.
B. Taxes on Tenant Improvements and Personal Property. 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. 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.
C. 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.
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
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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. In
addition, Tenant shall not be entitled to any abatement or reduction of Rent by
reason of such failure or interruption, no eviction of Tenant shall result from
such failure or interruption and Tenant shall not be relieved from the
performance of any covenant or agreement in this Lease because of such failure
or interruption.
17. Repair and Maintenance.
A. 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 and subflooring of the Building, 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 of this Lease, or caused by Alterations made by
Tenant or by Tenant's agents, employees or contractors. Landlord shall also
maintain in good, condition and repair, subject to reimbursement by Tenant as
provided in Paragraph 17.C. below, the roof and exterior walls of the Building
(excluding the interior of all walls and the exterior and interior of all
windows, doors, ceiling and plateglass) and the Outside Area. It is an express
condition precedent to all obligations of Landlord to repair and maintain that
Tenant shall have notified Landlord of the need for such repairs or maintenance.
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.
B. Tenant's Obligations. Tenant shall at all times and at its own
expense clean, keep and maintain in good order, condition and repair every part
of the Premises which is not within Landlord's obligation pursuant to Paragraph
17.A.. Tenant's repair and maintenance obligations shall include all plumbing
and sewage facilities within the Premises, fixtures, interior walls and ceiling,
floors, windows, doors, entrances, plateglass, 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, upon or about the Premises. Tenant shall also
be responsible for all pest control within the Premises. Tenant shall either
perform HVAC system preventative maintenance or obtain HVAC systems preventive
maintenance contracts with bimonthly or monthly service in accordance with
manufacturer recommendations, 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,
including annual maintenance of duct work, interior unit drains and caulking at
sheet metal, and recaulking of jacks and vents on an annual basis (which work
also shall be performed by Tenant if Tenant elects to perform the HVAC system
preventive maintenance itself). Tenant shall have the benefit of all warranties
available to Landlord regarding the equipment in such HVAC systems.
C. Operating Expenses. Tenant shall pay, as Additional Rent, all
reasonable costs and expenses paid or incurred by Landlord in operating,
maintaining and repairing the Property, including the cost of maintaining,
repairing and replacing the Outside Area, the roof and
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exterior walls of the Building (including annual roof inspections and preventive
maintenance work on the roof); appropriate reserves for any such maintenance,
repair and replacement; insurance premiums for any insurance maintained by
Landlord with respect to the Property; and a reasonable management fee for
Landlord's property manager (the "Operating Expenses"). From and after the
Commencement Date, Tenant shall pay to Landlord on the first day of each
calendar month of the Term an amount estimated by Landlord to be the monthly
Operating Expenses. The foregoing estimated monthly charges 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. Within one hundred twenty (120) days following the
end of each calendar year Landlord shall furnish Tenant a statement of the
actual Operating Expenses ("Actual Expenses") for the calendar year and the
payments made by Tenant with respect of such period. If Tenant's payments for
the Operating Expenses do not equal the amount of the Actual Expenses, Tenant
shall pay Landlord the deficiency within ten (10) days after receipt of such
statement. If Tenant's payments exceed the Actual Expenses, Landlord shall
either offset the excess against the Operating 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 Operating Expenses as of the Commencement Date and expiration of the
Term.
D. Compliance with Governmental Regulations. Tenant shall, at its cost,
comply with, including the making by Tenant of any Alteration to the Premises,
all present and future regulations, 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.
18. Liens.
Tenant shall keep the Building and the Property 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
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 ten (10) days prior to the commencement of such work to
enable Landlord to post and record a Notice of Nonresponsibility. If Tenant
fails to so remove any such lien within the prescribed ten (10) day period, then
Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord as
Additional Rent for such amounts upon demand. Such reimbursement shall include
all costs incurred by Landlord including Landlord's reasonable attorneys' fees
with interest thereon at the Interest Rate.
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19. Landlord's Rights 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
Nonresponsibility and similar notices and "For Sale" signs, to show the Premises
to interested parties such as prospective lenders and purchasers, to make
necessary 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 Building 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.
20. Signs.
Tenant shall be permitted to install Tenant's identification signage
on the exterior monument sign in the Outside Area. Tenant shall have no right to
maintain a Tenant identification sign in any other location in, on or about the
Building or the Outside Area 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 Tenant's 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 Tenant's signage, its installation, maintenance and removal, 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.
21. 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 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 Premises
or the Property or any part thereof and adjacent areas by Tenant, the acts or
omissions of the Tenant, its agents, employees or any contractors brought onto
the Premises or the Property by Tenant, except to the extent caused by the
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 with a rating as provided in paragraph 21F
below which afford the following coverage:
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(i) Commercial general liability insurance 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 which includes blanket
contractual liability broad form property damage, personal injury, completed
operations, products liability, and fire damage legal (in an amount not less
than One Hundred Thousand and no/100ths Dollars ($100,000.00)), naming Landlord
and its Agents as additional insureds.
(ii) All-risk or causes of loss-special form property
insurance (including, without limitation, vandalism, malicious mischief,
inflation endorsement, and sprinkler leakage endorsement) 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. 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.
(iii) Workers' compensation insurance as required by law and
employer's liability insurance with limits of no less than One Million and
no/100ths Dollars ($1,000,000.00);
(iv) Boiler and machinery insurance, including steam pipes,
pressure pipes, condensation return pipes and other pressure vessels and HVAC
equipment, including miscellaneous electrical apparatus, in an amount reasonably
satisfactory to Landlord and typical in the industry.
C. Premises Insurance. During the Term Landlord shall maintain all-risk
or causes of loss-special form property insurance (including inflation
endorsement, sprinkler leakage endorsement, and, if available at commercially
reasonable rates and required by Landlord's lender or if carried by owners of
similar properties, earthquake and flood coverage) on the Building, excluding
coverage of all Tenant's Personal Property located on or in the Premises, but
including the Tenant Improvements, if any are provided for in Paragraph 9 of
this Lease. Such insurance shall also include insurance against loss of rents
(including earthquake and flood coverage if available at commercially reasonable
rates and if required by Landlord's lender or if carried by owners of similar
properties), in an amount equal to the Monthly Rent and Additional Rent, and any
other sums payable under the Lease, for a period of 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).
D. Increased Coverage. Upon demand, Tenant shall provide Landlord, at
Tenant's expense, with such increased amount of existing insurance, and such
other insurance as Landlord or Landlord's lender may reasonably require to
afford Landlord and Landlord's lender adequate protection.
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
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by Tenant and shall be immediately paid by Tenant upon receipt of a bill
therefor and evidence of such loss.
F. Insurance Requirements. All insurance shall be in a form reasonably
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 "X" in the most current edition of Best's Insurance Guide; shall provide
that such policies shall not be subject to material alteration or cancellation
except after at least thirty (30) days' prior written notice to Landlord except
ten (10) days notice in the event of non-payment of premium; and shall be
primary as to Landlord. Certificates of insurance shall be deposited with
Landlord prior to the Commencement Date, and upon renewal of such policies, not
less than ten (10) 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 shall reimburse Landlord upon demand. Such reimbursement shall include
all costs incurred by Landlord including Landlord's reasonable attorneys' fees,
with interest thereon at the Interest Rate.
G. 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 sheetrock, steam, gas, electricity, water or
rain which may leak from any part of the Building or from the pipes, appliances
or plumbing works therein or from the roof, street or subsurface, or from any
other cause whatsoever, unless caused by or due to the gross negligence or
willful misconduct of Landlord. Landlord and its Agents shall not be liable for
any latent defect in the Premises. Tenant shall give prompt written notice to
Landlord in case of a casualty, accident or major repair needed in the Premises.
22. Waiver of Subrogation.
Landlord and Tenant each hereby waive all rights of recovery against
the other on account of loss or 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.
23. Damage or Destruction.
A. Landlord's Obligation to Rebuild. If the Premises are 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.
B. Right to Terminate. Landlord shall have the right to terminate this
Lease in the event any of the following events occur:
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(i) Insurance proceeds are not available to pay one hundred
percent (100%) of the cost of such repair, excluding the deductible;
(ii) The Premises cannot, with reasonable diligence, be fully
repaired by Landlord within sixty (60) days after the date of the damage or
destruction; or
(iii) The Premises 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, subject to Tenant's termination right set forth below, Landlord shall
promptly commence the process of obtaining necessary permits and approvals and
repair of the Premises as soon as practicable, and this Lease will continue in
full force and effect. All insurance proceeds from insurance under Paragraph 21,
excluding proceeds for Tenant's Personal Property, shall be disbursed and paid
to Landlord. Tenant shall be required to pay to Landlord the amount of any
deductibles payable in connection with any insured casualties, unless the
casualty was caused by the sole negligence or willful misconduct of Landlord.
Tenant shall have the right to terminate this Lease, if the Premises
cannot, with reasonable diligence, be fully repaired within one hundred eighty
(180) days from the date of damage or destruction. The determination of the
estimated repair period shall be made by Landlord in its good faith business
judgment within thirty (30) days after such damage or destruction. Landlord
shall deliver written notice of the repair period to Tenant after such
determination has been made and Tenant shall exercise its right to terminate
this Lease, if at all, within ten (10) days of receipt of such notice from
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, and Tenant shall, at Tenant's expense, replace or fully
repair all Tenant's Personal Property and any Alterations installed by Tenant
and 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 rental
abatement insurance described in Paragraph 21.C. 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 is destroyed or damaged during the last twelve
(12) months of the Term, then
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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 23.A. and 23.B.
24. Condemnation.
If title to all of the Premises 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 Premises will not, in Landlord's and Tenant's mutual
opinion, result in the Premises 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 Premises or part thereof be
taken. 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.
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
Tenant's use and occupancy of the Premises is reduced. If any portion of the
Outside Area is taken, Tenant's Rent shall be reduced only if such taking
materially interferes with Tenant's use of the Outside Area and then only to the
extent that the fair market rental value is diminished by such partial taking.
Each party hereby waives the provisions of Section 1265.130 of the California
Code of Civil Procedure allowing either party to petition the Superior Court to
terminate this Lease in the event of a partial taking of the Property or
Premises.
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, or
its moving costs.
25. Assignment and Subletting.
A. Landlord's Consent. Tenant shall not enter into a Sublet without
Landlord's prior written consent, which consent shall not be unreasonably
withheld. Any attempted or purported Sublet 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. 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
liability for the performance of each term, condition and covenant of this Lease
by reason of Landlord's consent to a Sublet unless Landlord specifically grants
such release in writing. Consent by Landlord to any Sublet shall not be deemed a
consent to any subsequent Sublet.
-16-
<PAGE> 19
B. Information to be Furnished. If Tenant desires at any time to Sublet
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
Sublet and a copy of the proposed Sublet 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.
C. Landlord's Alternatives. At any time within thirty (30) days after
Landlord's receipt of the information specified in Paragraph 25.D., Landlord
may, by written notice to Tenant, elect: (i) to consent to the Sublet by Tenant;
(ii) to refuse its consent to the Sublet, or (iii) elect to terminate this
Lease, or in the case of a partial Sublet, terminate this lease as to the
portion of the Premises proposed to be Sublet. If Landlord consents to the
Sublet, Tenant may thereafter enter into a valid Sublet 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 25.B, subject, however, at Landlord's election, to the condition that
seventy-five percent (75%) of any excess of the Subrent over the Rent required
to be paid by Tenant under this Lease shall be paid to Landlord.
D. Proration. If a portion of the Premises is Sublet, the pro rata
share of the Rent attributable to such partial area of the Premises shall be
determined by Landlord by dividing the Rent payable by Tenant hereunder by the
total square footage of the Premises and multiplying the resulting quotient (the
per square foot rent) by the number of square feet of the Premises which are
Sublet.
E. Exempt Sublets. Notwithstanding the above, Landlord's prior
written consent shall not be required for an assignment of this Lease to a
subsidiary, affiliate or parent corporation of Tenant, or a corporation into
which Tenant merges or consolidates, provided that (i) at the time of such
assignment, the assignee has a net worth that is equal to or greater than the
net worth of Tenant immediately prior to such assignment; and (ii) the assignee
assumes, in writing, for the benefit of Landlord all of Tenant's obligations
under the Lease. An assignment or other transfer of this Lease to a purchaser of
all or substantially all of the assets of Tenant shall be deemed a Sublet
requiring Landlord's prior written consent.
26. Default.
A. Tenant's Default. A default under this Lease by Tenant shall exist
if any of the following occurs:
(i) If Tenant fails to pay Rent or any other sum required to
be paid hereunder within five (5) days after receipt of written notice from
Landlord, provided, that such written notice shall be in lieu of, and not in
addition to, the notice required under California Code of Civil Procedure
Section 1161.2;
(ii) If Tenant fails to perform any term, covenant or
condition of this Lease except those requiring the payment of money, and Tenant
fails to cure such breach within
-17-
<PAGE> 20
thirty (30) days after written notice from Landlord where such breach could
reasonably be cured within such thirty (30) day period; provided, however, that
where such failure could not reasonably be cured within the thirty (30) day
period, that Tenant shall not be in default if it commences such performance
within the thirty (30) day period and diligently thereafter prosecutes the same
to completion;
(iii) If Tenant assigns its assets for the benefit of its
creditors;
(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 occurs, and Tenant fails 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;
(v) If Tenant fails to continuously or uninterruptedly conduct
its business in the Premises, or shall have abandoned or vacated the Premises;
or
(vi) If a court makes or enters 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.
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 effect as long as Landlord does
not terminate this Lease, and Landlord shall have the right to collect Rent when
due.
(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 (but specifically excluding
remodeling or rehabitation work for a use different from Tenant's use of the
Premise) 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
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<PAGE> 21
(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 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 26.B.(ii)(a) and 26.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 26.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,
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. No reentry 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.
-19-
<PAGE> 22
27. Subordination.
This Lease is subject and subordinate to any ground and underlying
leases and any first mortgages and first deeds of trust (collectively
"Encumbrances") which may now affect the Premises, to the CC&R's and to all
renewals, modifications, consolidations, replacements and extensions thereof;
provided, however, if the holder or holders of any such Encumbrance ("Holder")
shall require this Lease be prior and superior to such Encumbrance, within
fifteen (15) 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 agrees 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 fifteen (15) days after Landlord's written request,
Tenant shall execute any and all documents required by Landlord or the Holder to
make this Lease subordinate to any lien of the Encumbrance.
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.
28. 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.
29. Attorney's 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, or in the event of any other litigation between the parties arising out
of or in connection with this Lease or the lease of the Premises, the prevailing
party in such action or proceeding shall be entitled to recover its reasonable
attorneys' fees (including attorneys' fees on
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<PAGE> 23
appeal, and costs and expenses incurred in out-of-court negotiations, workouts
and/or settlements or in seeking relief from stay or otherwise seeking to
protect its rights in any bankruptcy proceeding) and all reasonable costs
(including costs of consultants and experts) incurred, which shall be payable
whether or not such action is prosecuted to judgment. In addition, the
prevailing party shall be entitled to its attorneys' fees, costs and expenses
incurred in post-judgment proceedings to collect and enforce a judgment. This
provision is separate and several and shall survive the merger of this Lease
into any judgment on this Lease.
30. Estoppel Certificates.
Tenant shall within fifteen (15) 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. Tenant's
failure to deliver an estoppel certificate within fifteen (15) 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.
(ii) Deliver to Landlord the latest financial statements of
Tenant filed with the Securities and Exchange Commission, and financial
statements of the two (2) years prior to the current financial statements year,
with a report 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.
31. Transfer of the Property by Landlord.
In the event of any conveyance of the Property 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 and Tenant agrees to attorn to such transferee provided such
transferee assumes Landlord's obligations under this Lease.
32. 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
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<PAGE> 24
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 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.
33. Tenant's Remedy.
If, as a consequence of a default by Landlord under this Lease,
Tenant recovers 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 Property and out of Rent or other income from such property received 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
Property, and neither Landlord nor its Agents shall be liable for any
deficiency.
34. Mortgage Protection.
If Landlord defaults under this Lease, Tenant will notify any
beneficiary of a first deed of trust or mortgagee of a first mortgage covering
the Property, and offer such beneficiary or mortgagee a reasonable opportunity
to cure the default, including time to obtain possession of the Property by
power of sale or a judicial foreclosure, if such should prove necessary to
effect a cure.
35. 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 Realty Group 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, defend and hold 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.
36. Acceptance.
This Lease shall only become effective and binding upon full
execution hereof by Landlord and delivery of a signed copy to Tenant. Neither
party shall record this Lease nor a short form memorandum thereof.
37. Modifications for Lender.
If, in connection with obtaining financing for the Property 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.
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<PAGE> 25
38. Options to Extend.
A. Option Period. Provided that Tenant is not in default hereunder,
either at the time of exercise or at the time the extended Term commences,
Tenant shall have the option to extend the Term of the Lease for one (1)
additional period of five (5) years ("Option Period") on the same terms,
covenants and conditions provided herein, except that upon such renewal the
initial Monthly Rent due hereunder shall be the greater of (i) $42,000.00 per
month or (ii) ninety-five percent (95%) of the then fair market rental value of
the Premises, determined pursuant to Paragraph 38.B. If Tenant elects to
exercise this option, Tenant shall exercise the option by giving Landlord
written notice ("Option Notice") at least one hundred eighty (180) days but not
more than two hundred ten (210) days prior to the expiration of the Term of this
Lease.
B. Option Period Monthly Rent. The Monthly Rent for the Option Period
shall be determined as follows:
(i) The parties shall have fifteen (15) days after Landlord
receives the Option Notice within which to agree on the Monthly Rent for the
Option Period. If the parties agree on the Monthly Rent for the Option Period
within fifteen (15) days, they shall immediately execute an amendment to this
Lease stating the Monthly Rent for the Option Period. If the parties are unable
to agree on the Monthly Rent within fifteen (15) days, then, the initial Monthly
Rent for the Option Period shall be the greater of (A) $42,000.00 per month and
(B) ninety-five percent (95%) of the then current fair market rental value of
the Premises as determined in accordance with Paragraph 38.B.(iii). The initial
Monthly Rent shall be subject to such periodic increases in Monthly Rent as are
then customary, in both amount or percentage amounts and frequency, for leases
similar to this Lease taking into consideration the same items considered in
determining the then fair market rental value of the Premises, but in no event
less than three and 25/100ths percent (3.25%) per annum.
(ii) The then fair market rental value of the Premises shall be
defined to mean the fair market rental value of the Premises as of the
commencement of the Option Period, taking into consideration the uses permitted
under this Lease, the quality, size, design and location of the Premises, and
the rent for comparable buildings located in Oak Creek Business Park.
(iii) Within fifteen (15) days after the expiration of the
fifteen (15) day period set forth in Paragraph 38.B. (i), each party, at its
cost and by giving notice to the other party, shall appoint a real estate
appraiser with at least five (5) years' full-time commercial appraisal
experience in the area in which the Premises are located to appraise and set the
Monthly Rent. 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, but not
before the lapse of fifteen (15) days, the single appraiser appointed shall be
the sole appraiser and shall set the Monthly Rent. If the two (2) appraisers are
appointed by the parties as stated in this paragraph, they shall meet promptly
and attempt to set the Monthly Rent. 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 (2) appraisers are given to set
the Monthly Rent. 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 then Presiding Judge of the Santa Clara
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<PAGE> 26
County Superior Court, for the selection of a third appraiser who meets the
qualifications stated in this paragraph. Each of the parties shall bear one-half
(1/2) 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 Monthly Rent. If a majority of the
appraisers are unable to set the Monthly Rent within the stipulated period of
time, the three (3) appraisals shall be added together and their total divided
by three (3); the resulting quotient shall be the Monthly Rent. If, however, the
low appraisal and/or the high appraisal are/is more than ten percent (10%) lower
and/or higher than the middle appraisal, the low appraisal and/or the high
appraisal shall be disregarded. If only one appraisal is disregarded, the
remaining two (2) appraisals shall be added together and their total divided by
two (2); the resulting quotient shall be the Monthly Rent. If both the low
appraisal and the high appraisal are disregarded as stated in this paragraph,
then only the middle appraisal shall be used as the result of the appraisal.
After the Monthly Rent has been set, the appraisers shall immediately notify the
parties and the parties shall amend this Lease to set forth the Monthly Rent for
the Option Period.
39. 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. If one or more of the provisions contained herein,
except for the payment of Rent, is for any reason held 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.
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<PAGE> 27
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. Premises Area. Landlord and Tenant agree that each has had an
opportunity to determine to its satisfaction the actual area of the Premises.
All measurements of area contained in this Lease are conclusively agreed to be
correct and binding on the parties, even if a subsequent measurement of one of
these areas determines that it is more or less than the area reflected in this
Lease. Any such subsequent determination that the area is more or less than the
area shown in this Lease shall not result in a change in any of the computations
of Rent or any other matters described in this Lease where area is a factor.
J. 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.
K. 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 written
authorization to enter into this Lease.
L. Exhibits. All exhibits, amendments, riders and addenda attached
hereto are hereby incorporated herein and made a part hereof.
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<PAGE> 28
M. Lease Summary. The Lease Summary attached to this Lease is intended
to provide general information only. In the event of any inconsistency between
the Lease Summary and the specific provisions of this Lease, the specific
provisions of this Lease shall prevail.
THIS LEASE is effective as of the date the last signatory necessary to
execute the Lease shall have executed this Lease.
TENANT:
Dated 3/24/00 Xicor, Inc., a
------------------------- California corporation
By: /s/ Raphael Klein
-----------------------------
Its: CEO
-----------------------------
By: /s/ Bruce Gray
-----------------------------
Its: COO
-----------------------------
Dated: 3/24/00 LANDLORD:
-------------------------
Callahan-Pentz Properties,
McCarthy Four,
a California general partnership
By: /s/ George B. Pentz
-----------------------------
George B. Pentz,
Managing General Partner
-26-
<PAGE> 29
THE PREMISES
[to be attached]
EXHIBIT A
<PAGE> 30
THE PROPERTY
[to be attached]
EXHIBIT B
<PAGE> 31
COMMENCEMENT DATE MEMORANDUM
LANDLORD: Callahan-Pentz Properties, McCarthy Four
TENANT: Xicor, Inc.
LEASE DATE: March ____, 2000
PREMISES: 801 Buckeye Court
Milpitas, CA 95035
Pursuant to Paragraph 4.A. of the above referenced Lease, the
Commencement Date is hereby established as _________________, 2000.
TENANT:
Dated
----------------------- Xicor, Inc., a
California corporation
By:
-----------------------------
Its:
-----------------------------
By:
-----------------------------
Its:
-----------------------------
Dated:
----------------------- LANDLORD:
Callahan-Pentz Properties,
McCarthy Four,
a California general partnership
By:
-----------------------------
George B. Pentz,
Managing General Partner
EXHIBIT C
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-03-2000
<PERIOD-END> APR-02-2000
<CASH> 25,779,000
<SECURITIES> 0
<RECEIVABLES> 12,508,000
<ALLOWANCES> 500,000
<INVENTORY> 11,058,000
<CURRENT-ASSETS> 49,290,000
<PP&E> 48,359,000
<DEPRECIATION> 39,633,000
<TOTAL-ASSETS> 59,851,000
<CURRENT-LIABILITIES> 42,358,000
<BONDS> 0
0
0
<COMMON> 130,517,000
<OTHER-SE> (121,533,000)
<TOTAL-LIABILITY-AND-EQUITY> 59,851,000
<SALES> 32,145,000
<TOTAL-REVENUES> 32,145,000
<CGS> 18,546,000
<TOTAL-COSTS> 18,546,000
<OTHER-EXPENSES> 4,074,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 265,000
<INCOME-PRETAX> 3,182,000
<INCOME-TAX> 159,000
<INCOME-CONTINUING> 3,023,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,023,000
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.13
</TABLE>
