<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended December
31, 1995
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
to
------------- -------------
Commission file number: 0-17191
WEITEK CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2709963
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2801 ORCHARD PARKWAY, SAN JOSE, CALIFORNIA, 95134
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 526-0300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on March 1,
1996 as reported on the NASDAQ National Market System, was approximately
$19,148,946. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of March 1, 1996, registrant had outstanding 8,654,156 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Shareholders of the Company
to be held June 6, 1996.
<PAGE> 2
PART I
When used in the following report, the words "projects", "expects" and
similar expressions are intended to identify 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. Actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors set forth below and elsewhere in this Form 10-K. A number of factors may
impact the outcome of actual results, but in particular, whether the Company is
successful in licensing its technology and identifying a strategic partner to
help bring its technology to the market.
ITEM 1. BUSINESS.
General
Weitek Corporation (the Company) specializes in semiconductor technology to
enhance the performance and value of industry-standard computers and software.
Weitek was founded in 1981, and has its headquarters in San Jose, California.
The Company has historically relied upon its floating-point technology,
graphics expertise and systems design expertise to develop standard numeric
processing architectures providing cost-effective performance in the form of
coprocessors, RISC (Reduced Instruction Set Computing) processors and graphics
processors for supercomputer and workstation manufacturers. In recent years, the
Company has used its graphics technology to develop user interface processors to
accelerate the performance of personal computers.
During 1995, the Company focused its R&D efforts on the development of a
new product line of unified memory architecture (UMA) chip sets targeted at the
mid-range segment of the user interface market. The Company's UMA technology
combines the features of an accelerated graphics controller with those of
motherboard system logic, integrating most of the circuitry for a personal
computer (except the processor and memory) into a single product.
While the Company believes that its UMA technology is competitive, it has
determined that it no longer has sufficient resources to pursue a strategy of
independently manufacturing and marketing chip sets. The Company has recently
announced that it will focus on licensing its technology and will actively seek
partners to help commercialize its UMA technology. Hambrecht & Quist, an
international investment banking firm, has been retained to assist the Company
in developing strategic relationships. The Company has not had an opportunity to
fully evaluate the impact of this change in business strategy and certain
negative consequences may not be fully understood. See Note 10 of Notes to
Consolidated Financial Statements regarding events subsequent to year end.
Given the recent change in the Company's business strategy outlined above,
the following description of the Company's historical business operations is not
indicative of what its future operations will be. Moreover, the Company has very
limited experience with the licensing and strategic partnering strategy being
pursued by the Company. There can be no assurance that the Company can
successfully transition its business model, or that even if the transition is
successful that the Company will be able to operate profitably in the new model.
Although the Company has recently taken actions to reduce its expense levels,
the Company may continue to experience losses from operations that raise
substantial doubt about the Company's ability to continue as a going concern.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 1, 8 and 10 of Notes to Consolidated Financial Statements.
2
<PAGE> 3
Sales and Technical Support
The Company has sold its products and provided technical support to leading
domestic manufacturers through its direct sales force headquartered in the
Company's principal offices in San Jose, California. The Company has utilized a
national distributor, Bell Microproducts, to supplement its direct sales force
in the United States and has also used a number of sales representatives to
augment its distributor and direct sales efforts. Distributors have been granted
limited product return rights which were typical in the industry.
International sales have been managed by the Company's sales
representatives and conducted through distributors located primarily in Europe,
Japan and Taiwan. International sales represented 39% of net revenue in 1995,
25% of net revenue in 1994 and 19% of net revenue in 1993 (see Note 1 of Notes
to Consolidated Financial Statements). International sales are generally
denominated in U.S. dollars and are subject to risks common to export
activities, including governmental regulation and trade barriers. Substantially
all of the Company's international sales must be licensed by the Office of
Export Administration of the U.S. Department of Commerce. The Company has not
experienced any material difficulties to date in obtaining export licenses.
Sales of the Company's products to Ryoyo, a Japanese distributor, accounted
for 24% and 11% of net revenue in 1995 and 1994, respectively. Siemens
represented 19% of the Company's net revenue in 1995. Sales to Diamond
Multimedia Systems represented 12%, 22% and 28% of net revenue in 1995, 1994 and
1993, respectively. Sun Microsystems accounted for 10% of the Company's sales in
1993. No other customer represented 10% or more of the Company's net revenue
during these periods.
Backlog
Due to industry practice with respect to customer changes in delivery
schedules or cancellation of orders, the Company believes that backlog as of any
particular date may not be indicative of actual net revenues for any succeeding
period.
Manufacturing Strategy
The Company's manufacturing strategy has been to develop mutually
beneficial relationships with qualified manufacturers who offer the leading-edge
of mainstream process technologies. This strategy permitted the Company to focus
its resources on product development and customer support rather than on the
development of process technologies and also gave the Company the flexibility to
take advantage of new process technologies as they became mainstream.
The Company has recently announced that it no longer has sufficient
resources to independently pursue a strategy of manufacturing chip sets. The
Company has changed its business strategy to focus on technology licensing and
is actively seeking a strategic partner that can successfully develop products
based on its unified memory architecture technology.
Research and Development
Research and development expenditures were 42% of net revenue in 1995, 34%
of net revenue in 1994 and 28% of net revenue in 1993. Expenditures for research
and development in 1995, 1994 and 1993 were approximately $7.3 million, $9.6
million and $10.3 million, respectively. As of March 1, 1996, the Company had 46
full-time employees engaged in research and development activities.
3
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Competition
The markets for which the Company develops its technology are characterized
by intense competition, rapid product evolution, and evolving industry
standards. Many of the Company's current and prospective competitors have
significantly greater financial, technical, and marketing resources than the
Company. The Company is in the process of licensing its technology for its
unified memory architecture (UMA) as well as its 2D, VGA and graphics
technologies. The competition for the Company's UMA technology, which
incorporates both core logic and advanced graphics technology, includes both
traditional chip set architectures as well as alternative integrated solutions.
The competition for the Company's VGA technology includes several companies
which sell VGA core "net lists."
The Company believes that its ability to compete successfully depends on
elements both within and outside its control, including successful and timely
development of new technologies, external market conditions, alliances with
development partners, name recognition, and availability of compatible
applications software and software development tools. There can be no assurance
that the Company will be able to compete successfully as to these factors.
Patents and Licenses
The Company has been issued nine patents in the United States and one in
Japan and has two patent applications pending in the United States. In addition,
the Company has registered 38 maskworks with the United States Copyright office
and 26 maskworks with the Industrial Property Rights Cooperation Center in
Japan. Although the Company believes that these patents and maskwork
registrations may have value, the Company's future success will depend primarily
upon the technical competence and creative skills of its personnel.
The Company attempts to protect its trade secrets and other proprietary
information through agreements with customers and suppliers, proprietary
information agreements with employees and consultants and other security
measures.
Employees
As of March 1 1996, the Company had 73 full-time equivalent employees, of
whom 46 were engaged in research and development, 12 in sales and marketing, 10
in general and administration and 5 in production. On March 21, 1996, the
Company announced that it would reduce its work force by approximately 30%,
primarily in the sales and marketing, general and administration and production
groups. The Company's employees are not represented by any collective bargaining
agreements, and the Company has never experienced a work stoppage.
ITEM 2. PROPERTIES.
The Company's executive offices and its principal marketing, sales and
product development operations occupy 40,000 square feet of a leased facility in
San Jose, California under a lease which expires in 2001. The Company believes
that its leased facility is adequate for its present needs.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, who are elected by and serve at the
discretion of the Board of Directors, and their ages as of March 1, 1996, are as
follows:
<TABLE>
<CAPTION>
Officer
Name Age Position Since
- ----------------- --- --------------------------------- -------
<S> <C> <C> <C>
David L. Gellatly 52 Director, Chief Executive Officer 1996
Howard J. Gopen 51 Vice President, Operations 1990
Michael D. Hollabaugh 46 Vice President, Sales 1995
Allen R. Samuels 39 Vice President, Business Development 1994
Benjamin M. Warren 53 Vice President, Engineering 1994
</TABLE>
David L. Gellatly, Director, is currently serving as the Company's interim
Chief Executive Officer. Mr. Gellatly has over 20 years of marketing experience
in the semiconductor business including various positions with Intel's
microprocessor group from 1976 to 1981. Since 1982, with the exception of a
brief period from 1991 to 1992 when he served as President and Chief Executive
Officer of Austek Microsystems, he has been an independent marketing consultant
providing services to many leading companies in semiconductor and other high
technology businesses. His clients have included IBM, Apple, Intel, Cyrix,
National Semiconductor, Siemens and others. Mr. Gellatly holds a B.S. degree and
an M.S. in electrical engineering, both from the University of Minnesota.
Howard J. Gopen, Vice President of Operations, joined the Company in July
1990. From April 1987 to July 1990, he was vice president and general manager of
operations at Inova Corporation. Prior to 1987, he was with Intel where he held
a variety of operations management positions, most recently as quality and
reliability manager. Mr. Gopen holds a B.S. in Electrical Engineering from City
College of New York. Subsequent to March 1, 1996, Mr. Gopen resigned from the
Company.
Michael D. Hollabaugh, Vice President of Sales, joined the Company in
October 1995. From 1994 to 1995, he served as Vice President of Sales and
Marketing at Trident Microsystems, a graphics and multimedia company. From 1986
to 1994, he was with Applied Micro Circuits, a semiconductor company, with his
most recent position as Vice President of Business and Product Development.
Prior to 1986, Mr. Hollabaugh held various marketing positions at International
Microelectronics Products and Fairchild Semiconductor. Mr. Hollabaugh holds a
B.S. in Electrical Engineering and a B.S. in Technical Marketing from California
State Polytechnic University.
Allen R. Samuels joined the Company in April 1985 as a Design Consultant.
Mr. Samuels was promoted to R&D Product Manager in June 1987, Director of IC
Engineering in February 1992 and to his present position as Vice President of
Business Development in March 1994. Prior to 1985, he held various positions at
Harris Corporation and Burroughs Corporation. Mr. Samuels holds a B.S. in
Electrical Engineering from Rice University.
Benjamin M. Warren joined the Company in April 1993 as Director of
Manufacturing Engineering. In January 1994 he became Director of Technology and
in March 1994 he was promoted to Vice President of Engineering. From April 1989
to March 1993, Mr. Warren was with Chips & Technologies, a semiconductor
company, with his most recent position as General Manager. Prior to 1989, he
served as Vice President of Engineering at Inova Microelectronics. Mr. Warren
holds a B.S. in Electrical Engineering from California State University at Long
Beach and a M.S. in Electrical Engineering from California State University at
San Diego.
5
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on The NASDAQ Stock Market under the
symbol WWTK. The following table indicates the range of the high and low closing
prices, as reported by NASDAQ during the two most recent fiscal years.
<TABLE>
<CAPTION>
1995 1994
---- ----
High Low High Low
----- ----- ------ -----
<S> <C> <C> <C> <C>
First Quarter $4.00 $1.91 $10.00 $6.50
Second Quarter 5.25 3.25 7.13 3.38
Third Quarter 6.88 3.88 4.38 2.94
Fourth Quarter 6.00 2.88 5.13 1.78
</TABLE>
As of March 1, 1996, there were approximately 3,065 shareholders. The
Company has not paid cash dividends on its common stock and has no present plans
to do so.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
(In thousands, except per share data) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue $17,600 $28,450 $36,250 $26,460 $39,100
Net loss (4,305) (10,570) (1,435) (10,880) (4,810)
Loss per share (.51) (1.30) (.18) (1.42) (.61)
BALANCE SHEET DATA:
Cash and short-term investments $6,028 $8,564 $11,490 $15,743 $21,885
Total assets 11,268 17,440 25,266 25,839 37,551
Lease obligations, long-term - - - - 20
Shareholders' equity 5,593 9,138 18,906 19,232 29,410
</TABLE>
6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Subsequent to the end of its 1995 fiscal year, the Company substantially changed
its business strategy. The following discussion should be read in conjunction
with the "OUTLOOK: ISSUES AND RISKS" section at the end of this discussion and
with Notes 1, 8 and 10 of the Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Net Revenue. Net revenue decreased by 38% to $17.6 million in 1995 compared to
$28.5 million in 1994, which represented a 22% decrease from 1993 net revenue of
$36.3 million. The decrease in net revenue in 1995 was due to a 30% decrease in
unit shipments combined with an 11% decrease in average selling prices. The
decrease in unit shipments was primarily due to decreased shipments of the
Company's user interface products and the SPARC POWER uP processor. The decrease
in average selling prices was primarily related to the decrease in shipments of
the SPARC POWER uP processor, which carries a higher average selling price. The
decrease in net revenue in 1994 resulted from a 26% decrease in unit shipments
partially offset by a 6% increase in average selling prices. The decrease in
unit shipments was primarily due to decreased shipments of user interface
processors and decreased demand for the Company's mature products. Unit
shipments of the SPARC POWER uP processor increased in 1994, although shipments
fell sharply in the fourth quarter.
International net revenue was 39% of total net revenue in 1995 compared to
25% in 1994. The increase in 1995 was due to revenue recognized under the
Company's joint product development agreement with Samsung Semiconductor, Ltd.
of Korea, as well as increased shipments of user interface processors and mature
workstation products to Japan. Domestic net revenue decreased by 50% during
1995, compared to a decrease of 27% during 1994. The decrease in 1995 was due to
a decrease in domestic shipments of both user interface products and the SPARC
POWER uP processor.
Sales of the Company's products to Ryoyo, a Japanese distributor, accounted
for 24% and 11% of net revenue in 1995 and 1994, respectively. Siemens
represented 19% of the Company's net revenue in 1995. Sales to Diamond
Multimedia Systems represented 12%, 22% and 28% of net revenue in 1995, 1994 and
1993, respectively. Sun Microsystems accounted for 10% of the Company's sales in
1993. No other customer represented 10% or more of the Company's net revenue
during these periods.
Gross Margin. Gross margin was 39% of net revenue in 1995, compared to 28% in
1994 and 50% in 1993. 1994 margins include additional inventory reserves of $2.8
million recorded in the second quarter and restructuring charges of $0.2 million
recorded in the fourth quarter. The fourth quarter of 1994 was also impacted by
a manufacturing yield problem which reduced margins by approximately $1.1
million. The Company's gross margin percentage has been highly dependent on
product mix, as the Company's user interface products typically carried gross
margin percentages lower than the Company's mature workstation products.
Operating Expenses. Operating expenses were 66% of net revenue in 1995, a
decrease from 67% in 1994 and an increase from 56% in 1993. In absolute dollar
amounts, operating expenses decreased to $11.6 million in 1995 from $19.1
million in 1994 and $20.2 million in 1993, reflecting lower staffing levels and
tighter spending controls. 1994 operating expenses included approximately $0.6
million of restructuring charges for a corporate downsizing, impacting primarily
sales and marketing and general and administrative expenses.
Research and development expenses as a percentage of net revenue were 42%
in 1995, an increase from 34% in 1994 and 28% in 1993. Expenditures in absolute
dollars decreased to $7.3 million in 1995 from $9.6 million in 1994 and $10.3
million in 1993, reflecting cost savings from a consolidation of development
activities, and efficiencies from a continued investment in design automation
tools. As of March 1, 1996, approximately 46 employees were involved in research
and development activities.
Sales and marketing expenses as a percentage of net revenue were 16% in
1995 down from 26% in 1994 and 21% in 1993. Expenditures in absolute dollars
declined to $2.8 million from $7.3 million in 1994 and $7.7 million in 1993. The
decline in sales and marketing expenses was primarily due to lower staffing
levels and a decrease in advertising and promotional expenditures.
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<PAGE> 8
General and administrative expenses as a percentage of net revenue were 8%
in 1995, compared to 7% in 1994 and 6% in 1993. Expenditures in absolute dollars
decreased to $1.4 million from $2.1 million in 1994 and $2.2 million in 1993.
The decrease in general and administrative expenses was primarily due to lower
average staffing levels.
Restructuring of Operations. In the fourth quarter of 1994, the Company recorded
restructuring charges of $0.8 million for a corporate downsizing and cost
reduction program which was implemented to preserve the Company's financial
strength and enable it to focus on a strategically important R&D program. The
restructuring charges consisted primarily of severance benefits for terminated
employees. The Company reduced its work force by 25% affecting all areas of the
organization, but primarily involving the sales and marketing and general and
administrative groups. The Company also consolidated its facilities which are
occupied under a lease expiring in February 1996. Included in the restructuring
accrual was a charge of $0.2 million for idle facilities relating to the lease.
During 1995, the Company used substantially all of its restructuring accrual to
cover related restructuring liabilities.
Interest and Other Income. Interest and other income as a percentage of net
revenue was 2% in 1995, compared to 2% in 1994 and 1% in 1993. In absolute
dollars, interest and other income remained relatively flat at $0.4 million in
1995, compared to $0.4 million in 1994 and $0.5 million in 1993.
Income Taxes. The Company recorded no tax benefit for 1995, 1994 and 1993. The
Company has exhausted its ability to carry back losses against prior years'
income; however, the Company has the ability to carry forward certain tax
attributes to offset future regular federal and state income taxes payable.
Consequently, if the Company is profitable, the Company's effective tax rate may
be somewhat below the statutory rate in future periods. In the event of a change
in control as defined by the Internal Revenue Code, the Company's utilization of
its net operating loss carryforwards and tax credits is subject to substantial
annual limitations.
Net Loss. The Company generated a net loss of $4.3 million in 1995 compared to a
net loss of $10.6 million in 1994 and $1.4 million in 1993. As a percentage of
net revenue, the 1995 net loss was 25%, compared to 37% in 1994 and 4% in 1993.
In 1994, approximately $3.6 million of additional inventory reserves and
restructuring charges were included in the net loss.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company's cash balance was $6.0 million and
working capital was $4.0 million. In 1995, cash and short-term investments
declined by $2.6 million and working capital decreased by $3.4 million,
primarily due to the net loss. Capital expenditures were $1.1 million in 1995
and were mainly for design automation tools and engineering workstations.
At December 31, 1995, the Company had $1.6 million remaining available
under a revolving line of credit after allocation of $1.4 million of the
facility to letters of credit. The revolving line of credit is secured by the
Company's accounts receivable and a certificate of deposit. The Company is
currently in violation of its loan covenants and has no ability to utilize this
line of credit.
The Company has suffered recurring losses from operations and has an
accumulated deficit that raise substantial doubt about its ability to continue
as a going concern. The Company has experienced significant delays in shipments
of its recently introduced W464 chip set which have impacted the Company's
financial position and liquidity. In addition, a number of events have occurred
in the first quarter of 1996 that have had a material adverse effect on the
Company's financial condition. See Note 10 of Notes to Consolidated Financial
Statements. The Company does not believe that its cash resources are adequate to
fund its operations for the next twelve months. As a result, the Company has
announced that it will change its business strategy to focus on licensing its
technology and is taking immediate steps to reduce costs and preserve liquidity.
The Company is actively seeking partners to help bring its technology to market.
Hambrecht & Quist, an international investment banking firm, has been retained
to assist the Company in locating a strategic partner. There can be no assurance
that the Company will be successful in these efforts and serious liquidity
problems could result if it is unsuccessful.
8
<PAGE> 9
OUTLOOK: ISSUES AND RISKS
On March 1 1996, the Company announced that its revenues had continued to
decline significantly due to recent changes in the personal computer marketplace
which have caused customers to delay purchases of the W464 UMA chip set. As a
result, the Company will record reserves to reflect a revaluation of W464 chip
set inventory and a company-wide cost reduction program. Accordingly, the
Company will report a significant net loss in the first quarter of 1996. In
addition, the recent decline in memory prices and increased competition for chip
sets have made it unlikely that the Company can bring its W564 UMA chip set, now
in development, to the market successfully. As a result of these factors, the
Company has announced that it no longer has sufficient resources to pursue a
business strategy of independently manufacturing and marketing UMA chip sets and
will instead focus on licensing its technology. The Company has retained the
services of Hambrecht & Quist to assist in developing strategic relationships
with companies that can successfully develop products based on its UMA
technology. There can be no assurance that the Company will be successful in
these efforts.
On March 21, 1996, the Company announced that it would reduce its work
force by approximately 30%, primarily in the sales and marketing, general and
administration and production groups, as the initial phase of its cost reduction
program. The Company incurred termination expenses of approximately $220,000
related to this work force reduction which will be reflected in the results for
the first quarter of 1996.
Due to the Company's announcement that it will no longer be manufacturing
products, potential customers for its UMA chip set have indicated concern over
the expected limitation of supply. Management believes that in order to achieve
future sales of the W464, prices will need to be reduced below current cost.
Accordingly, the Company will record substantial reserves in the first quarter
of 1996 related to its W464 inventory which is currently valued at $3,958,000
(including product not in inventory but for which non-cancelable orders were
previously placed).
Given the change in its strategic direction, the Company has requested a
review of its joint development agreement with Samsung Electronics Company, Ltd.
The Company believes that it will likely not reflect any revenue associated with
this agreement in the first quarter. It is not practical at this time to assess
whether the parties will continue the development activities.
The Company's expectations regarding business opportunities and future cost
reduction measures are forward-looking statements, and actual results could
vary. The Company has not had an opportunity to fully evaluate the impact of the
actions outlined above, and certain negative consequences may not be fully
understood.
9
<PAGE> 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The index to the consolidated financial statements and the financial
statement schedules are listed in Item 14 on page 11.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the Company's directors required by this Item is
incorporated by reference to the Proxy Statement under the heading "Election of
Directors."
The information concerning compliance with Section 16(a) of the Securities
Exchange Act is incorporated by reference to the Proxy Statement under the
heading "Compliance with Section 16(a) of the Exchange Act."
The information concerning executive officers required by this Item is
included in the section in Part I hereof entitled "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to the Proxy
Statement under the headings "Election of Directors - Board
Compensation-Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information required by this Item is incorporated by reference to the Proxy
Statement under the headings "Information Concerning Solicitation and Voting
Record Date; Outstanding Shares" and "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
10
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
1. Consolidated Financial Statements. Page
---------------------------------- ----
Report of Independent Accountants 13
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 14
Consolidated Balance Sheets as of December 31, 1995 and 1994 15
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 16
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993 17
Notes to Consolidated Financial Statements 18
Supplementary Financial Information 25
2. Financial Statement Schedules
The Financial Statement Schedules have been omitted because the amounts
are immaterial or they are not applicable or are not required or the
information required to be set forth therein is included in the
consolidated financial statements or notes thereto.
11
<PAGE> 12
3. Exhibits. The following Exhibits are filed as part of, or
incorporated by reference into, this report:
3.1* Restated Articles of Incorporation.
3.2** By-Laws.
10.1** Form of Indemnification Agreement entered into between
the Company and its officers and directors.
10.2** Registrant's 1988 Employee Stock Purchase Plan and Form
of Subscription Agreement.
10.3 S Registrant's 1991 Stock Option Plan.
10.4** Lease between the Registrant and O'Donnell, Brigham and
Partners/ Northern Developments concerning real property
located at 1060 E. Arques Avenue, Sunnyvale, California,
dated November 16, 1984.
10.5$ Fifth amendment to the Lease between Registrant and
O'Donnell, Brigham & Partners/Northern Developments dated
August 24, 1993.
10.6 Lease between the Registrant and Renco Associates
concerning real property located at 2801 Orchard Parkway,
San Jose, California, dated November 9, 1995.
10.7 Loan agreement between the Registrant and Silicon Valley
Bank of California dated December 6, 1995.
23 Consent of Price Waterhouse, Independent Accountants.
24 Powers of Attorney (included on the executed signature
pages hereof).
* Incorporated by reference from the Company's Form 10-K for the year
ended December 31, 1988.
** Incorporated by reference from the Company's Registration on Form S-1
declared effective on September 19, 1988.
S Incorporated by reference from the Company's Registration Statement on
Form S-8 declared effective on June 18, 1991.
$ Incorporated by reference from the Company's Form 10-K for the year
ended December 31, 1993.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the quarter ended December 31, 1995.
12
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF WEITEK CORPORATION:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Weitek
Corporation and its subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has an accumulated deficit that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
San Jose, California
January 19, 1996, except Note 10,
which is as of March 21, 1996
13
<PAGE> 14
WEITEK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands, except per share amounts) 1995 1994 1993
- ---------------------------------------- -------- --------- --------
<S> <C> <C> <C>
Net Revenue $17,600 $28,450 $36,250
Cost of revenue 10,726 20,370 18,006
-------- --------- --------
Gross margin 6,874 8,080 18,244
Research and development 7,345 9,569 10,246
Sales and marketing 2,832 7,348 7,728
General and administrative 1,407 2,133 2,195
-------- --------- --------
Operating loss (4,710) (10,970) (1,925)
Interest and other income (net) 405 400 490
-------- --------- --------
Loss before income taxes (4,305) (10,570) (1,435)
Benefit of income taxes - - -
-------- --------- --------
Net loss $ (4,305) $ (10,570) $ (1,435)
======== ========= ========
Loss per share $(.51) $(1.30) $(.18)
======== ========= ========
Weighted average common shares 8,459 8,152 7,884
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 15
WEITEK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------
(In thousands, except share amounts) 1995 1994
- ---------------------------------------------------------------- -------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 6,028 $ 1,532
Short-term investments - 7,032
-------- --------
Total cash and short-term investments 6,028 8,564
Accounts receivable, net of allowances of $716 ($756 in 1994) 1,606 4,143
Inventories 1,730 2,588
Prepaid expenses and other 272 412
-------- --------
Total current assets 9,636 15,707
Equipment and leasehold improvements, net 1,598 1,731
Other assets 34 2
-------- --------
$ 11,268 $ 17,440
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,637 $ 5,314
Accrued compensation and employee benefits 1,481 2,006
Other current liabilities 557 982
-------- --------
Total current liabilities 5,675 8,302
Commitments
Shareholders' equity:
Preferred stock, 1,000,000 shares authorized, no par value;
no shares outstanding (none in 1994) - -
Common stock, 50,000,000 shares authorized, no par value;
8,632,156 shares outstanding (8,293,839 in 1994) 23,095 22,335
Retained earnings (deficit) (17,502) (13,197)
-------- --------
Total shareholders' equity 5,593 9,138
-------- --------
$ 11,268 $ 17,440
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 16
WEITEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
(In thousands) 1995 1994 1993
- ------------------------------------------------------------ --------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,305) $(10,570) $ (1,435)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 1,218 1,428 1,889
(Increase) decrease in assets:
Accounts receivable 2,537 2,575 (4,156)
Inventories 858 1,642 (2,736)
Income taxes receivable - - 2,337
Prepaid expenses and other assets 108 131 63
Increase (decrease) in liabilities:
Accounts payable (1,677) 713 1
Accrued compensation and employee benefits (525) 966 (47)
Other liabilities (417) 283 (167)
-------- -------- --------
Net cash used by operating activities (2,203) (2,832) (4,251)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment and leasehold improvements (1,093) (895) (1,093)
Decrease in short-term investments, net 7,032 1,734 5,219
-------- -------- --------
Net cash provided by investing activities 5,939 839 4,126
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 760 802 1,109
Principal payments under loans and capitalized leases - - (18)
-------- --------- --------
Net cash provided by financing activities 760 802 1,091
-------- --------- --------
Net increase (decrease) in cash 4,496 (1,191) 966
Cash, beginning of year 1,532 2,723 1,757
-------- --------- --------
Cash, end of year $ 6,028 $ 1,532 $ 2,723
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 17
WEITEK CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Common Stock Earnings
------------------
(In thousands, except share amounts) Shares Amount (Deficit) Total
- -------------------------------------------- ---------- ------- --------- --------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 7,808,340 $20,424 $ (1,192) $19,232
Employee Stock Purchase Plan 102,823 622 - 622
Issuance of common stock upon exercise of
stock options 126,770 487 - 487
Net loss - - (1,435) (1,435)
---------- ------- --------- --------
BALANCE AT DECEMBER 31, 1993 8,037,933 21,533 (2,627) 18,906
Employee Stock Purchase Plan 150,698 380 - 380
Issuance of common stock upon exercise of
stock options 105,208 422 - 422
Net loss - - (10,570) (10,570)
---------- ------- --------- --------
BALANCE AT DECEMBER 31, 1994 8,293,839 22,335 (13,197) 9,138
Employee Stock Purchase Plan 157,991 319 - 319
Issuance of common stock upon exercise of
stock options 180,326 441 - 441
Net loss - - (4,305) (4,305)
---------- ------- --------- --------
BALANCE AT DECEMBER 31, 1995 8,632,156 $23,095 $(17,502) $ 5,593
========== ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 18
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES: Weitek Corporation
(the Company) specializes in semiconductor technology to enhance the performance
and value of industry standard computers and software. Weitek was founded in
1981, and has its headquarters in San Jose, California.
The Company operates in one industry. It does not have significant
foreign operations. Export sales represented 39% of net revenue in 1995 (34% to
Asia and 5% to Europe). Export sales represented 25% and 19% of net revenue in
1994 and 1993, respectively. Sales to one customer represented 24% and 11% of
net revenue in 1995 and 1994, respectively. Sales to another customer
represented 19% of net revenue in 1995. Sales to a third customer represented
12%, 22% and 28% of net revenue in 1995, 1994 and 1993, respectively. Sales to
one additional customer represented 10% of net revenue in 1993. No other
customer accounted for more than 10% of revenue in 1995, 1994, or 1993.
Following are the Company's more significant accounting policies:
Fiscal Year. The Company operates on a calendar year; however, the first
three fiscal quarters end on the Saturday closest to the calendar quarter end.
For ease of presentation, interim periods are identified as ending on a calendar
quarter end.
Principles of Consolidation. The consolidated financial statements of
the Company include the accounts of the Company and its wholly-owned subsidiary,
after elimination of all significant intercompany accounts and transactions. The
preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could vary from those
estimates.
Revenue Recognition.
Product Sales. Revenue from product sales is recognized upon shipment
to the final customer, except in the case of foreign distributors. The Company
grants foreign distributors limited rights to return products and records
reserves to cover this right of return at the time of sale.
Development contracts. The Company generally uses the
percentage-of-completion method to account for development contracts. Under the
percentage-of-completion method, contract revenues are recognized based on the
estimated percentage of contract performance completed. Anticipated losses on
contracts, if any, are charged to operations when identified.
Licenses. Revenue resulting from the licensing of the Company's
products and designs is recognized when the related contractual obligations
have been fulfilled and fees are billable.
Provision for Warranties. A provision is made for the cost of complying
with the Company's product warranties at the time it becomes apparent that the
estimate of such costs is significant.
Cash, Cash Equivalents and Marketable Securities. The Company's
short-term investments consist primarily of high quality, highly liquid
corporate debt instruments, all maturing within one year.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities," which requires investment securities to be
classified as either held to maturity, trading or available for sale. All of the
Company's marketable securities are considered available for sale. Under SFAS
115, for those investments classified as available for sale, any difference
between an investment's cost and its fair value should be recorded as a separate
component of shareholders' equity. At December 31, 1994, the fair value of the
Company's marketable securities approximated cost. At December 31, 1995, the
Company held no investment securities.
18
<PAGE> 19
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of
investments and trade receivables. The Company places its investments with
high-credit-quality institutions and, by policy, limits the amount of credit
exposure to any one institution. A majority of the Company's trade receivables
are derived from sales to manufacturers and distributors in the computer
industry. The Company performs ongoing credit evaluations of its customers'
financial condition and limits the amount of credit extended when deemed
necessary but generally requires no collateral. Amounts receivable from the
Company's largest customer represented 34% of total accounts receivable at the
end of 1995. The Company maintains reserves for potential credit losses, and all
such losses to date have been within management's expectations.
Inventories. Inventories are stated at the lower of standard cost (which
approximates actual cost determined by the first-in, first-out method) or
market.
Equipment and Leasehold Improvements. Equipment and leasehold
improvements are stated at cost. Depreciation and amortization are computed
using the straight-line method based on useful lives of three to five years.
Amortization of leasehold improvements is based on the shorter of the useful
life or the lease term.
Income Taxes. During 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
requires the use of an asset and liability approach for financial accounting and
reporting for income taxes (see Note 9).
Stock Options. In October 1995, the Financial Accounting Standards Board
issued SFAS 123, "Accounting for Stock-Based Compensation." The Company will
adopt the disclosure method of reporting beginning in 1996.
Earnings (Loss) Per Share. Earnings (loss) per share is computed using
the weighted average number of common shares and, where dilutive, common share
equivalents outstanding during the period.
Reclassifications. Certain minor amounts in the consolidated financial
statements for prior years have been reclassified to conform to the current
year's presentation.
Going Concern. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations and has an accumulated deficit that
raise substantial doubt about its ability to continue as a going concern. As a
result of continued change in the personal computer marketplace during the first
quarter of 1996, prices for memory devices continued to decline and demand for
components decreased. These factors caused the Company's revenues to decline and
customers to delay purchases of the Company's W464 UMA chip set. In addition, a
number of events have occurred in the first quarter of 1996 that have had a
material adverse effect on the Company's financial statements. See Note 10 of
Notes to Consolidated Financial Statements. The Company does not believe that
its cash resources are adequate to fund its operations for the next twelve
months. As a result, the Company has announced that it will change its business
strategy to focus on licensing its technology and is taking immediate steps to
reduce costs and preserve liquidity. The Company is actively seeking partners to
help bring its technology to market. Hambrecht & Quist, an international
investment banking firm, has been retained to assist the Company in locating a
strategic partner. There can be no assurance that the Company will be successful
in these efforts and serious liquidity problems could result if it is
unsuccessful. The Company's financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
19
<PAGE> 20
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2. DETAIL OF CONSOLIDATED BALANCE SHEET:
<TABLE>
<CAPTION>
December 31,
(In thousands) 1995 1994
- ---------------------------------------------- -------- --------
<S> <C> <C>
Inventories:
Raw Materials $ - $ 587
Work-in-process 630 1,530
Finished Goods 1,100 471
-------- --------
$ 1,730 $ 2,588
======== ========
Equipment and leasehold improvements, at cost:
Machinery and equipment $ 13,043 $ 12,010
Furniture and fixtures 1,086 1,086
Leasehold improvements 373 373
-------- --------
14,502 13,469
Accumulated depreciation and amortization (12,904) (11,738)
-------- --------
$ 1,598 $ 1,731
======== ========
Other accrued liabilities:
Deferred income and deposits $ - $ 18
Restructuring Charges - 207
Other 557 757
-------- --------
$ 557 $ 982
======== ========
</TABLE>
NOTE 3. LEASING ARRANGEMENTS:
The Company occupies its present principal facilities under a non-cancelable
operating lease expiring in 2001. Future minimum lease payments under the
facility lease are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 373,000
1997 395,000
1998 398,000
1999 429,000
2000 429,000
and thereafter 215,000
----------
$2,239,000
==========
</TABLE>
Rent expense under all operating leases was approximately $507,000, $819,000 and
$645,000 in 1995, 1994 and 1993, respectively.
NOTE 4. BORROWING ARRANGEMENTS:
The Company has a $3,000,000 revolving bank line of credit which expires on
December 6, 1996. Borrowings bear interest at the bank's prime rate plus 1.5%
and are secured by the Company's accounts receivable and a certificate of
deposit for $250,000. Restrictive covenants, conditions and default provisions
are present in the agreement. While there were no borrowings outstanding under
the agreement as of December 31, 1995, a portion of the line of credit facility
has been utilized to cover outstanding letters of credit. As of December 31,
1995, the Company had available to it unused borrowing capacity of approximately
$1,550,000 under its line of credit facility. The Company is currently in
violation of its loan covenants and has no ability to utilize this line of
credit.
20
<PAGE> 21
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5. SHAREHOLDERS' EQUITY:
Preferred Stock. Shareholders have approved a class of preferred stock
consisting of 1,000,000 shares issuable in series and having such rights,
preferences, privileges and restrictions as may be determined by the Board of
Directors. As of December 31, 1995, no shares of preferred stock had been
issued.
Common Stock. In August 1990, the Company began a stock repurchase
program whereby up to 1,000,000 shares of common stock may be purchased on the
open market. The Company may use the shares in connection with employee
incentive stock plans. As of December 31, 1995, 808,000 shares in the aggregate
amount of $5,948,000 had been repurchased and retired. There were no share
repurchases in 1995.
Common Stock Option Plans. Under the 1991 Incentive Stock Option Plan
(the "Plan"), incentive stock options to purchase common stock have been granted
to eligible employees at prices that are not less than the fair value of the
related shares on the date of grant, as determined by the Board of Directors or
its committee. Options are immediately exercisable and shares issued upon
exercise generally vest ratably each month over periods of one to five years
from the date of grant. The following summarizes activity under the Plan:
<TABLE>
<CAPTION>
Options Outstanding
Options -----------------------
(In thousands, Available Number of Price per
except for per share data) for Grant Shares Share
- ---------------------------- --------- ---------- -----------
<S> <C> <C> <C>
Balance at December 31, 1992 253 1,626 $1.50-15.00
Shares reserved 584 - -
Options granted (276) 276 5.80-13.15
Options canceled 111 (111) 3.06-11.89
Options exercised - (127) 1.50- 8.14
--------- ---------- -----------
Balance at December 31, 1993 672 1,664 1.50-15.00
Shares expired (30) - -
Options granted (444) 444 3.06- 8.79
Options canceled 385 (385) 2.50-15.00
Options exercised - (105) 1.50- 8.14
--------- ---------- -----------
Balance at December 31, 1994 583 1,618 2.25-15.00
Shares expired (52) - -
Options granted (926) 926 2.06- 4.71
Options canceled 585 (585) 2.06-15.00
Options exercised - (218) 2.25- 3.64
--------- ---------- -----------
Balance at December 31, 1995 190 1,741 $2.06-15.00
========= ========== ===========
</TABLE>
There were approximately 806,000 shares subject to unexercised vested
options at December 31, 1995.
Employee Stock Purchase Plan. Shareholders have approved an Employee
Stock Purchase Plan (the "Purchase Plan") and reserved 1,000,000 shares of
common stock for issuance pursuant thereto. The Purchase Plan permits eligible
employees to purchase shares at a price equal to 85% of the lower of the fair
market value at the beginning or end of each six-month offering period. As of
December 31, 1995, 799,651 shares had been issued under the Purchase Plan.
21
<PAGE> 22
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6. EMPLOYEE BENEFIT PLANS:
Prior to 1995, the Company had a plan available to certain employees under which
bonuses would be paid if certain profitability and performance objectives were
achieved. Under this plan, the Company made no provision in 1994 or 1993.
The Company adopted a 401(k) Plan, effective January 1, 1989 that
allows participating employees to contribute up to 15% of their eligible
earnings. The Company has made no contributions to the 401(k) Plan.
NOTE 7. DEVELOPMENT CONTRACTS AND LICENSING INCOME:
Development Contracts. The Company has entered into certain development
contracts primarily to provide customers with rights to desired technology. All
expenses incurred in connection with such contracts are included in cost of
revenue. Other contracts are intended to provide only partial reimbursement for
the Company's own development efforts. For these contracts, customer
reimbursements are included in net revenue and expenses are classified as cost
of revenue to the extent of such revenue, with any additional amount of expenses
classified as research and development.
Net revenue and cost of revenue related to development contracts are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
(In thousands) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue $1,385 $138 $623
Cost of revenue 553 138 517
-------- -------- --------
$832 $0 $106
======== ======== ========
</TABLE>
During 1995, the Company entered into a technology exchange and joint
development agreement with Samsung Electronics Company, Ltd. to co-develop a
family of advanced multimedia integrated circuits. The agreement stated that the
two companies would share marketing and sales rights to these products and
Samsung would provide wafer capacity allocations for all jointly developed
products as well as Weitek proprietary products. The Company would have the lead
role in the development of the initial product, and Samsung would provide
funding of approximately $3,000,000 for the effort. Of this amount, $500,000 is
for the initial product specification and $2,500,000 covers the product
development effort. Given the Company's recent change in business strategy, the
Company has requested a review of its agreement with Samsung. See Note 10
regarding events subsequent to year end.
Development costs in excess of net revenue that were charged directly
to research and development expense totaled $0, $0 and $44,000 in 1995, 1994 and
1993, respectively.
NOTE 8. RESTRUCTURING OF OPERATIONS
In December 1994, the Company initiated a downsizing and cost reduction program
in order to preserve the Company's financial strength while focusing on a
strategically important R&D program. Restructuring charges of $778,000 were
recorded in connection with this cost reduction program, which consisted
primarily of severance benefits for terminated employees. The Company's
downsizing of operations reduced its work force by approximately 25%. The
Company's reduction in force affected all levels of the organization, but
primarily involved the sales and marketing and general and administrative
groups. The Company also consolidated its facilities which are occupied under a
lease expiring in February 1996. Included in the restructuring accrual was a
charge of $186,000 for idle facilities relating to the lease. During 1995, the
Company used substantially all of its restructuring accrual to cover related
restructuring liabilities.
22
<PAGE> 23
WEITEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 9. INCOME TAXES:
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The adoption of
SFAS 109 had no net effect on the Company's financial statements. SFAS 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers all expected
future events other than enactments of changes in the tax law or rates.
Previously, the Company used the SFAS 96 asset and liability approach that gave
no recognition to future events other than the recovery of assets and settlement
of liabilities at their carrying amounts.
The Company's deferred tax asset is comprised of the following:
<TABLE>
<CAPTION>
Dec. 31 Dec. 31
(In thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Federal tax attribute carryforwards $ 7,608 $ 5,494
State tax attribute carryforwards 1,062 897
Reserves not currently deductible 1,605 2,037
Depreciation 267 224
Other 344 408
-------- --------
10,886 9,060
Valuation allowance (10,886) (9,060)
-------- --------
Net deferred tax asset $ - $ -
======== ========
</TABLE>
As of December 31, 1995, the Company has net operating loss
carryforwards of approximately 14,634,000 and 16,723,000 for federal and state
tax reporting purposes, respectively. The Company's tax attribute carryforwards
expire in 1997 to 2009. Management has recorded a full valuation allowance
against deferred tax assets on the basis that significant uncertainty exists
regarding the realizability of the assets. In the event of a change in control
as defined by the Internal Revenue Code, the Company's utilization of its net
operating loss carryforwards and tax credits is subject to substantial annual
limitations.
The provision for (benefit of) income taxes reconciles to the amount
computed by applying the federal statutory rate to income (loss) before income
taxes as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
(In thousands) 1995 1994 1993
- ------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Tax provision (benefit) computed at the statutory rate $ (1,507) $ (3,700) $ (502)
Valuation allowance 1,826 3,713 (189)
Other, net (319) (13) 691
-------- -------- --------
Provision for (benefit of) income taxes $ - $ - $ -
======== ======== ========
</TABLE>
23
<PAGE> 24
NOTE 10. SUBSEQUENT EVENTS:
As a result of continued change in the personal computer marketplace during the
first quarter of 1996, prices for memory devices continued to decline and demand
for components decreased. These factors caused the Company's revenues to decline
and customers to delay purchases of the Company's W464 UMA chip set.
On March 1 1996, the Company announced that it will change its business
strategy to focus on technology licensing and is seeking a strategic partner to
help commercialize its unified memory architecture (UMA) technology. The Company
also indicated that it will record reserves to reflect a revaluation of W464
chip set inventory and a company-wide cost reduction program. Accordingly, the
Company will report a significant net loss in the first quarter of 1996. In
addition, the recent decline in memory prices and increased competition for chip
sets have made it unlikely that the Company can successfully commercialize its
W564 UMA chip set, now in development. As a result, the Company no longer
believes it has sufficient resources to independently pursue a business strategy
of manufacturing UMA chip sets and it is taking immediate steps to reduce costs
and preserve liquidity. The Company has retained the services of Hambrecht &
Quist, an international banking firm, to assist in developing strategic
relationships with companies that can successfully develop products based on its
UMA technology.
On March 21, 1996, the Company announced that it would reduce its work
force by approximately 30%, primarily in the sales and marketing, general and
administration and production groups, as the initial phase of its cost reduction
program. The Company incurred termination expenses of approximately $220,000
related to this work force reduction which will be reflected in the results for
the first quarter of 1996.
Due to the Company's announcement that it will no longer be
manufacturing products, potential customers for its UMA chip set have indicated
concern over the expected limitation of supply. Management believes that in
order to achieve future sales of the W464, prices will need to be reduced below
current cost. Accordingly, the Company will record substantial reserves in the
first quarter of 1996 related to its W464 inventory which is currently valued at
$3,958,000 (including product not in inventory but for which non-cancelable
orders were previously placed).
Given the change in its strategic direction, the Company has requested
a review of its joint development agreement with Samsung Electronics Company,
Ltd. The Company believes that it will likely not reflect any revenue associated
with this agreement in the first quarter. It is not practical at this time to
assess whether the parties will continue the development activities.
24
<PAGE> 25
WEITEK CORPORATION
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-------------------------------------
Fourth Third Second First
(In thousands, except per share data) Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $ 3,300 $ 3,300 $ 5,100 $ 5,900
Cost of revenue 2,021 1,775 3,095 3,835
-------- --------- ------- -------
Gross margin 1,279 1,525 2,005 2,065
Research and development 1,604 1,750 1,988 2,003
Sales and marketing 760 648 701 723
General and administrative 330 357 356 364
-------- --------- ------- -------
Operating loss (1,415) (1,230) (1,040) (1,025)
Interest and other income (net) 80 100 125 100
-------- --------- ------- -------
Loss before income taxes (1,335) (1,130) (915) (925)
Benefit of income taxes - - - -
-------- --------- ------- -------
Net loss $ (1,335) $ (1,130) $ (915) $ (925)
======== ========= ======= =======
Loss per share $ (.16) $ (.13) $ (.11) $ (.11)
======== ========= ======= =======
Weighted average common
shares and equivalents 8,565 8,546 8,403 8,321
======== ========= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994
-------------------------------------
Fourth Third Second First
(In thousands, except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $ 6,350 $ 6,500 $ 5,300 $10,300
Cost of revenue 5,435 3,860 5,995 5,080
-------- --------- ------- -------
Gross margin 915 2,640 (695) 5,220
Research and development 2,290 2,304 2,496 2,479
Sales and marketing 1,840 1,624 1,893 1,991
General and administrative 580 457 551 545
-------- --------- ------- -------
Operating income (loss) (3,795) (1,745) (5,635) 205
Interest and other income (net) 120 100 85 95
-------- --------- ------- -------
Income (loss) before income taxes (3,675) (1,645) (5,550) 300
Provision for (benefit of) income taxes - - (75) 75
-------- --------- ------- -------
Net income (loss) $ (3,675) $ (1,645) $(5,475) $ 225
======== ========= ======= =======
Earnings (loss) per share $ (.45) $ (.20) $ (.67) $ .03
======== ========= ======= =======
Weighted average common
shares and equivalents 8,218 8,207 8,115 8,754
======== ========= ======= =======
</TABLE>
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
WEITEK CORPORATION
/s/ David L. Gellatly
---------------------------------
David L. Gellatly
Director, Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)
/s/ Paul K. Kidman
---------------------------------
Paul K. Kidman
Director of Finance
(Principal Accounting Officer)
Dated: April 1, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David L. Gellatly, his attorney-in-fact, with the
power of substitution, for him in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------- ------------------------------------------ -------------
<S> <C> <C>
/s/ David L. Gellatly Director, Chief Executive Officer April 1, 1996
- -----------------------
(David L. Gellatly) (Principal Executive Officer and Principal
Financial Officer)
/s/ Arthur J. Collmeyer Chairman of the Board April 1, 1996
- -----------------------
(Arthur J. Collmeyer)
/s/ W. Frank King III Director April 1, 1996
- -----------------------
(W. Frank King III)
</TABLE>
26
<PAGE> 1
EXHIBIT 10.6
INDUSTRIAL SPACE LEASE
(MULTI-TENANT NET)
THIS LEASE, dated November 9, 1995 for reference purposes only, is
made by and between Renco Associates, a California Partnership ("Landlord"),
and Weitek Corporation ("Tenant"), to be effective and binding upon the parties
as of the date the last of the designated signatories to this Lease shall have
executed this Lease (the "Effective Date of this Lease").
ARTICLE 1
REFERENCES
1.1 References: All references in this Lease (subject to any
further clarifications contained in this Lease) to the following terms shall
have the following meaning or refer to the respective address, person, date,
time period, amount, percentage, calendar year or fiscal year as below set
forth:
A. Tenant's Address for Notices: 2801 Orchard Parkway
San Jose, California
B. Tenant's Representative: Paul K. Kidman
Phone Number:
C. Landlord's Address for Notices: 1285 Oakmead Parkway
Sunnyvale, California 94086
D. Landlord's Representative: William N. Neidig
Phone Number: (408) 730-5500
E. Intended Commencement Date: December 1, 1995
F. Intended Term: From the actual commencement
date to July 1, 2001
G. Lease Expiration Date: July 1, 2001
H. Tenant's Punchlist Period: Thirty (30) days
I. First Month's Prepaid Rent: $33,112.00
J. Last Month's Prepaid Rent: --
K. Tenant's Security Deposit: $33,112.00
L. Late Charge Amount: Ten Percent (10%) of the
delinquent amount
M. Tenant's Required Liability Coverage: $2,000,000.00
<PAGE> 2
N. Tenant's Number of Parking Spaces: 150
O. Brokers: Joan S. Haynes; Colliers
Parrish International
P. Project or Property: That certain real property situated in the
City of San Jose, County of Santa Clara, State of California, as presently
improved with one building, which real property is shown on the Site Plan
attached hereto as Exhibit "A" and is commonly known as or otherwise described
as follows:
2801 Orchard Parkway
San Jose, California
Q. Building: That certain Building within the Project in which the
Leased Premises are located, which Building is shown outlined in red on Exhibit
"A" hereto.
R. Common Areas: The "Common Areas" shall mean those areas within
the Project which are located outside the buildings and which are provided and
designated by Landlord from time to time for general use by tenants of the
Project including driveways, pedestrian walkways, parking spaces, landscaped
areas and enclosed trash disposal areas.
S. Leased Premises: That certain space which is a portion of the
Building, which space is shown outlined in red on the Floor Plan attached
hereto as Exhibit "B" consisting of approximately 40,380 square feet of
leasable area and, for purposes of this Lease, agreed to contain said number of
square feet. The Leased Premises are commonly known as or otherwise described
as follows:
2801 Orchard Parkway
San Jose, California
T. Base Monthly Rent: The term "Base Monthly Rent" shall mean the
following:
Thirty three thousand one hundred twelve dollars ($33,112.00) for
each of the first thirty-four (34) months of the lease term.
After which the Base Monthly Rent will be increased pursuant to
section 1.1T of the First Addendum to Lease.
U. Permitted Use: The term "Permitted Use" shall mean the following:
General office, research and development, light manufacturing,
marketing, sales, the distribution and warehousing of Tenant's
products.
V. Exhibits: The term "Exhibits" shall mean the Exhibits to this
Lease which are described as follows:
Exhibit "A" - Site Plan showing the Project and delineating
the Building in which the Leased Premises are
located.
Exhibit "B" - Floor Plan outlining the Leased Premises.
Exhibit "C" - Tenant Improvement Agreement.
Exhibit "D" - Acceptance Agreement.
<PAGE> 3
W. Addenda: The term "Addenda" shall mean the Addendum (or Addenda)
to this Lease which is (or are) described as follows:
First Addendum to Lease
ARTICLE 2
LEASED PREMISES, TERM AND POSSESSION
2.1 Demise of Leased Premises: Landlord hereby leases to Tenant
and Tenant hereby leases from Landlord for Tenant's own use in the conduct of
Tenant's business and not for purposes of speculating in real estate, for the
Lease Term and upon the terms and subject to the conditions of this Lease, that
certain interior space described in Article 1(s) as the Leased Premises.
Landlord further reserves the right to install, maintain, use and replace
ducts, wires, conduits and pipes leading through the Leased Premises in
locations which will not materially interfere with Tenant's use of the Leased
Premises. Tenant's lease of the Leased Premises, together with the appurtenant
right to use the Common Areas as described in Article 2.2 below, shall be
conditioned upon and be subject to the continuing compliance by Tenant with (i)
all the terms and conditions of the Lease, (ii) all Laws governing the use of
the Leased Premises and the Project, (iii) all Private Restrictions, easements
and other matters now of public record respecting the use of the Leased
Premises and the Project, and (iv) all reasonable rules and regulations from
time to time established by Landlord.
2.2 Right to Use Common Areas: As an appurtenant right to
Tenant's right to the use of the Leased Premises, Tenant shall have the
non-exclusive right to use the Common Areas in conjunction with other tenants
of the Project and their invitees, subject to the limitations on such use as
set forth in Article 4, and solely for the purposes for which they were
designed and intended. Tenant's right to use the Common Areas shall terminate
concurrently with any termination of this Lease.
2.3 Lease Commencement Date and Lease Term: The term of this
Lease shall begin, and the Lease Commencement Date shall be deemed to have
occurred in accordance with Section 2.4 below. The term of this Lease shall
end on the Lease Expiration Date (as set forth in Article 1), irrespective of
whatever date the Lease Commencement Date is determined to be pursuant to the
foregoing sentence. The Lease Term shall be that period of time commencing on
the Lease Commencement Date and ending on the Lease Expiration Date (the "Lease
Term").
2.4 Delivery of Possession: Landlord shall deliver to Tenant
possession of the Leased Premises on or before the Intended Commencement Date
(as set forth in Article 1) in their presently existing condition, broom clean,
unless Landlord shall have agreed, as a condition to Tenant's obligation to
accept possession of the Leased Premises, pursuant to an Exhibit or Addenda
attached to and made a part of this Lease to modify existing interior
improvements or to make, construct and/or install additional specified
improvements within the Leased Premises, in which case Landlord shall deliver
to Tenant possession of the Leased Premises on or before the Intended
Commencement Date as so modified and/or improved. If Landlord is unable to so
deliver possession of the Leased Premises to Tenant on or before the Intended
Commencement Date, for whatever reason, Landlord shall not
<PAGE> 4
be in default under this Lease, nor shall this Lease be void, voidable or
cancelable by Tenant until the lapse of one hundred twenty days after the
Intended Commencement Date (the "delivery grace period"); however, the Lease
Commencement Date shall not be deemed to have occurred until such date as
Landlord notifies Tenant that the Leased Premises are Ready for Occupancy.
Additionally, the delivery grace period above set forth shall be extended for
such number of days as Landlord may be delayed in delivering possession of the
Leased Premises to Tenant by reason of Force Majeure or the actions of Tenant.
If Landlord is unable to deliver possession of the Leased Premises to Tenant
within the described delivery grace period (including any extensions thereof by
reason of Force Majeure or the actions of Tenant), then Tenant's sole remedy
shall be to cancel and terminate this Lease, and in no event shall Landlord be
liable to Tenant for such delay. Tenant may not cancel this Lease at any time
after the date Landlord notifies Tenant the Leased Premises are Ready for
Occupancy.
2.5 Acceptance of Possession: Tenant acknowledges that it has
inspected the Leased Premises and is willing to accept them in their existing
condition, broom clean, unless Landlord shall have agreed, as a condition to
Tenant's obligation to accept possession of the Leased Premises, pursuant to an
Exhibit or Addenda attached to and made a part of this Lease to modify existing
interior improvements or to make, construct and/or install additional specified
improvements within the Leased Premises, in which case Tenant agrees to accept
possession of the Leased Premises when Landlord has substantially completed
such modifications or improvements and the Leased Premises are Ready for
Occupancy. If Landlord shall have so modified existing improvements or
constructed additional improvements within the Leased Premises for Tenant,
Tenant shall, within Tenant's Punchlist Period (as set forth in Article 1)
which shall commence on the date that Landlord notifies Tenant that the Leased
Premises are Ready for Occupancy, submit to Landlord a signed copy of the
Acceptance Agreement attached hereto as Exhibit "D" together with a punchlist
of al incomplete and/or improper work performed by Landlord. Upon the
expiration of Tenant's Punchlist Period, Tenant shall be conclusively deemed to
have accepted the Leased Premises in their then-existing condition as so
delivered by Landlord to Tenant, except as to those items reasonably set forth
in the punchlist submitted to Landlord prior to the expiration of said period.
Landlord agrees to correct all items reasonably set forth in Tenant's
punchlist, provided that such punchlist was submitted to Landlord within
Tenant's Punchlist Period. Additionally, Landlord agrees to place in good
working order all existing plumbing, electrical lighting, heating, ventilating
and air conditioning systems within the Leased Premises, roof and all man doors
and roll-up truck doors serving the Leased Premises to the extent that such
systems and/or items are not in good operating condition as of the date Tenant
accepts possession of the Leased Premises.
2.6 Surrender of Possession: Immediately prior to the expiration
or upon the sooner termination of this Lease, Tenant shall remove all of
Tenant's signs from the exterior of the Building and shall remove all of
Tenant's equipment, trade fixtures, furniture, supplies, wall decorations and
other personal property from the Leased Premises, and shall vacate and
surrender the Leased Premises to Landlord in the same condition, broom clean,
as existed at the Lease Commencement Date. Landlord, at Tenant's expense,
shall retain a mechanical contractor to service all heating, ventilation and
air conditioning equipment, and Tenant shall pay the cost to restore (or
replace as required), subject to 13.12C of the Addendum said equipment to good
working order. Tenant shall pay the cost of
<PAGE> 5
restoring or replacing all trees, shrubs, plants, lawn and ground cover, and
repair (or replace as required) all paved surfaces of the Property, and
otherwise satisfy all requirements to repair any damage or wear to the Leased
Premises, Building, Common Areas, Outside Areas, and/or Property. Tenant shall
repair all damage to the Leased Premises caused by Tenant or by Tenant's
removal of Tenant's property and all damage to the exterior of the Building
caused by Tenant's removal of Tenant's signs. Tenant shall patch and refinish,
to Landlord's reasonable satisfaction, all penetrations made by Tenant or its
employees to the floor, walls or ceiling of the Leased Premises, whether such
penetrations were made with Landlord's approval or not. Tenant shall clean,
repair or replace all stained or damaged ceiling tiles, wall coverings and
clean or replace as may be required floor coverings to the reasonable
satisfaction of Landlord. Tenant shall replace all burned out light bulbs and
damaged light lenses, and clean and repaint all painted walls. Tenant shall
repair all damage caused by Tenant to the exterior surface of the Building and
the paved surfaces of the outside areas adjoining the Leased Premises and,
where necessary, subject to Addendum 13.12C, replace or resurface same.
Additionally, Tenant shall, prior to the expiration or sooner termination of
this Lease, remove any improvements constructed or installed by Tenant which
Landlord requests be so removed by Tenant and repair all damage caused by such
removal. If the Leased Premises are not surrendered to Landlord in the
condition required by this Article at the expiration or sooner termination of
this Lease, Landlord may, at Tenant's expense, so remove Tenant's signs,
property and/or improvements not so removed and make such repairs and
replacements not so made or hire, at Tenant's expense, independent contractors
to perform such work. Tenant shall be liable to Landlord for all costs
incurred by Landlord in returning the Leased Premises to the required
condition, plus interest on all costs incurred from the date paid by Landlord
at the then maximum rate of interest not prohibited by Law until paid, payable
by Tenant to Landlord within ten days after receipt of a statement therefore
from Landlord, and Tenant shall be deemed to have impermissibly held over until
such time as such required work is completed, and Tenant shall pay Base Monthly
Rent and Additional Rent in accordance with the terms of Section 13.2 (Holding
Over) until such work is completed. Tenant shall indemnify Landlord against
loss or liability resulting from delay by Tenant in so surrendering the Leased
Premises, including, without limitation, any claims made by any succeeding
tenant or any losses to Landlord due to lost opportunities to lease to
succeeding tenants.
Insert 2.6
2.7 Early Occupancy: If Tenant enters into possession of the
Leased Premises prior to the Intended Commencement Date (or permits its
contractors to enter the Leased Premises prior to the Intended Commencement
Date), unless otherwise agreed in writing by Landlord, the Lease Commencement
Date shall be deemed to have occurred on such sooner date, and Tenant shall be
obligated to perform all its obligations under this Lease, including the
obligation to pay rent, from that sooner date.
Insert 2.7
ARTICLE 3
RENT, LATE CHARGES AND SECURITY DEPOSITS
<PAGE> 6
3.1 Base Monthly Rent: Commencing on the Lease Commencement Date
(as determined pursuant to Article 2.3 above) and continuing throughout the
Lease Term, Tenant shall pay to Landlord, without prior demand therefore, in
advance on the first day of each calendar month, as base monthly rent, the
amount set forth as "Base Monthly Rent" in Article 1 (the "Base Monthly Rent").
3.2 Additional Rent: Commencing on the Lease Commencement Date(as
determined pursuant to Article 2.3 above) and continuing throughout the Lease
Term, in addition to the Base Monthly Rent, Tenant shall pay to Landlord as
additional rent (the "Additional Rent") the following amounts:
A. Tenant's Proportionate Share of all Building
Operating Expenses (as defined in Article 13). Payment shall be made by
whichever of the following methods (or combination of methods) is (are) from
time to time designated by Landlord:
1. Landlord may bill to Tenant, on a periodic
basis not more frequently than monthly, Tenant's Proportionate Share of
such expenses (or group of expenses) as paid or incurred by Landlord, and
Tenant shall pay such share of such expenses within ten days after receipt
of a written bill therefore from Landlord; and/or
2. Landlord may deliver to Tenant Landlord's
reasonable estimate of any given expense (or group of expenses, such as
Landlord's Insurance Costs or Real Property Taxes) which it anticipates
will be paid or incurred for the ensuing calendar or fiscal year, as
Landlord may determine, and Tenant shall pay its Proportionate Share of
such expenses for such year in equal monthly installments during such year
with the installments of Base Monthly Rent. Landlord reserves the right to
change from time to time the method of billing Tenant its Proportionate
Share of such expenses or the periodic basis on which such expenses are
billed.
B. Landlord's share of the consideration received by
Tenant upon certain assignments and sublettings as required by Article 7;
C. Any legal fees and costs that Tenant is obligated to
pay or reimburse to Landlord pursuant to Article 13; and
D. Any other charges or reimbursement due Landlord from
Tenant pursuant to the terms of this Lease.
3.3 Year-End Adjustments: If Landlord shall have elected to
charge Tenant its Proportionate Share of the Building Operating Expenses (or
any group of such expenses) on an estimated basis in accordance with the
provisions of Article 3.2A(2) above, Landlord shall furnish to Tenant within
three months following the end of the applicable calendar or fiscal year, as
the case may be, a statement setting forth (i) the amount of such expenses paid
or incurred during the just ended calendar or fiscal year, as appropriate, and
(ii) Tenant's Proportionate Share of such expenses for such period. If Tenant
shall have paid more than its Proportionate Share of such expenses for the
stated period, Landlord shall, at its election, either (i) credit the amount of
such overpayment toward the next ensuing payment or payments of Additional Rent
that would otherwise be due or (ii) immediately refund in cash to Tenant the
amount of such overpayment. If such year-end statement shall show that Tenant
did not pay its
<PAGE> 7
Proportionate Share of any such expenses in full, then Tenant shall pay to
Landlord the amount of such underpayment within ten days from Landlord's
billing of same to Tenant. The provisions of this Article shall survive the
expiration or sooner termination of this Lease.
3.4 Late Charge and Interest on Rent in Default: Tenant
acknowledges that the late payment by Tenant of any monthly installment of Base
Monthly Rent or any Additional Rent will cause Landlord to incur certain costs
and expenses not contemplated under this Lease, the exact amounts of which are
extremely difficult or impractical to fix. Such costs and expenses will
include, without limitation, administration and collection costs and processing
and accounting expenses. Therefore, if any installment of Base Monthly Rent is
not received by Landlord from Tenant within six calendar days after the same
becomes due, Insert 3.4 Tenant shall immediately pay to Landlord a late charge
in an amount equal to the amount set forth in Article 1 as the "Late Charge
Account", and if any Additional Rent is not received by Landlord within six
calendar days after same becomes due, Insert 3.4 Tenant shall immediately pay
to Landlord a late charge in an amount equal to ten percent of the Additional
Rent not so paid. Landlord and Tenant agree that this late charge represents a
reasonable estimate of such costs and expenses and is fair compensation to
Landlord for its loss suffered by reason of Tenant's failure to make timely
payment. In no event shall this provision for a late charge be deemed to grant
to Tenant a grace period or extension of time within which to pay any rental
installment or prevent Landlord from exercising any right or remedy available
to Landlord upon Tenant's failure to pay each rental installment due under this
Lease when due, including the right to terminate this Lease. If any rent
remains delinquent for a period in excess of six calendar days, then, in
addition to such late charge, Tenant shall pay to Landlord interest on any rent
that is not so paid from said sixth day at the then maximum rate of interest
not prohibited by Law until paid.
3.5 Payment of Rent: Except as set forth in this Lease, all rent
shall be paid in lawful money of the United States, without any abatement,
deduction or offset for any reason whatsoever, to Landlord at such address as
Landlord may designate from time to time. Tenant's obligation to pay Base
Monthly Rent and all Additional Rent shall be prorated at the commencement and
expiration of the Lease Term. The failure by Tenant to pay any Additional Rent
as required pursuant to this Lease when due shall be treated the same as a
failure by Tenant to pay Base Monthly Rent when due, and Landlord shall have
the same rights and remedies against Tenant as Landlord would have if Tenant
failed to pay the Based Monthly Rent when due.
3.6 Prepaid Rent: Upon signing this Lease, Tenant shall
immediately pay to Landlord the amount set forth in Article 1 as "First Month's
Prepaid Rent" as prepayment of rent for credit against the first installment(s)
of Base Monthly Rent due hereunder. Additionally, Tenant has paid to Landlord
the amount set forth in Article I as "Last Month's Prepaid Rent" as prepayment
of rent for credit against the last installment(s) of Base Monthly Rent due
hereunder, subject, however, to the provisions of Article 3.7 below.
3.7 Security Deposit: Upon signing this Lease, Tenant shall
immediately deposit with Landlord the amount set forth in Article 1 as the
"Security Deposit" as security for the performance by Tenant of the terms of
this Lease to be performed by Tenant, and not as prepayment of rent. Landlord
may apply such portion or portions of the Security Deposit as are reasonably
necessary for the
<PAGE> 8
following purposes: (i) to remedy any default by Tenant in the payment of Base
Monthly Rent or Additional Rent or a late charge or interest on defaulted rent;
(ii) to repair damage to the Leased Premises caused by Tenant; (iii) to clean
and repair the Leased Premises following their surrender to Landlord if not
surrendered in the condition required pursuant to the provisions of Article 2;
and (iv) to remedy any other default of Tenant to the extent permitted by Law
including, without limitation, paying in full on Tenant's behalf any sums
claimed by materialmen or contractors of Tenant to be owing to them by Tenant
for work done or improvements made at Tenant's request to the Leased Premises.
In this regard, Tenant hereby waives any restriction on the uses to which the
Security Deposit may be applied as contained in Section 1950.7(c) of the
California Civil Code and/or any successor statute. In the event the Security
Deposit or any portion thereof is so used, Tenant shall pay to Landlord,
promptly upon demand, an amount in cash sufficient to restore the Security
Deposit to the full original sum. If Tenant fails to promptly restore the
Security Deposit and if Tenant shall have paid to Landlord any sums as "Last
Month's Prepaid Rent", Landlord may, in addition to any other remedy, Landlord
may have under this Lease, reduce the amount of Tenant's Last Month's Prepaid
Rent by transferring all or portions of such Last Month's Prepaid Rent to
Tenant's Security Deposit until such Security Deposit is restored to the amount
set forth in Article 1. Landlord shall not be deemed a trustee of the Security
Deposit. Landlord may use the Security Deposit in Landlord's ordinary business
and shall not be required to segregate it from its general accounts. Tenant
shall not be entitled to any interest on the Security Deposit. If Landlord
transfers the Building during the Leased Term, Landlord may pay the Security
Deposit to any subsequent owner in conformity with the provisions of Section
1950.7 of the California Civil Code and/or any successor statute, in which
event the transferring landlord shall be released from all liability for the
return of the Security Deposit. Tenant specifically grants to Landlord (and
hereby waives the provisions of California Civil Code Section 1950.7 to the
contrary) a period of 30 days following a surrender of the Leased Premises by
Tenant to Landlord within which to return the Security Deposit (less permitted
deductions) to Tenant, it being agreed between Landlord and Tenant that 30 days
is a reasonable period of time within which to inspect the Leased Premises,
make required repairs, receive and verify workmen's billings therefore, and
prepare a final accounting with respect to such deposit. In no event shall the
Security Deposit, or any portion thereof, be considered prepaid rent.
ARTICLE 4
USE OF LEASED PREMISES AND COMMON AREAS
4.1 Permitted Use: Tenant shall be entitled to use the Leased
Premises solely for the "Permitted Use" as set forth in Article 1 and for no
other purpose whatsoever. Subject to the limitations contained in this Article
4, Tenant shall have the right to use the Common Areas, in conjunction with
other tenants and during normal business hours, solely for the purposes for
which they were intended and for no other purposes whatsoever. Tenant shall
not have the right to use the exterior surfaces of exterior walls, the area
beneath the floor or the area above the ceiling of the Leased Premises.
4.2 General Limitations on Use: Tenant shall not do or permit
anything to be done in or about the Leased Premises, the Building, the Common
Areas or the Project which does or could (i) interfere with the right of other
tenants or
<PAGE> 9
occupants of the Building or the Project, (ii) jeopardize the structural
integrity of the Building or (iii) cause damage to any part of the Building or
the Project. Tenant shall not operate any equipment within the Leased Premises
which does or could (i) injure, vibrate or shake the Leased Premises or the
Building, (ii) damage, overload, corrode, or impair the efficient operation of
any electrical, plumbing, sewer, heating, ventilating or air conditioning
systems within or servicing the Leased Premises or the Building or (iii) damage
or impair the efficient operation of the sprinkler system (if any) within or
servicing the Leased Premises or the Building, Insert 4.2. Tenant shall not
install any equipment or antennas on or make any penetrations of the exterior
walls or roof of the Building. Tenant shall not affix any equipment to or make
any penetrations or cuts in the floor, ceiling or walls of the Leased Premises,
Insert 4.2. Tenant shall not place any loads upon the floors, walls, ceiling
or roof systems which could endanger the structural integrity of the Building
or damage its floors, foundations or supporting structural components. Tenant
shall not place any explosive, flammable or harmful fluids, including Hazardous
Materials, or other waste materials in the drainage systems of the Building or
the Project. Tenant shall not drain or discharge any fluids in the landscaped
areas or across the paved areas of the Project. Tenant shall not use any area
located outside the Leased Premises for the storage of its materials, supplies,
inventory or equipment, and all such materials, supplies, inventory and
equipment shall at all times be stored within the Leased Premises. Tenant
shall not commit nor permit to be committed any waste in or about the Leased
Premises, the Common Area or the Project.
4.3 Noise and Emissions: All noise generated by Tenant in its use
of the Leased Premises shall be confined or muffled so that it does not
unreasonably interfere with the businesses of or annoy other tenants of the
Building or the Project. All dust, fumes, odors and other emissions generated
by Tenant's use of the Leased Premises shall be sufficiently dissipated in
accordance with sound environmental practices and exhausted from the Leased
Premises in such a manner so as not to unreasonably interfere with the
businesses of or annoy other tenants of the Building or the Project, or cause
any damage to the Leased Premises or the Building or any component part thereof
or the property of other tenants of the Building or the Project.
4.4 Trash Disposal: Tenant shall provide trash and garbage
disposal facilities outside the Leased Premises, (Insert 4.4), for all of its
trash, garbage and waste requirements and shall cause such trash, garbage and
waste to be regularly removed from the Leased Premises at Tenant's sole cost.
Tenant shall keep all areas outside the Leased Premises and all fire corridors
and mechanical equipment rooms in or about the Leased Premises free and clear
of all trash, garbage, waste and boxes containing same at all time.
4.5 Parking: Tenant is allocated, and Tenant and its employees
and invitees shall have the non-exclusive right to use, not more than the
number of parking spaces set forth in Article 1 as "Tenant's Number of Parking
Spaces". Tenant shall not, at any time, use or permit its employees or
invitees to use more parking spaces than the number so allocated to Tenant.
Tenant shall not have the exclusive right to use any specific parking space,
and Landlord reserves the right to designate from time to time the location of
the parking spaces allocated for Tenant's use. In the event, Landlord elects
or is required by any Law to limit or control parking within the Project,
whether by validation of parking tickets or any other method, Tenant agrees to
participate in such
<PAGE> 10
validation or other program as reasonably established by Landlord. Tenant
shall not, at any time, park or permit to be parked any trucks or vehicles
adjacent to entryways or loading areas within the Project so as to unreasonably
interfere in any way with the use of such areas, nor shall Tenant, at any time,
park or permit the parking of Tenant's trucks or other vehicles, or the trucks
and vehicles of Tenant's suppliers or others, in any portion of the Common
Areas not designated by Landlord for such use by Tenant. Tenant shall not, at
any time, park or permit to be parked any recreational vehicles, inoperative
vehicles or equipment on any portion of the common parking area or other Common
Areas of the Project. Tenant agrees to assume responsibility for compliance by
its employees and invitees with the parking provisions contained herein.
Tenant hereby authorizes Landlord, at Tenant's sole expense, to tow away from
the Project and store until redeemed by its owner any vehicle belonging to
Tenant or Tenant's employees parked in violation of these provisions.
4.6 Signs: Tenant shall not place or install on or within any
portion of the Leased Premises, the Building, the Common Areas or the Project
any sign (other than a business identification sign first approved by Landlord
in accordance with this Article), advertisements, banners, placards or pictures
which are visible from the exterior of the Leased Premises. Tenant shall not
place or install on or within any portion of the Leased Premises, the Building,
the Common Areas or the Project any business identification sign which is
visible from the exterior of the Leased Premises until Landlord shall have
first approved in writing the location, size, content, design, method of
attachment and material to be used in the making of such sign. Any signs, once
approved by landlord, shall be installed only in strict compliance with
Landlord's approval, at Tenant's expense, using a person first approved by
Landlord to install same. Landlord may remove any signs (not first approved in
writing by Landlord), advertisements, banners, placards or pictures so placed
by Tenant on or within the Leased Premises, the Building, the Common Areas or
the Project and charge to Tenant the cost of such removal, together with any
costs incurred by Landlord to repair any damage caused thereby, including any
cost incurred to restore the surface upon which such sign was so affixed to its
original condition. Tenant shall remove any such signs, repair any damage
caused thereby, and restore the surface upon which the sign was affixed to its
original condition, all to Landlord's reasonable satisfaction, upon the
termination of this Lease.
Insert 4.6
4.7 Compliance with Laws and Private Restrictions: Subject to
Article 5 Tenant shall not use or permit any person to use the Leased Premises
in any manner which violates any Laws or Private Restrictions, Insert 4.7.
Tenant shall abide by and shall promptly observe and comply with, at its sole
cost and expense, all Laws and Private Restrictions respecting the use and
occupancy of the Leased Premises, the Building, the Common Areas or the Project
and shall defend with competent counsel, indemnify and hold Landlord harmless
from any claims, damages or liability resulting from Tenant's failure to do so.
4.8 Compliance with Insurance Requirements: With respect to any
insurance policies carried by Landlord in accordance with the provisions of
this Lease, Tenant shall not conduct (nor permit any other person to conduct)
any activities within the Leased Premises, or store, keep or use anything
within the Leased Premises which (i) is prohibited under the terms of any of
such policies, (ii) could result in the termination of the coverage afforded
under any of such
<PAGE> 11
policies, (iii) could give to the insurance carrier the right to cancel any of
such policies, or (iv) could cause an increase in the rates (over standard
rates) charged for the coverage afforded under any of such policies. Tenant
shall comply with all requirements of any insurance company, insurance
underwriter, or Board of Fire Underwriters which are necessary to maintain, at
standard rates, the insurance coverages carried by either Landlord or Tenant
pursuant to this Lease.
Insert 4.8
4.9 Landlord's Right to Enter: Landlord and its agents shall have
the right to enter into Leased Premises during normal business hours and
subject to Tenant's reasonable security measures for the purpose of (i)
inspecting the same; (ii) supplying any services to be provided by Landlord to
Tenant; (iii) showing the Leased Premises to prospective purchasers, mortgagees
or tenants; (iv) making necessary alterations, additions or repairs; (v)
performing any of Tenant's obligations when Tenant has failed to do so after
giving Tenant reasonable written notice of its intent to do so; and (vi)
posting notices of non-responsibility or "For Lease" or "For Sale" signs.
Additionally, Landlord shall have the right to enter the Leased Premises at
times of emergency. Any entry into the Lease Premises or portions thereof
obtained by Landlord in accordance with this Article shall not under any
circumstances be construed or deemed to be forcible or unlawful entry into, or
a detainer of, the Leased Premises, or a eviction, actual or constructive, of
Tenant from the Leased Premises or any portion thereof.
4.10 Control of Common Areas: Landlord shall at all times have
exclusive control of the Common Areas. Landlord shall have the right, without
the same constituting an actual or constructive eviction and without entitling
Tenant to any reduction in or abatement of rent, to: (i) temporarily close any
part of the Common Areas to whatever extent required in the opinion of
Landlord's counsel to prevent a dedication thereof or the accrual of any
prescriptive rights therein; (ii) temporarily close all or any part of the
Common Areas to perform maintenance or for any other reason deemed sufficient by
Landlord; (iii) change the shape, size, location, number and extent of
improvements within the Common Areas including, without limitation, changing the
location of driveways, entrances, exits, parking spaces, parking areas,
sidewalks, directional or locator signs, or the direction of the flow of
traffic; and (iv) to make additions to the Common Areas including, without
limitation, the construction of parking structures. Landlord shall have the
right to change the number or address of the Building. Tenant, in its use of the
Common Areas, shall keep the Common Areas free and clear of all obstructions
created or permitted by Tenant. If, in the opinion of Landlord, unauthorized
persons are using any of the Common Areas by reason of, or under claim of, the
express or implied authority or consent of Tenant, then Tenant, upon demand of
Landlord, shall restrain, to the fullest extent than allowed by Law, such
unauthorized use, and shall initiate such appropriate proceedings as may be
required to so restrain such use. Nothing contained herein shall affect the
right of Landlord at any time to remove any unauthorized person from the Common
Areas or to prohibit the use of the Common Areas by unauthorized persons,
including, without limitation, the right to prohibit mobile food and beverage
vendors. In exercising any such right regarding the Common Areas, Landlord shall
make a reasonable effort to minimize the disruption to Tenant's business.
<PAGE> 12
4.11 Rules and Regulations: Landlord shall have the right from time
to time to establish reasonable rules and regulations and/or amendments or
additions thereto respecting the use of space within the Project and the use of
the Common Areas for the care and orderly management of the Project and the
safety of its tenants, occupants and invitees. Upon delivery to Tenant of a copy
of such rules and regulations or any amendments or additions thereto, Tenant
shall comply with such rules and regulations. A violation by Tenant of any of
such rules and regulations shall constitute a default by Tenant under this
Lease. If there is a conflict between the rule and regulations and any of the
provisions of this Lease, the provisions of this Lease shall prevail. Landlord
shall not be responsible or liable to Tenant for the violation of such rules and
regulations by any other tenant of the Project.
4.12 Environmental Protection: Landlord may voluntarily cooperate in
a reasonable manner with the efforts of all governmental agencies in reducing
actual or potential environmental damage. Tenant shall not be entitled to
terminate this Lease or to any reduction in or abatement of rent by reason of
such compliance or cooperation. Tenant agrees at all time to cooperate fully
with Landlord and to abide by all rules and regulations and requirements which
Landlord may reasonably prescribe in order to comply with the requirements and
recommendations of governmental agencies regulating, or otherwise involved in,
the protection of the environment.
See Insert 4.12
4.13 Outside Areas: No materials, pallets, supplies, tanks or
containers whether above or below ground level, equipment, finished products or
semi-finished products, raw materials, inoperable vehicles or articles of any
nature shall be stored upon or permitted to remain outside of the Leased
Premises except in fully fenced and screened areas outside the Building which
have been designed for such purpose and have been approved in writing by
Landlord for such use by Tenant.
4.14 Hazardous Materials: Landlord and Tenant agree as follows with
respect to the existence or use of Hazardous Materials on the Property:
A. Any handling, transportation, storage, treatment,
disposal or use of Hazardous Materials by Tenant, Tenant's Agents, or any other
party after the Effective Date of this Lease in or about the Property shall
strictly comply with all applicable Hazardous Materials Laws. Tenant shall
indemnify, defend upon demand with counsel reasonably acceptable to Landlord,
and hold harmless Landlord from and against any and all liabilities, losses
claims, damages, lost profit, consequential damages, interest, penalties,
fines, court costs, remediation cots, investigation costs, and other expenses
which result from or arise in any manner whatsoever out of the use, storage,
treatment, transportation, release, or disposal of Hazardous Materials on or
about the Property by Tenant, Tenant's Agents, Permitees, or Invitees after the
Effective Date and during the term of this Lease.
B. If the presence of Hazardous Materials on the
Property caused by Tenant, Tenant's Agents, Permittees, or Invitees after the
Effective Date of this Lease results in contamination or deterioration of water
or soil or any other part of the Property, then Tenant shall promptly take any
and all action necessary to investigate and remediate such contamination.
Tenant shall further
<PAGE> 13
be solely responsible for, and shall defend, indemnify and hold Landlord and
its agents harmless from and against all claims, costs and liabilities,
including attorney's fees and costs, arising out of or in connection with any
investigation and remediation (including investigative analysis, removal,
cleanup, and/or restoration work) required hereunder to return the Leased
Premises, Building, Common Areas, Outside Areas, and/or Property and any other
property of whatever nature to their condition existing prior to the appearance
of such Hazardous Materials.
Insert 4.14
C. Landlord and Tenant shall each give written notice to
the other as soon as reasonably practicable of (i) any communication received
from any governmental authority concerning Hazardous Materials which relates to
the Property, and (ii) any contamination of the Property by Hazardous Materials
which constitutes a violation of any Hazardous Materials Law. Tenant may use
small quantities of household chemicals such as adhesive, lubricants, and
cleaning fluids in order to conduct is business at the Premises and such other
Hazardous Materials as are necessary to the operation of Tenant's business of
which Landlord receives notice prior to such Hazardous Materials being brought
onto the Property (or any portion thereof). In granting Landlord's consent,
Landlord may specify the location and manner or use, storage, or handling of
any Hazardous Material. Landlord's consent shall in no way relieve Tenant from
any of its obligations as contained herein. Tenant shall notify Landlord in
writing at least ten (10) days prior to the first appearance of any Hazardous
Material by Tenant on the Lease Premises, Building, Common Areas, Outside
Areas, and/or Property. Tenant shall provide Landlord with a list of all
Hazardous Materials and the quantities of each Hazardous Material to be stored,
or used, on any portion of the Property, and upon Landlord's request Tenant
shall provide Landlord with copies of any and all Hazardous Materials
Management Plans, Insert 4.14C Material Safety Data Sheets, Hazardous Waste
Manifests, and other documentation maintained or received by Tenant pertaining
to the Hazardous Materials used, stored, or transported or to be used, stored,
or transported on any portion of the Property. At any time during the Lease
Term, Tenant shall, within five days after written request therefor received
from Landlord, disclose in writing all Hazardous Materials that re being used
by Tenant on the Property (or have been used on the Property), the nature of
such use, and the manner of storage and disposal.
D. Landlord may cause testing wells to be installed on
the Property and may cause the ground water to be tested to detect the presence
of Hazardous Material by the use of such tests as are then customarily used for
such purposes. If Tenant so requests, Landlord shall supply Tenant with copies
of such test results. The cost of such tests and of the installation,
maintenance, repair and replacement of such wells shall be paid by Tenant if
such tests disclose the existence of facts which give rise to liability of
Tenant pursuant to its indemnity given in A and/or B above. Landlord may
retain consultants to insect the Property, conduct periodic environmental
audits, and review any information provided by Tenant. Tenant shall pay the
reasonable cost of fees charged by Landlord and/or Landlord's consultants as a
Project Maintenance Cost.
E. See Insert 4.14E. Upon the expiration or earlier
termination of the Lease, Tenant, at its sole cost, shall remove all Hazardous
Materials from the Property. If Tenant fails to so surrender the Property,
Tenant shall
<PAGE> 14
indemnify and hold Landlord harmless from all damages resulting from Tenant's
failure to surrender the Property as required by this Subsection, including,
without limitation, any claims or damages in connection with the condition of
the Property including, without limitation, damages occasioned by the inability
to Lease the Property (or any portion thereof) or a reduction in the fair
market and/or rental value of the Property, Building, Common Areas, Outside
Areas, and/or Property by reason of the existence of any Hazardous Materials in
or around the Leased Premises, Building, Common Areas, Outside Areas, and/or
Property. If any action is required to be taken by a governmental authority to
test, monitor, and/or clean up Hazardous Materials from the Leased Premises,
Building, Common Areas, Outside Areas, and/or Property and such action is not
completed prior to the expiration or earlier termination of the Lease, Tenant
shall be deemed to have impermissibly held over until such time as such
required action is completed, and Tenant shall pay Base Monthly Rent and
Additional Rent in accordance with the terms of Section 13.2 (Holding Over).
In addition, Landlord shall be entitled to all damages directly or indirectly
incurred in connection with such holding over, including without limitation,
damages occasioned by the inability to Lease the Property or a reduction of the
fair market and/or rental value of the Leased Premises, Building, Common Areas,
Outside Areas, and/or Property. [Insert 4.14]
F. As used herein, the term "Hazardous Material(s)"
means any hazardous or toxic substance, material or waste, which is or becomes
regulated by any federal, state, regional or local governmental authority
because it is in any way hazardous, toxic, carcinogenic, mutagenic or otherwise
adversely affects any part of the environment or creates risks of any such
hazards or effects, including, but not limited to, petroleum; asbestos, and
polychlorinated bipheyls and any material, substance, or waste (a) defined as a
"hazardous waste," "extremely hazardous waste" or "restricted hazardous waste"
under Sections 25115, 25117 or 25122.7, or listed pursuant to Section 25140 of
the California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous
Waste Control Law); (b) defined as a "hazardous substance" under Section 25316
of the California Health and Safety Code, Division 20, Chapter 6.8
(Carpenter-Presley Tanner Hazardous Substance Account Act); (c) defined as a
"hazardous material," "hazardous substance" or "hazardous waste" under Section
25501 of the California Health and Safety Code, Division 20, Chapter 6.95
(Hazardous Materials Release Response Plans and Inventory); (d) defined as a
"hazardous substance" under Section 25281 of the California Health and Safety
Code, Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances);
(e) defined as "hazardous substance" pursuant to Section 311 of the Clean
Water Act, 33 United States Code Sections 1251 et seq. (33 U.S.C. 1321) or
listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. 1317); (f)
defined as a "hazardous waste" pursuant to Section 1004 of the Resource
Conservation and Recovery Act, 42 United States Code Sections 6901 et seq. (42
U.S.C. 6903); or (g) defined as a "hazardous substance" pursuant to Section 101
of the Comprehensive Environmental Response, Compensation, and Liability Act,
42 United States Code Section 9601 et seq. (42 U.S.C. 9601) or (h) defined as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act, 33 U.S.C. 1251 et seq. or (i) listed pursuant to Section 307 of
the Federal Water Pollution Control Act (33 U.S.C. 1317) or (j) regulated under
the Toxic Substances Control Act (15 U.S.C. 2601 et seq.) or (k) defined as a
"hazardous material" under Section 66680 or 66084 of Title 22 of the California
Code of Regulations (Administrative Code); (l) listed in the United States
Department of Transportation Hazardous Materials Table (49 C.F.R. 172.101) or
(m) listed by the Environmental Protection Agency as "hazardous
<PAGE> 15
substances" (40 C.F.R. Part 302) and amendments thereto. The term "Hazardous
Material Laws" shall mean (i) all of the foregoing laws as amended from time to
time and (ii) any other federal, state, or local law, ordinance, regulation, or
order regulating Hazardous Materials.
G. Tenant's failure to comply with any of the
requirements of this Section regarding the storage, use, disposal, or
transportation of Hazardous Materials, on the Leased Premises, Building, Common
Area, Outside Area, and/or the Property without Landlord's consent shall be an
Event of Default as defined in this Lease. The obligations of Landlord and
Tenant under this Section shall survive the expiration or earlier termination
of the Lease Term. The rights and obligations of Landlord and Tenant within
respect to issues relating to Hazardous Materials are exclusively established
by this section. In the event of any inconsistency between any other part of
this Lease and this Section, the terms of this Section shall control.
ARTICLE 5
REPAIRS, MAINTENANCE, SERVICES AN UTILITIES
5.1 Repair and Maintenance: Except in the case of damage to or
destruction of the Leased Premises, the Building or the Project caused by an
Act of God or other peril, in which case the provisions of Article 10 shall
control, the parties shall have the following obligations and responsibilities
with respect to the repair and maintenance of the Leased Premises, the Building
and the Common Areas.
A. Tenant's Obligation: Subject to 5.1B, Tenant shall,
at all times during the Lease Term and at its sole cost and expense, regularly
clean and continuously keep and maintain in good order, condition and repair
the Leased Premises and every part thereof, including, without limiting the
generality of the foregoing, (i) all interior walls, floors and ceilings, (ii)
all doors, (iii) all electrical wiring, conduits, connectors and fixtures, (iv)
all plumbing, pipes, sinks, toilets, faucets and drains, (v) all lighting
fixtures, bulbs and lamps, (vi) all heating, ventilating and air conditioning
equipment located within the Leased Premises or located outside the Leased
Premises (e.g. rooftop compressors) and serving the Leased Premises (other than
Common HVAC as defined in Subarticle B below). Tenant, if requested to do so
by Landlord, shall hire, at Tenant's sole cost and expense, a licensed heating,
ventilating and air conditioning contractor to regularly, and periodically
inspect (not less frequently than every three months) and perform required
maintenance on the heating, ventilating and air conditioning equipment and
systems serving the Leased Premises, or alternatively, Landlord may, at its
election, contract in its own name for such regular and periodic inspections of
and maintenance on such heating, ventilating and air conditioning equipment and
systems and charge to Tenant, as Additional Rent, the cost thereof. Tenant
shall (subject to Addendum 13124) pay the cost to repair all damage to the
Building, the Common Areas or the Project caused by the activities of Tenant,
its employees, invitees or contractors promptly following written notice from
Landlord to so repair such damage. If Tenant shall fail to perform the
required maintenance or fail to make repairs required of it pursuant to this
Article within a reasonable period of time following notice from Landlord to do
so, then Landlord may, at its election and without waiving any other remedy it
may otherwise have under this Lease or at Law, perform such maintenance or make
such
<PAGE> 16
repairs and charge to Tenant, as Additional Rent, the costs so incurred by
Landlord for same.
B. Landlord's Obligation: Landlord shall, at all times
during the Lease Term, maintain in good condition and repair: (i) the exterior
and structural parts of the Building (including the foundation, subflooring,
loadbearing and exterior walls, and roof); (ii) the Common Areas; and (iii) the
electrical and plumbing systems located outside the Leased Premises which
service the building. Additionally, to the extent that the Building contains
central heating, ventilating and/or air conditioning systems located outside
the Leased Premises which are designed to service, and are then servicing, more
than a single tenant within the Building ("Common HVAC"), Landlord shall
maintain in good operating condition and repair such Common HVAC equipment and
systems. The provisions of this Subarticle B shall in no way limit the right
of Landlord to charge to tenants of the Project, as Additional Rent pursuant to
Article 3, the costs incurred by Landlord in making such repairs and/or
performing such maintenance.
See Insert 5.1B
5.2 Services and Utilities: The parties shall have the following
responsibilities and obligations with respect to obtaining and paying the cost
of providing the following utilities and other services to the Leased Premises.
A. Gas and Electricity: Tenant shall arrange, at its
sole cost and expense and in its own name, for the supply of gas and
electricity to the Leased Premises. In the event that such services are not
separately metered, Tenant shall, at its sole expense, cause such meters to be
installed. Tenant shall be responsible for determining if the local supplier
of gas and/or electricity can supply the needs of Tenant and whether or not the
existing gas and/or electrical distribution systems within the Building and the
Leased Premises are adequate for Tenant's needs. Tenant shall pay all charges
for gas and electricity as so supplied to the Leased Premises.
B. Water: Landlord shall provide the Leased Premises
with water for lavatory and drinking purposes only. Tenant shall pay, as
Additional Rent, the cost to Landlord of providing water to the Leased
Premises. In the event Landlord believes that Tenant is using more water than
what normally would be required for lavatory and drinking purposes, Landlord at
its election may (i) periodically charge Tenant, as Additional Rent, a sum
equal to Landlord's estimate of the cost of Tenant's excess water usage or (ii)
install (or require Tenant to install at Tenant's sole cost) a separate meter
for purposes of measuring Tenant's water usage and, based upon such meter
readings, periodically charge Tenant, as Additional Rent, a sum equal to
Landlord's estimate of the cost of Tenant's excess water usage. In the event
that Landlord shall so install such a separate meter, Tenant shall pay to
Landlord, upon demand, the reasonable costs incurred by Landlord in purchasing
and installing such meter and thereafter all reasonable costs incurred by
Landlord in maintaining said meter. The cost of Tenant's water usage shall
include any costs to Landlord in keeping account of such usage and all
governmental fees, public charges or the like attributable to or based upon
(such as sewer usage fees) the use of water to the extent of such usage.
C. Security Service: Tenant acknowledges that Landlord
is not responsible for the security of the Leased Premises or the protection of
Tenant's
<PAGE> 17
property or Tenant's employees, invitees or contractors, and that to the extent
Tenant determines that such security or protection services are advisable or
necessary, Tenant shall arrange for and pay the costs of providing same.
D. Trash Disposal: Tenant acknowledges that Landlord is
not responsible for the disposal of Tenant's waste, garbage or trash and that
Tenant shall arrange, in its own name and at its sole cost, for the regular and
periodic removal of such waste, garbage or trash from the Leased Premises. In
no event shall Landlord be required to provide trash bins for the disposal of
Tenant's waste, garbage or trash.
5.3 Energy and Resource Consumption: Landlord may voluntarily
cooperate in a reasonable manner with the efforts of governmental agencies
and/or utility suppliers in reducing energy or other resource consumption
within the Project. Tenant shall not be entitled to terminate this Lease or to
any reduction in or abatement of rent by reason of such compliance or
cooperation. Tenant agrees at all times to cooperate fully with Landlord and
to abide by all reasonable rules established by Landlord (i) in order to
maximize the efficient operation of the electrical, heating, ventilating and
air conditioning systems and all other energy or other resource consumption
systems within the Project and/or (ii) in order to comply with the requirements
and recommendations of utility suppliers and governmental agencies regulating
the consumption of energy and/or other resources.
5.4 Limitation of Landlord's Liability: Landlord shall not be
liable to Tenant for injury to Tenant, its employees, agent, invitees or
contractors, damage to Tenant's property or loss of Tenant's business or
profits, nor shall Tenant be entitled to terminate this Lease or to any
reduction in or abatement of rent by reason of (i) Landlord's failure to
perform any maintenance or repairs to the Project until Tenant shall have first
notified Landlord, in writing, of the need for such maintenance or repairs, and
then only after Landlord shall have had a reasonable period of time following
its receipt of such notice within which to perform such maintenance or repairs,
or (ii) any failure, interruption, rationing or other curtailment in the supply
of water, electric current, gas or other utility service to the Leased
Premises, the Building or the Project from whatever cause (other than
Landlord's active negligence or willful misconduct), or (iii) the unauthorized
intrusion or entry into the Leased Premises by third parties (other than
Landlord).
ARTICLE 6
ALTERATIONS AND IMPROVEMENTS
6.1 By Tenant: Tenant shall not make any alternations to or
modifications of the Leased Premises or construct any improvements to or within
the Leased Premises without Landlord's prior written approval, and then not
until Landlord shall have first approved, in writing, the plans and
specifications therefore, which approval shall not be unreasonably withheld.
All such modifications, alterations or improvements, once so approved, shall be
made, constructed or installed by Tenant at Tenant's expense, using a licensed
contractor first approved by Landlord, in substantial compliance with the
Landlord-approved plans and specifications therefore. All work undertaken by
Tenant shall be done in accordance with all Laws and in a good and workmanlike
manner using new materials of good quality. Tenant shall not commence the
making
<PAGE> 18
of any such modifications or alterations or the construction of any such
improvements until (i) all required governmental approvals and permits shall
have been obtained, (ii) all requirements regarding insurance imposed by this
Lease have been satisfied, (iii) Tenant shall have given Landlord at least five
business days prior written notice of its intention to commence such work so
that Landlord may post and file notices of non-responsibility, and (iv) if
requested by Landlord, Tenant shall have obtained contingent liability and
broad form builder's risk insurance in an amount reasonably satisfactory to
Landlord to cover any perils relating to the proposed work not covered by
insurance carried by Tenant pursuant to Article 9. In no event shall Tenant
make any modifications, alterations or improvements to the Common Areas or any
areas outside of the Leased Premises. As used in this Article, the term
modifications, alterations and/or improvements shall include, without
limitation, the installation of additional electrical outlets, overhead
lighting fixtures, drains, sinks, partitions, doorways, or the like.
[Insert 6.1]
6.2 Ownership of Improvements: All modifications, alterations or
improvements made or added to the Leased Premises by Tenant (other than
Tenant's inventory, equipment, movable furniture, wall decorations and trade
fixtures) shall be deemed real property and a part of the Leased Premises, but
shall remain the property of Tenant during the Lease Term. Any such
modifications, alterations or improvements, once completed, shall not be
altered or removed from the Leased Premises during the Lease Term without
Landlord's written approval first obtained in accordance with the provisions of
Article 6.1 above. At the expiration or sooner termination of the Lease, all
such modifications, alterations and improvements (other than Tenant's
inventory, equipment, movable furniture, wall decorations and trade fixtures)
shall automatically become the property of Landlord and shall be surrendered to
Landlord as a part of the Leased Premise as required pursuant to Article 2,
unless Landlord shall require Tenant to remove any of such modifications,
alterations or improvements in accordance with the provisions of Article 2, in
which case Tenant shall so remove same. Landlord shall have no obligation to
reimburse to Tenant all or any portion of the cost or value of any such
modifications, alterations or improvements in accordance with the provisions of
Article 2, in which case Tenant shall so remove same. Landlord shall have no
obligation to reimburse to Tenant all or any portion of the cost or value of
any such modifications, alterations or improvements so surrendered to Landlord.
All modifications, alterations or improvements which are installed or
constructed on or attached to the Leased Premises by Landlord at Landlord's
expense shall be deemed real property, and a part of the Leased Premises and
shall be the property of Landlord. All lighting, plumbing, electrical,
heating, ventilating and air conditioning fixtures, partitioning, window
coverings, wall coverings and floor coverings installed by Tenant shall be
deemed improvements to the Leased Premises and not trade fixtures of Tenant.
6.3 Alterations: At its sole cost, Tenant shall make all
modifications, alterations and improvements to the Leased Premises that are
required by any Law because of (i) Tenant's use or occupancy of the Leased
Premises, the Building, the Outside Areas, or the Property, (ii) Tenant's
application for any permit or governmental approval, or (iii) Tenant's making
of any modifications, alterations or improvements to or within the Leased
Premises. If Landlord shall, at any time during the Lease Term, (i) be
required by any governmental authority to make any
<PAGE> 19
modifications, alterations or improvements to the Building or the Project, (ii)
modify the existing (or construct additional) capital improvements or provide
building service equipment for the purpose of reducing the consumption of
utility services or project maintenance costs for the property, the cost
incurred by Landlord in making such modifications, alterations or improvements,
including a 12% per annum cost of money fact, shall be amortized by Landlord
over the useful life of such modifications, alterations or improvements, as
determined in accordance with generally accepted accounting standards, and the
monthly amortized cost of such modifications, alterations and improvements as
so amortized shall be considered a Project Maintenance Cost.
6.4 Liens: Tenant shall keep the Leased Premises, the Building
and the Property free from any liens and shall pay when due all bills arising
out of any work performed, materials furnished, or obligations incurred by
Tenant, its agents, employees or contractors relating to the Leased Premises.
If any such claim of lien is recorded against Tenant's interest in this Lease,
the Leased Premises, the Building or the Project, Tenant shall bond against,
discharge or otherwise cause such lien to be entirely released within ten days
after the same has been so recorded.
ARTICLE 7
ASSIGNMENT AND SUBLETTING BY TENANT
7.1 By Tenant: Tenant shall not sublet the Leased Premises (or
any portion thereof) or assign or encumber its interest in this Lease, whether
voluntarily or by operation of Law, without Landlord's prior written consent
first obtained in accordance with the provisions of this Article 7. Any
attempted subletting, assignment or encumbrance without Landlord's prior
written consent, at Landlord's election, shall constitute a default by Tenant
under the terms of this Lease. The acceptance of rent by Landlord from any
person or entity other than Tenant, or the acceptance of rent by Landlord from
Tenant with knowledge of a violation of the provisions of this Article, shall
not be deemed to be a waiver by Landlord of any provision of this Article or
this Lease or to be a consent to any subletting by Tenant or any assignment or
encumbrance of Tenant's interest in this Lease.
7.2 Merger or Reorganization: If Tenant is a corporation, any
dissolution, merger, consolidation or other reorganization of Tenant, or the
sale or other transfer in the aggregate over the Lease Term of a controlling
percentage of the capital stock of Tenant, shall be deemed a voluntary
assignment of Tenant's interest in this Lease. The phrase "controlling
percentage" means the ownership of and the right to vote stock possessing more
than fifty percent of the total combined voting power of all classes of
Tenant's capital stock issued, outstanding and entitled to vote for the
election of directors. If Tenant is a partnership, a withdrawal or change,
whether voluntary, involuntary or by operation of Law, of any general partner,
or the dissolution of the partnership, shall be deemed a voluntary assignment
of Tenant's interest in this Lease.
7.3 Landlord's Election: If Tenant shall desire to assign its
interest under this Lease or to sublet the Leased Premises, Tenant must first
notify Landlord, in writing, of its intent to so assign or sublet, at least 15
days in advance of the date it intends to so assign its interest in this Lease
or sublet
<PAGE> 20
the Leased Premises but not sooner than eighty days in advance of such date,
specifying in detail the terms of such proposed assignment or subletting,
including the name of the proposed assignee or sublessee, the proposed
assignee's or sublessee's intended use of the Leased PREMISES, a current
financial statement of such proposed assignee or sublessee and the form of
documents to be used in effectuating such assignment or subletting. Landlord
shall have a period of fifteen days following receipt of such notice within
which to do one of the following: either (i) consent to such requested
assignment or subletting subject to Tenant's compliance with the conditions set
forth in Article 7.4 below or (ii) refuse to so consent to such requested
assignment or subletting, provided that such consent shall not be unreasonably
refused. It shall not be unreasonable for Landlord to withhold its consent to
any proposed assignment or subletting if (i) the proposed assignee's or
subtenant's anticipated use of the Premises involves the storage, use or
disposal of a Hazardous Material; (ii) if the proposed assignee or subtenant
has been required by any prior landlord, lender or governmental authority to
clean up Hazardous Materials unlawfully discharged by the proposed assignee or
subtenant; or (iii) if the proposed assignee or subtenant is subject to
investigation or enforcement order or proceeding by any governmental authority
in connection with the use, disposal or storage of a Hazardous Material.
During said fifteen day period, Tenant covenants and agrees to supply to
Landlord, upon request, all necessary or relevant information which Landlord
may reasonably request respecting such proposed assignment or subletting and/or
the proposed assignee or sublessee.
7.4 Conditions to Landlord's Consent: If Landlord elects to
consent, or shall have been ordered to so consent by a court of competent
jurisdiction, to such requested assignment, subletting or encumbrance, such
consent shall be expressly conditioned upon the occurrence of each of the
conditions below set forth, and any purported assignment, subletting or
encumbrance made or ordered prior to the full and complete satisfaction of each
of the following conditions shall be void and, at the election of Landlord,
which election may be exercised at any time following such a purported
assignment, subletting or encumbrance but prior to the satisfaction of each of
the stated conditions, shall constitute a material default by Tenant under this
Lease giving Landlord the absolute right to terminate this Lease unless such
default is promptly cured by satisfying in full each such condition by the
assignee, sublessee or encumbrancer. The conditions are as follows:
A. Landlord having approved in form and substance the
assignment or sublease agreement (or the encumbrance agreement), which approval
shall not be unreasonably withheld by Landlord if the requirements of this
Article 7 are otherwise complied with.
B. Each such sublessee or assignee having agreed, in
writing satisfactory to Landlord and its counsel and for the benefit of
Landlord, to assume, to be bound by, and to perform the obligations of this
Lease to be performed by Tenant (or, in the case of an encumbrance, each such
encumbrancer having similarly agreed to assume, be bound by and to perform
Tenant's obligations upon a foreclosure or transfer in lieu thereof).
C. [Insert 7.4C]
<PAGE> 21
D. Tenant having reimbursed to Landlord all reasonable
costs and attorneys fees incurred by Landlord in conjunction with the
processing and documentation of any such requested subletting, assignment or
encumbrance.
E. Tenant having delivered to Landlord a complete and
fully-executed duplicate original of such sublease agreement, assignment
agreement or encumbrance (as applicable) and all related agreements.
F. Tenant having paid, or having agreed in writing to
pay as to future payments, to Landlord 50% of all assignment consideration or
excess rentals to be paid to Tenant or to any other on Tenant's behalf or for
Tenant's benefit for such assignment or subletting as follows:
1. If Tenant assigns its interest under the
Lease and if all or a portion of the consideration for such assignment is
to be paid by the assignee at the time of the assignment, that Tenant shall
have paid to Landlord and Landlord shall have received an amount equal 50%
of the assignment consideration so paid or to be paid whichever is the
greater) at the time of the assignment by the assignee; or
2. If Tenant assigns its interest under this
Lease and if Tenant is to receive all or a portion of the consideration for
such assignment in future installments, that Tenant and Tenant's assignee
shall have entered into a written agreement with and for the benefit of
Landlord satisfactory to Landlord and its counsel whereby Tenant and
Tenant's assignee jointly agree to pay to Landlord an amount equal to 50%
of all such future assignment consideration installments to be paid by such
assignee as and when such assignment consideration is so paid.
3. If Tenant subleases the Leased Premises, that
Tenant and Tenant's sublessee shall have entered into a written agreement
with and for the benefit of Landlord satisfactory to Landlord and its
counsel whereby Tenant and Tenant's sublessee jointly agree to pay to
Landlord 50% of all excess rentals to be paid by such sublessee as and when
such excess rentals are so paid.
7.5 Assignment Consideration and Excess Rentals Defined: For
purposes of this Article, the term "assignment consideration" shall mean all
consideration to be paid by the assignee to Tenant or to any other on Tenant's
behalf or for Tenant's benefit as consideration for such assignment, less any
commissions paid by Tenant to a licensed real estate broker for arranging such
assignment (not to exceed then standard rates), and the term "excess rentals"
shall mean all consideration to be paid by the sublessee to Tenant or to any
other on Tenant's behalf or for Tenant's benefit for the sublease of the Leased
Premises in excess of the rent due Landlord under the terms of this Lease for
the same period, less any commission paid by Tenant to a licensed real estate
broker for arranging such sublease (not to exceed then standard rates). Tenant
agrees that the portion of any assignment consideration and/or excess rentals
arising from and assignment or subletting by Tenant which is to be paid to
Landlord pursuant to this Article now is and shall then be the property of
Landlord and not the property of Tenant.
7.6 Payments: All payments required by this Article to be made to
Landlord shall be made in cash in full as and when they become due. At the
time Tenant, Tenant's assignee or sublessee makes each such payment to
Landlord,
<PAGE> 22
Tenant or Tenant's assignee or sublessee, as the case may be, shall deliver to
Landlord an itemized statement in reasonable detail showing the method by which
the amount due Landlord was calculated and certified by the party making such
payment as true and correct.
7.7 Good Faith: The rights granted to Tenant by this Article are
granted in consideration of Tenant's express covenant that all pertinent
allocations which are made by Tenant between the rental value of the Leased
Premises and the value of any of Tenant's personal property which may be
conveyed or leased concurrently with and which may reasonably be considered a
part of the same transaction as the permitted assignment or subletting shall be
made fairly, honestly and in good faith. If Tenant shall breach this Covenant
of Good Faith, Landlord may immediately declare Tenant to be in default under
the terms of this Lease and terminate this Lease and/or exercise any other
rights and remedies Landlord would have under the terms of this Lease in the
case of a material default by Tenant under this Lease.
7.8 Effect of Landlord's Consent: No subletting, assignment or
encumbrance, even with the consent of Landlord, shall relieve Tenant of its
personal and primary obligation to pay rent and to perform all of the
obligations to be performed by Tenant hereunder. Consent by Landlord to one or
more assignments or encumbrances of Tenant's interest in this Lease or to one
or more sublettings of the Leased Premises shall not be deemed to be a consent
to any subsequent assignment, encumbrance or subletting. If Landlord shall
have been ordered by a court of competent jurisdiction to consent to a
requested assignment or subletting, or such an assignment or subletting shall
have been ordered over the objection of Landlord, such assignment or subletting
shall not be binding between the assignee (or sublessee) and Landlord until
such time as all conditions set forth in Article 7.4 above have been fully
satisfied (to the extent not then satisfied) by the assignee or sublessee,
including, without limitation, the payment to Landlord of all agreed assignment
considerations and/or excess rentals then due Landlord.
ARTICLE 8
LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY
8.1 Limitation on Landlord's Liability and Release: Landlord
shall not be liable to Tenant for, and Tenant hereby releases Landlord and its
partners and officers from, any and all liability, whether in contract, tort or
on any other basis, for any injury to or any damage sustained by Tenant, its
agents, employees, contractors or invitees; any damage to Tenant's property; or
any loss to Tenant's business, loss of Tenant's profits or other financial loss
of Tenant resulting from or attributable to the condition of, the management
of, the maintenance of, or the protection of the Leased Premises, the Building,
the Project or the Common Areas, including, without limitation, any such
injury, damage or loss resulting from (i) the failure, interruption, rationing
or other curtailment or cessation in the supply of electricity, water, gas or
other utility service to the Project, the Building or the Leased Premises; (ii)
the vandalism or forcible entry into the Building or the Leased Premises; (iii)
the penetration of water into or onto any portion of the Leased Premises
through roof leaks or otherwise; (iv) the failure to provide security and/or
adequate lighting in or about the Project, the Building or the Leased Premises;
(v) the existence of any design or construction defects within the Project, the
Building or the
<PAGE> 23
Leased Premises; (vi) the failure of any mechanical systems to function
properly(such as the HVAC systems); or (vii) the blockage of access to any
portion of the Project, the Building or the Leased Premises, except to the
extent such damage was caused by Landlord's negligence or willful misconduct,
or Landlord's failure to perform an obligation expressly undertaken pursuant to
this Lease but only if Tenant shall have given Landlord prior written notice to
perform such obligation and Landlord shall have failed to perform such
obligation within a reasonable period of time following receipt of written
notice from Tenant to so perform such obligation. In this regard, Tenant
acknowledges that it is fully apprised of the provisions of Law relating to
releases, and particularly to those provisions contained in Section 1542 of the
California Civil Code which read as follows: A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor. Notwithstanding such statutory
provision, and for the purpose of implementing a full and complete release and
discharge, Tenant hereby (i) waives the benefit of such statutory provision and
(ii) acknowledges that, subject to the exceptions specifically set forth
herein, the release and discharge set forth in this Article is a full and
complete settlement and release and discharge of all claims and is intended to
include in its effect, without limitation, all claims which Tenant, as of the
date hereof, does not know of or suspect to exist in its favor.
8.2 Tenant's Indemnification of Landlord: [Insert 5.2] Tenant
shall defend, with competent counsel satisfactory to Landlord, any claims made
or legal actions filed or threatened by third parties against Landlord which
result in the death, bodily injury, personal injury, damage to property or
interference with contractual or other rights suffered by any third party,
(including other Tenants within the Project) which (i) occurred within the
Leased Premises or (ii) resulted from Tenant's use or occupancy of the Leased
Premises or the Common Areas or (iii) resulted from Tenant's activities in or
about the Leased Premises, the Building or the Project, and Tenant shall
indemnify and hold Landlord, Landlord's principals, employees and agents
harmless from any loss (including loss of rents by reason of vacant space which
otherwise would have been leased but for such activities), liabilities,
penalties, or expense whatsoever (including all legal fees incurred by Landlord
with respect to defending such claims) resulting therefrom, except to the
extent proximately caused by the active negligence or willful misconduct of
Landlord. This indemnity agreement shall survive until the latter to occur of
(i) the date of the expiration, or sooner termination, of this Lease, or (ii)
the date Tenant actually vacates the Leased Premises provided Tenant received
approval by Landlord for such vacating.
ARTICLE 9
INSURANCE
9.1 Tenant's Insurance: Tenant shall maintain insurance complying
with all of the following:
A. Tenant shall procure, pay for and keep in full force
and effect, at all times during the Lease Term, the following:
1. Commercial General Liability insurance
insuring Tenant against liability for bodily injury, death, property damage
and personal
<PAGE> 24
injury occurring at the Leased Premises, or resulting from Tenant's use or
occupancy of the Leased Premises or the Building, Outside Areas, Property, or
Common Areas or resulting from Tenant's activities in or about the Leased
Premises. Such insurance shall be on an occurrence basis with a combined
single limit of liability of not less than the amount of Tenant's Required
Liability Coverage (as set forth in Article 1). The policy or policies shall
be endorsed to name Landlord and such others as are designated by Landlord as
additional insureds in the form equivalent to CG20111185 or successor and shall
contain the following additional endorsement: "The insurance afforded to the
additional insureds is primary insurance. If the additional insureds have
other insurance with is applicable to the loss on a contributing, excess or
contingent basis, the amount of this insurance company's liability under this
policy shall not be reduced by the existence of such other insurance. Any
insurance carried by the additional insureds shall be excess and non
contributing with the insurance provided by the Tenant." The policy shall not
be canceled or reduced without at least 30 days written notice to additional
insureds. If the policy insures more than one election, it shall be endorsed
to show that the limits and aggregate apply per location using endorsement
CG25041185 or successor. Tenant's policy shall also contain the severability
of interest and cross-liability endorsement or clauses.
2. Fire and property damage insurance in
so-called Special Form insuring Tenant against loss from physical damage to
Tenant's personal property, inventory, stock, trade fixtures and
improvements within the Leased Premises with coverage for the full actual
replacement cost thereof;
4. Boiler and Machinery insurance, if
applicable;
5. Product Liability insurance (including
without limitation Liquor Liability insurance for liability arising out of
the distribution, sale, or consumption of food and/or beverages including
alcoholic beverages at the Leased Premises for not less than the Tenant's
Required Liability Coverage as set forth in Article 1;
6. Workers' compensation insurance and any other
employee benefit insurance sufficient to comply with all Laws which policy
shall be endorsed to provide thirty (30) days written notice of
cancellation to Landlord;
7. With respect to making of alterations or the
construction of improvements or the like undertaken by Tenant, contingent
liability and builder's risk insurance, in an amount and with coverage
reasonably satisfactory to Landlord;
8. Business Income Insurance at a minimum of 50%
co-insurance including coverage for loss of business income due to damage
to equipment from perils covered under the so-called Special Form; and
9. Comprehensive Auto Liability insurance with a
combined single limit coverage of not less than the amount of Tenant's
Required Liability Coverage (as set forth in Article 1) for bodily injury
and/or property damage liability for: (a) Owned autos, (b) Hired or
borrowed autos, (c) Non-owned autos, (d) Auto blanket contractual form
CA0029. The policy
<PAGE> 25
shall be endorsed to provide 30 days written notice of cancellation to
Landlord.
B. Each policy of liability insurance required to be
carried by Tenant pursuant to this Article or actually carried by Tenant with
respect to the Leased Premises or the Property (i) shall be in a form
reasonably satisfactory to Landlord, (ii) shall be provided by carriers
admitted to do business in the state of California, with a Best rating of
"A/VI" or better and/or reasonably acceptable to Landlord. Property insurance
shall contain a waiver and/or a permission to waive by the insurer any right of
subrogation against Landlord, its principals, employees, agents and contractors
which might arise by reason of any payment under such policy or by reason of
any act or omission of Landlord, its principals, employees, agents or
contractors.
C. Prior to the time Tenant or any of its contractors
enters the Leased Premises, Tenant shall deliver to the Landlord with respect
to each policy of insurance required to be carried by Tenant pursuant to this
Article, a certificate of the insurer certifying, in a form satisfactory to the
Landlord, that the policy has been issued and premium paid providing the
coverage required by this Article and containing the provisions herein.
Attached to such a certificate shall be endorsements naming Landlord as
additional insured, and including the wording under primary insurance above.
With respect to each renewal or replacement of any insurance, the requirements
of this Article must be complied with not less than 30 days prior to the
expiration or cancellation of the policy being renewed or replaced. Landlord
may at any reasonable time and from time-to-time inspect and/or copy and all
insurance policies required to be carried by Tenant pursuant to this article.
If Landlord's lender, insurance broker or advisor or counsel reasonably
determines at any time that the form or amount of coverage set forth in Article
9.1(A) for any policy of insurance Tenant is required to carry pursuant to this
Article is not adequate, then Tenant shall increase the amount of coverage for
such insurance to such greater amount or change the form as Landlord's lender,
insurance broker or advisor or counsel reasonably deems adequate (provided
however such increase level of coverage may not exceed the level of coverage
for such insurance commonly carried by comparable businesses similarly situated
and operating under similar circumstances).
D. The Commercial General Liability insurance carried by
Tenant shall specifically insure the performance by Tenant of the
Indemnification provisions set forth in Article 8.2 of this lease provided,
however, nothing contained in this Article 9 shall be construed to limit the
liability of Tenant under the Indemnification provisions set forth in said
Article 8.2.
9.2 Landlord's Insurance: With respect to insurance maintained by
Landlord:
A. Landlord shall maintain, as the minimum coverage
required of it by this Lease, property insurance in so- called "Special" form
insuring Landlord (and such others as Landlord may designate) against loss from
physical damage to the Building with coverage of not less than one hundred
percent of the full actual replacement cost thereof and against loss of rents
for a period of not less than twelve months. Such property damage insurance,
at Landlord's election but without any requirement on Landlord's behalf to do
so, (i) may be written in so-called Special Form, excluding only those perils
commonly excluded from such
<PAGE> 26
coverage by Landlord's then property damage insurer; (ii) may provide coverage
for physical damage to the improvements so insured for up to the entire full
actual replacement cost thereof; (iii) may be endorsed to include separate
policies which may be carried to cover loss or damage caused by any additional
perils against which Landlord may elect to insure, including earthquake and/or
flood; (iv) may provide coverage for loss of rents for a period of up to twelve
months; and/or (v) may contain "deductibles" per occurrence in an amount
reasonably acceptable to Landlord. Landlord shall not be required to cause
such insurance to cover any of Tenant's personal property, inventory and trade
fixtures, or any modifications, alterations or improvements made or constructed
by Tenant to or within the Lease Premises.
B. Landlord shall maintain Commercial General Liability
insurance insuring Landlord (and such others as are designated by Landlord)
against liability for personal injury, bodily injury, death, and damage to
property occurring in, on or about, or resulting from the use or occupancy of
the Project, or any portion thereof, with combined single limit coverage of at
least Two Million Dollars.
9.3 Mutual Waiver of Subrogation: Landlord hereby releases
Tenant, and Tenant hereby releases Landlord and its respective partners and
officers, agents, employees and servants, from any and all liability for loss,
damage or injury to the property of the other in or about the Leased Premises
which is caused by or results from a peril or event or happening which would be
covered by insurance required to be carried under the terms of this Lease, or
is covered by insurance actually carried and in force at the time of the loss,
by the party sustaining such loss; provided, however, that such waiver shall be
effective only to the extent permitted by the insurance covering such loss.
ARTICLE 10
DAMAGE TO LEASED PREMISES
10.1 Landlord's Duty to Restore: If the Leased Premises are
damaged by any peril after the Effective Date of this Lease, Landlord shall
restore the Leased Premises, as and when required by this Article, unless this
Lease is terminated by Landlord pursuant to Article 10.2 or by Tenant pursuant
to Article 10.3. All insurance proceeds available from the fire and property
damage insurance carried by Landlord shall be paid to and become the property of
Landlord. If this Lease is terminated pursuant to either Article 10.2 or 10.3,
all insurance proceeds available from insurance carried by Tenant which cover
loss to property that is Landlord's property or would become Landlord's property
on termination of this Lease shall be paid to and become the property of
Landlord, and the remainder of such proceeds shall be paid to and become the
property of Tenant. If this Lease is not terminated pursuant to either Article
10.2 or 10.3, all insurance proceeds available from insurance carried by Tenant
which cover loss to property that is Landlord's property shall be paid to and
become the property of Landlord, and all proceeds available which cover loss to
property which would become the property of Landlord upon the termination of
this Lease shall be paid to and remain the property of Tenant. If this Lease is
not so terminated, then upon receipt of the insurance proceeds (if the loss is
covered by insurance) and the issuance of all necessary governmental permits,
Landlord shall commence and diligently prosecute to completion the restoration
of the Leased Premises, to the extent then allowed by Law, to substantially the
same
<PAGE> 27
condition in which the Leased Premises existed as of the Lease Commencement
Date. Landlord's obligation to restore shall be limited to the Leased Premises
and interior improvements constructed by Landlord. Landlord shall have no
obligation to restore any other improvements to the Leased Premises or any of
Tenant's personal property, inventory or trade fixtures. Upon completion of
the restoration by Landlord, Tenant shall forthwith replace or fully repair all
of Tenant's personal property, inventory, trade fixtures and other improvements
constructed by Tenant to like or similar condition as existed at the time of
such damage or destruction.
10.2 Landlord's Right to Terminate: Landlord shall have the option
to terminate this Lease in the event any of the following occurs, which option
may be exercised only by delivery to Tenant of a written notice of election to
terminate within thirty days after the date of such damage or destruction:
A. The Building is damaged by any peril covered by valid
and collectible insurance actually carried by Landlord and in force at the time
of such damage or destruction (an "insured peril") to such an extent that the
estimated cost to restore the Building exceeds the lesser of (i) the insurance
proceeds available form insurance actually carried by Landlord plus deductibles
relating thereto paid by Tenant or (ii) seventy-five percent of the then actual
replacement cost thereof;
B. The Building is damaged by an uninsured peril, which
peril Landlord was required to insure against pursuant to the provisions of
Article 9 of this Lease, to such an extent that the estimated cost to restore
the Building exceeds the lesser of (i) the insurance proceeds which would have
been available had Landlord carried such required insurance plus deductibles
relating thereto paid by Tenant, or (ii) seventy-five percent of the then
actual replacement cost thereof;
C. The Building is damaged by an uninsured peril, which
peril Landlord was not required to insure against pursuant to the provisions of
Article 9 of this Lease, to any extent.
D. The Building is damaged by any peril and, because of
the Laws then in force, the Building (i) can not be restored at reasonable cost
or (ii) if restored, can not be used for the same use being made thereof before
such damage.
10.3 Tenant's Right to Terminate: If the Leased Premises are
damaged by any peril and Landlord does not elect to terminate this Lease or is
not entitled to terminate this Lease pursuant to this Article, then as soon as
reasonably practicable, Landlord shall furnish Tenant with the written opinion
of Landlord's architect or construction consultant as to when the restoration
work required of Landlord may be complete. Tenant shall have the option to
terminate this Lease in the event any of the following occurs, which option may
be exercised in the case of A or B below only be delivery to Landlord of a
written notice of election to terminate within 30 days after Tenant receives
from Landlord the estimate of the time needed to complete such restoration:
A. The Leased Premises are damaged by any peril and, in
the reasonable opinion of Landlord's architect or construction consultant, the
restoration of the Leased Premises cannot be substantially completed within
nine months after the date of such notice from Landlord; or
<PAGE> 28
B. The Leased Premises are damaged by any peril within
nine months of the last day of the Lease Term and, in the reasonable opinion of
Landlord's architect or construction consultant, the restoration of the Leased
Premises cannot be substantially completed within ninety days after the date
such restoration is commenced.
10.4 Tenant's Waiver: Landlord and Tenant agree that the
provisions of Article 10.3 above, captioned "Tenant's Right to Terminate," are
intended to supersede and replace the provisions contained in California Civil
Code, Section 1932, Subdivision 2, and California Civil Code, Section 1934, and
accordingly, Tenant hereby waives the provision of said Civil Code Sections and
the provisions of any successor Code Sections or similar Laws hereinafter
enacted.
10.5 Abatement of Rent: In the event of damage to the Leased
Premises which does not result in the termination of this Lease, the Base
Monthly Rent (and any Additional Rent) shall be temporarily abated during the
period of restoration in proportion to the degree to which Tenant's use of the
Leased Premises is impaired by such damage.
ARTICLE 11
CONDEMNATION
11.1 Landlord's Right to Terminate: Subject to Article 11.3,
Landlord shall have the option to terminate this Lease if, as a result of a
taking by means of the exercise of the power of eminent domain (including
inverse condemnation and/or a voluntary sale or transfer by Landlord under
threat of condemnation to an entity having the power of eminent domain), (i) all
or any part of the Leased Premises is so taken, (ii) more than thirty-three and
one-third percent of the Buildings leasable area is so taken, (iii) more than
thirty-three and one-third percent of the common Area is so taken, or (iv)
because of the Laws then in force, the Leased Premises may not be used for the
same use being made thereof before such taking, whether or not restored as
required by Article 11.4 below. Any such option to terminate by Landlord must be
exercisable within a reasonable period of time, to be effective as of the date
possession is taken by the condemnor.
11.2 Tenant's Right to Terminate: Subject to Article 11.3, Tenant
shall have the option to terminate this Lease if, as a result of any taking by
means of the exercise of the power of eminent domain (including inverse
condemnation and/or a voluntary sale or transfer by Landlord to an entity having
the power of eminent domain under threat of condemnation), (i) all of the Leased
Premises is so taken, (ii) thirty-three and one-third percent or more of the
Leased Premises is so taken and the part of the Leased Premises that remains
cannot, within a reasonable period of time, be made reasonably suitable for the
continued operation of the Tenant's business, or (iii) there is a taking of a
portion of the Common Area and, as a result of such taking, Landlord cannot
provide parking spaces within the Project (or within a reasonable distance
therefrom) equal in number to at least sixty-six and two- thirds percent of
Tenant's Number of Parking Spaces (as set forth in Article 1), whether by
rearrangement of the remaining parking areas in the Common Area (including, if
Landlord elects, construction of multi-dock parking structures or restriping for
compact cars where permitted by
<PAGE> 29
Law), or by providing alternative parking facilities on other land within
reasonable walking distance of the Leased Premises. Tenant must exercise such
option within a reasonable period of time, to be effective on the later to
occur of (i) the date that possession of that portion of the Common Area or the
Leased Premises that is condemned is taken by the condemnor or (ii) the date
Tenant vacates the Leased Premises.
11.3 Temporary Taking: If any portion of the Leased Premises is
temporarily taken for one year or less, this Lease shall remain in effect. If
any portion of the Leased Premises is temporarily taken for a period which
either exceeds one year or which extends beyond the natural expiration of the
Lease Term, then Landlord and Tenant shall each independently have the option to
terminate this Lease, effective on the date possession is taken by the
condemnor.
11.4 Restoration and Abatement of Rent: If any part of the Leased
Premises is taken by condemnation and this Lease is not terminated, then
Landlord shall repair any damage occasioned thereby to the remainder of the
Leased Premises to a condition reasonably suitable for Tenant's continued
operations and otherwise, to the extent practicable, in the manner and to the
extent provided in Article 10.1. As of the date possession is taken by the
condemning authority, (i) the Base Monthly Rent shall be reduced in the same
proportion that the area of that part of the Leased Premises so taken (less any
addition to the area of the Leased Premises by reason of any reconstruction)
bears to the area of the Leased Premises immediately prior to such taking, and
(ii) Tenant's Proportionate Share shall be appropriately adjusted.
11.5 Division of Condemnation Award: Any award made for any
condemnation of the Project, the Building, the Common Areas or the Leased
Premises, or any portion thereof, shall belong to and be paid to Landlord, and
Tenant hereby assigns to Landlord all of its right, title and interest in any
such award; provided, however, that Tenant shall be entitled to receive any
condemnation award that is made directly to Tenant (i) for the taking of
personal property, inventory or trade fixtures belonging to Tenant, (ii) for the
interruption of Tenant's business or its moving costs, (iii) for loss of
Tenant's goodwill, or (iv) for any temporary taking where this Lease is not
terminated as a result of such taking. The rights of Landlord and Tenant
regarding any condemnation shall be determined as provided in this Article, and
each party hereby waives the provisions of Section 1265.130 of the California
Code of Civil Procedures, and the provisions of any similar law hereinafter
enacted, allowing either party to petition the Superior Court to terminate this
Lease and/or allocating condemnation awards between Landlord and Tenant in the
event of a taking of the Leased Premises.
ARTICLE 12
DEFAULT AND REMEDIES
12.1 Events of Tenant's Default: Tenant shall be in default of its
obligations under this [Insert 12.1A] Lease if any of the following events
occur:
A. Tenant shall have failed to pay Base Monthly Rent or
any Additional Rent when due; or
<PAGE> 30
B. Tenant shall have done or permitted to have been done
any act, use or thing in its use, occupancy or possession of the Leased
Premises or in its use of the Common Areas which is prohibited by the terms of
this Lease; or [Insert 12.1B]
C. Tenant shall have failed to perform any term,
covenant or condition of this Lease, except those requiring the payment of Base
Monthly Rent or Additional Rent, within ten days after written notice from
Landlord to Tenant specifying the nature of such failure and requesting Tenant
to perform same. [Insert 12.1C]
D. Tenant shall have sublet the Leased Premises or
assigned or encumbered its interest in this Lease in violation of the
provisions contained in Article 7, whether voluntarily or by operation of Law;
or
E. Tenant shall have failed to continuously occupy the
Leased Premises for a period of 10 consecutive days; or [Insert 12.1E]
F. Tenant or any Guarantor of this Lease shall have
permitted or suffered the sequestration or attachment of, or execution on, or
the appointment of a custodian or receiver with respect to, all or any
substantial part of the property or assets of Tenant (or such Guarantor) or any
property or asset essential to the conduct of Tenant's (or such Guarantor's)
business, and Tenant (or such Guarantor) shall have failed to obtain a return
or release of the same within thirty days thereafter, or prior to sale pursuant
to such sequestration, attachment or levy, whichever is earlier; or
G. Tenant or any Guarantor of this Lease shall have made
a general assignment of all or a substantial part of its assets for the benefit
of its creditors; or
H. Tenant or any Guarantor of this Lease shall have
allowed (or sought) to have entered against it a decree or order which: (i)
grants or constitutes an order for relief, appointment of a trustee, or
confirmation of a reorganization plan under the bankruptcy laws of the United
States; (ii) approves as properly filed a petition seeking liquidation or
reorganization under said bankruptcy laws or any other debtor's relief law or
similar statue of the United States or any state thereof; or (iii) otherwise
directs the winding up or liquidation of Tenant; provided, however, if any
decree or order was entered without Tenant's consent or over Tenant's
objection, Landlord may not terminate this Lease pursuant to this Subarticle if
such decree or order is rescinded or reversed within thirty days after its
original entry.
I. Tenant or any Guarantor of this Lease shall have
availed itself of the protection of any debtor's relief law, moratorium law or
other similar Law which does not require the prior entry of a decree or order.
12.2 Landlord's Remedies: In the event of any default by Tenant,
and without limiting Landlord's right to indemnification as provided in Article
8.2, 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:
<PAGE> 31
A. Landlord may, at Landlord's election, keep this Lease
in effect and enforce, by an action at law or in equity all of its rights and
remedies under this Lease including, without limitation, (i) the right to
recover the rent and other sums as they become due by appropriate legal action,
(ii) the right to make payments required of Tenant, or perform Tenant's
obligations and be reimbursed by Tenant for the cost thereof with interest at
the then maximum rate of interest not prohibited by Law from the date the sum
is paid by Landlord until Landlord is reimbursed by Tenant, and (iii) the
remedies of injunctive relief and specific performance to prevent Tenant from
violating the terms of this Lease and/or to compel Tenant to perform its
obligations under this Lease, as the case may be.
B. Landlord may, at Landlord's election, terminate this
Lease by giving Tenant written notice of termination, in which event this Lease
shall terminate on the date set forth for termination in such notice. Any
termination under this Subarticle shall not relieve Tenant from its obligation
to pay to Landlord all Base Monthly Rent and Additional Rent then or thereafter
due, or any other sums due or thereafter accruing to Landlord, or from any
claim against Tenant for damages previously accrued or then or thereafter
accruing. In no event shall any one or more of the following actions by
Landlord, in the absence of a written election by Landlord to terminate this
Lease, constitute a termination of this Lease:
1. Appointment of a receiver or keeper in order
to protect Landlord's interest hereunder;
2. Consent to any subletting of the Leased
Premises or assignment of this Lease by Tenant, whether pursuant to the
provisions hereof or otherwise; or
3. Any other action by Landlord or Landlord's
agents intended to mitigate the adverse effects of any breach of this Lease
by Tenant, including, without limitation, any action taken to maintain and
preserve the Leased Premises or any action taken to relet the Leased
Premises, or any portion thereof, for the account of Tenant and in the name
of Tenant.
C. In the event Tenant breaches this Lease and abandons
the Leased Premises, Landlord may terminate this lease, but this Lease shall
not terminate unless Landlord gives Tenant written notice of termination. No
act by or on behalf of Landlord intended to mitigate the adverse effect of such
breach, including those described by Subarticles B(1), (2) and (3) immediately
preceding, shall constitute a termination of Tenant's right to possession
unless Landlord gives Tenant written notice of termination. If Landlord does
not terminate this Lease by giving written notice of termination, Landlord may
enforce all its rights and remedies under this Lease, including the right to
recover rent as it becomes due under this Lease as provided in California Civil
Code Section 1951.4, as in effect on the Effective Date of this Lease.
D. In the event Landlord terminates this Lease, Landlord
shall be entitled, at Landlord's election, to damages in an amount as set forth
in California Civil Code Section 1951.2, as in effect on the Effective Date of
this Lease. For purposes of computing damages pursuant to said Section 1951.2,
an interest rate equal to the maximum rate of interest then not prohibited by
Law shall be used where permitted. Such damages shall include, without
limitation:
<PAGE> 32
1. The worth at the time of award of the amount
by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided, 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; and
2. Any other amount necessary to compensate
Landlord for all 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, the following: (i) expenses for cleaning, repairing or
restoring the Leased Premises; (ii) expenses for altering, remodeling or
otherwise improving the Leased Premises for the purpose of reletting,
including removal of existing leasehold improvements and/or installation of
additional leasehold improvements (regardless of how the same is funded,
including reduction of rent, a direct payment or allowance to a new tenant,
or otherwise); (iii) broker's fees [Insert 12.20(z)], advertising costs and
other expenses of reletting the Leased Premises; (iv) costs of carrying the
Leased Premises, which costs would have been billed to Tenant as Additional
Rent had Tenant not defaulted and which include, but are not limited to;
taxes, insurance premiums, landscape maintenance, HVAC maintenance, utility
charges and security precautions; (v) expenses incurred in removing,
disposing of and/or storing any of Tenant's personal property, inventory or
trade fixtures remaining therein; (vi) attorney's fees, expert witness
fees, court costs and other reasonable expenses incurred by Landlord (but
not limited to taxable costs) in retaking possession of the Leased
Premises, establishing damages hereunder, and re-leasing the Leased
Premises; and (vii) any other expenses, costs or damages otherwise incurred
or suffered as a result of Tenant's default.
12.3 Landlord's Default and Tenant's Remedies: In the event
Landlord fails to perform any of its obligations under this Lease, Landlord
shall nevertheless not be in default under the terms of this Lease until such
time as Tenant shall have first given Landlord written notice specifying the
nature of such failure to perform its obligations, and then only after Landlord
shall have had a reasonable period of time following its receipt of such notice
within which to perform such obligations. In the event of Landlord's default as
above set forth, then, and only then, Tenant shall have the following remedies
only:
A. Tenant may then proceed in equity or at law to compel
Landlord to perform its obligations and/or to recover damages proximately
caused by such failure to perform (except as and to the extent Tenant has
waived its right to damages as provided in this Lease).
B. Tenant, at its option, may then cure any default of
Landlord at Landlord's cost. If, pursuant to this Subarticle, Tenant
reasonably pays any sum to any third party or does any act that requires the
payment of any sum to any third party at any time by reason of Landlord's
default the sum paid by Tenant shall be immediately due from Landlord to Tenant
at the time Tenant supplies Landlord with an invoice therefore (provided such
invoice sets forth and is accompanied by a written statement of Tenant setting
forth in reasonable detail the amount paid, the party to whom it was paid, the
date it was paid, and the reasons giving rise to such payment), together with
interest at twelve percent per annum from the date of such invoice until Tenant
is reimbursed by Landlord.
<PAGE> 33
Tenant may not offset such sums against any installment of rent due Landlord
under the terms of this Lease.
12.4 Limitation on Tenant's Recourse: If Landlord is a
corporation, trust, partnership, joint venture, unincorporated association, or
other form of business entity, Tenant agrees that (i) the obligations of
Landlord under this Lease shall not constitute personal obligations of the
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders, or other principals of such business entity and (ii) Tenant shall
have recourse only to the assets of such business entity for the satisfaction of
such obligations and not against the assets of such officers, directors,
trustees, partners, joint venturers, members, owners, stockholders or principals
(other than to the extent of their interest in the assets owned by such business
entity). Additionally, if Landlord is a partnership, then Tenant covenants and
agrees:
A. No partner of Landlord shall be sued or named as a
party in any suit or action brought by Tenant with respect to any alleged
breach of this lease (except to the extent necessary to secure jurisdiction
over the partnership and then only for that sole purpose);
B. No service of process shall be made against any
partner of Landlord except for the sole purpose of securing jurisdiction over
the partnership; and
C. No writ of execution shall be levied against the
assets of any partner of Landlord other than to the extent of his interest in
the assets of the partnership. Tenant further agrees that each of the
foregoing covenants and agreements shall be enforceable by Landlord and by any
partner of Landlord and shall be applicable to any actual or alleged
misrepresentation or non- disclosure made respecting this Lease or the Leased
Premises or any actual or alleged failure, default or breach of any covenant or
agreement either expressly or implicitly contained in this Lease or imposed by
statute or at common law.
12.5 Tenant's Waiver: Landlord and Tenant agree that the
provisions of Article 12.3 above are intended to supersede and replace the
provisions of California Civil Code 1932(l), 1941 and 1942, and accordingly,
Tenant hereby waives the provisions of Section 1932(l), 1941 and 1942 of the
California Civil Code and/or any similar or successor Law regarding Tenant's
right to terminate this Lease or to make repairs and deduct the expenses of such
repairs from the rent due under this Lease. Tenant hereby waives any right of
redemption or relief from forfeiture under the Laws of the State of California,
or under any other present or future Law, in the event Tenant is evicted or
Landlord takes possession of the Leased Premises by reason of any default by
Tenant.
ARTICLE 13
GENERAL PROVISIONS
13.1 Taxes on Tenant's Property: Tenant shall pay before
delinquency any and all taxes, assessments, license fees, use fees, permit fees
and public charges of whatever nature or description levied, assessed or
imposed against Tenant or Landlord by a governmental agency arising out of,
caused by reason of or based upon Tenant's estate in this Lease, Tenant's
ownership of property, improvements made by Tenant to the Leased Premises,
improvements made by Landlord for Tenant's use within the Leased Premises,
Tenant's use (or estimated use) of
<PAGE> 34
public facilities or services or Tenant's consumption (or estimated
consumption) of public utilities, energy, water or other resources. On demand
by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these
payments. If any such taxes, assessments, fees or public charges are levied
against Landlord, Landlord's property, the Building or the Project, or if the
assessed value of the Building or the Project is increased by the inclusion
therein of a value placed upon same, then Landlord, after giving written notice
to Tenant, shall have the right, regardless of the validity thereof, to pay
such taxes, assessment, fee or public charge and bill Tenant, as Additional
Rent, the amount of such taxes, assessment, fee or public charge so paid on
Tenant's behalf. Tenant shall, within ten days from the date it receives an
invoice from Landlord setting forth the amount of such taxes, assessment, fee
or public charge so levied, pay to Landlord, as Additional Rent, the amount set
forth in said invoice. Failure by Tenant to pay the amount so invoiced within
said ten day period shall be conclusively deemed a default by Tenant under this
Lease. Tenant shall have the right, and with Landlord's full cooperation if
Tenant is not then in default under the terms of this Lease, to bring suit in
any court of competent jurisdiction to recover from the taxing authority the
amount of any such taxes, assessment, fee or public charge so paid.
13.2 Holding Over: This Lease shall terminate without further
notice on the Lease Expiration Date (as set forth in ARTICLE 1). Any holding
over by Tenant after expiration of the Lease Term shall neither constitute a
renewal nor extension of this Lease nor give Tenant any rights in or to the
Leased Premises except as expressly provided in this Article. Any such holding
over shall be deemed an unlawful detainer of the Leased Premises unless Landlord
has consented to same. Any such holding over to which Landlord has consented
shall be construed to be a tenancy from month to month, on the same terms and
conditions herein specified insofar as applicable, except that the Base Monthly
Rent shall be increased to an amount equal to one hundred fifty percent of the
Base Monthly Rent payable during the last full month immediately preceding such
holding over.
13.3 Subordination to Mortgages: This Lease is subject and
subordinate to all underlying ground leases and to all mortgages and deeds of
trust which affect the Building and are of public record as of the Effective
Date of this Lease, and to all renewals, modifications, consolidations,
replacements and extensions thereof. However, if the lessor under any such
ground lease or any Lender holding any such mortgage or deed of trust shall
advise Landlord that it desires or requires this Lease to be made prior and
superior thereto, then, upon written request of Landlord to Tenant, Tenant shall
promptly execute, acknowledge and deliver any and all documents or instruments
which Landlord and such lessor or Lender deem necessary or desirable to make
this Lease prior thereto. Tenant hereby consents to Landlord's ground leasing
the land underlying the Building and/or encumbering the Building as security for
future loans on such terms as Landlord shall desire, all of which future ground
leases, mortgages or deeds of trust shall be subject and subordinate to this
Lease. However, if any lessor under any such future ground lease or any Lender
holding such future mortgage or deed of trust shall desire or require that this
Lease be made subject and subordinate to such future ground lease, mortgage or
deed of trust, then Tenant agrees, within ten days after Landlord's written
request therefore, to execute, acknowledge and deliver to Landlord any and all
documents or instruments requested by Landlord or such lessor or Lender as may
be necessary or proper to assure the subordination of this Lease to such future
ground lease, mortgage or deed of trust; but only if such lessor or Lender
agrees to recognize Tenant's
<PAGE> 35
rights under this Lease and not to disturb Tenant's quiet possession of the
Leased Premises so long as Tenant is not in default under this Lease.
13.4 Tenant's Attornment Upon Foreclosure: Tenant shall, upon
request, attorn (i) to any purchaser of the Building at any foreclosure sale or
private sale conducted pursuant to any security instrument encumbering the
Building, (ii) to any grantee or transferee designated in any deed given in lieu
of foreclosure of any security interest encumbering the Building, or (iii) to
the lessor under any underlying ground lease of the land underlying the
Building, should such ground lease be terminated; provided that such purchaser,
grantee or lessor recognizes Tenant's rights under this Lease.
13.5 Mortgagee Protection: In the event of any default on the part
of Landlord, Tenant will give notice by registered mail to any Lender or lessor
under any underlying ground lease who shall have requested, in writing, to
Tenant that it be provided with such notice, and Tenant shall offer such Lender
or lessor a reasonable opportunity to cure the default, including time to obtain
possession of the Leased Premises by power of sale or judicial foreclosure or
other appropriate legal proceedings if reasonably necessary to effect a cure.
13.6 Estoppel Certificates: Tenant will, following any request by
Landlord, promptly execute and deliver to Landlord an estoppel certificate (i)
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, (ii) stating the date to
which the rent and other charges are paid in advance, if any, (iii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults if any are claimed,
and (iv) certifying such other information about this Lease as may be reasonably
requested by Landlord. Tenant's failure to execute and deliver such estoppel
certificate within ten days after Landlord's request therefore shall be a
material default by Tenant under this Lease, and Landlord shall have all of the
rights and remedies available to Landlord as Landlord would otherwise have in
the case of any other material default by Tenant, including the right to
terminate this Lease and sue for damages proximately caused thereby, it being
agreed and understood by Tenant that Tenant's failure to so deliver such
estoppel certificate in a timely manner could result in Landlord being unable to
perform committed obligations to other third parties which were made by Landlord
in reliance upon this covenant of Tenant. Landlord and Tenant intend that any
statement delivered pursuant to this Article may be relied upon by any Lender or
purchaser or prospective Lender or purchaser of the Building, the Project, or
any interest therein.
13.7 Tenant's Financial Information: Tenant shall, within ten
business days after Landlord's request therefore, deliver to Landlord a copy of
a current financial statement, including an income statement and balance sheet,
and any such other information reasonably requested by Landlord regarding
Tenant's financial condition. Tenant acknowledges that Landlord has and will
rely on the truth and accuracy of the information provided by Tenant to Landlord
both prior to and during the term of the Lease. Landlord shall be entitled to
disclose such financial statements or other information to its Lender, to any
present or prospective principal of or investor in Landlord, or to any
prospective Lender or purchaser of the Building, the Project or any portion
thereof or interest therein. Any such financial statement or other information
which is marked
<PAGE> 36
"confidential" or "company secrets" (or is otherwise similarly marked by
Tenant) shall be confidential and shall not be disclosed by Landlord to any
third party except as specifically provided in this Article, unless the same
becomes a part of the public domain without the fault of Landlord. (Insert
13.7)
13.8 Transfer by Landlord: Landlord and its successors in interest
shall have the right to transfer their interest in the Building, the Project, or
any portion thereof at any time and to any person or entity. In the event of any
such transfer, the Landlord originally named herein (and in the case of any
subsequent transfer, the transferor), from the date of such transfer, (i) shall
be automatically relieved, without any further act by any person or entity, of
all liability for the performance of the obligations of the Landlord hereunder
which may accrue after the date of such transfer and (ii) shall be relieved of
all liability for the performance of the obligations of the Landlord hereunder
which have accrued before the date of transfer if its transferee agrees to
assume and perform all such prior obligations of the Landlord hereunder. Tenant
shall attorn to any such transferee. After the date of any such transfer, the
term "Landlord" as used herein shall mean the transferee of such interest in the
Building or the Project.
13.9 Force Majeure: The obligations of each of the parties under
this Lease (other than the obligation to pay money) shall be temporarily excused
if such party is prevented or delayed in performing such obligation by reason of
any strikes, lockouts or labor disputes; inability to obtain labor, materials,
fuels or reasonable substitutes therefore; governmental restrictions,
regulations, controls, action or inaction; civil commotion; inclement weather,
fire or other acts of God; or other causes (except financial inability) beyond
the reasonable control of the party obligated to perform (including acts or
omissions of the other party for a period equal to the period of any such
prevention, delay or stoppage.
13.10 Notices: Any notice required or desired to be given by a
party regarding this Lease shall be in writing and shall be personally served,
or in lieu of personal service may be given by: (i) delivery by Federal Express,
United Parcel Service or similar commercial service, (ii) electronic facsimile
transmission, or (iii) by depositing such notice in the United States mail,
postage prepaid, addressed to the other party as follows:
A. If addressed to Landlord, to Landlord at its Address
for Notices (as set forth in Article 1).
B. If addressed to Tenant, to Tenant at its Address for
Notices (as set forth in Article 1).
Any notice given by registered mail shall be deemed to have been given on the
third business day after its deposit in the United States mail. Any notice
given by certified mail shall be deemed given on the date receipt was
acknowledged to the postal authorities. Any notice given by mail other than
registered or certified mail shall be deemed given only if received by the
other party, and then on the date of receipt. In the event of notice by
electronic facsimile transmission or commercial carrier, notice shall be deemed
received on the date of confirmation documented by the transmission or carrier.
Each party may, by written notice to the other in the manner aforesaid, change
the address to which notices addressed to it shall thereafter be mailed.
<PAGE> 37
13.11 Attorneys' Fees: In the event any party shall bring any
action, arbitration proceeding or legal proceeding alleging a breach of any
provision of this Lease to recover rent, to terminate this Lease, or to
enforce, protect, determine or establish any term or covenant of this Lease or
rights or duties hereunder of either party, the prevailing party shall be
entitled to recover from the non-prevailing party as a part of such action or
proceeding, or in a separate action for that purpose brought within one year
from the determination of such proceeding, reasonable attorneys' fees, expert
witness fees, court costs and other reasonable expenses incurred by the
prevailing party. In the event that Landlord shall be required to retain
counsel to enforce any provision of this Lease, and if Tenant shall thereafter
cure (or desire to cure) such default, Landlord shall be conclusively deemed
the prevailing party, and Tenant shall pay to Landlord all attorneys' fees,
expert witness fees, court costs and other reasonable expenses so incurred by
Landlord promptly upon demand. Landlord may enforce this provision by either
(i) requiring Tenant to pay such fees and costs as a condition to curing its
default or (ii) bringing a separate action to enforce such payment, it being
agreed by and between Landlord and Tenant that Tenant's failure to pay such
fees and costs upon demand shall constitute a breach of this Lease in the same
manner as a failure by Tenant to pay the Base Monthly Rent, giving Landlord the
same rights and remedies as if Tenant failed to pay the Base Monthly Rent.
13.12 Definitions: Any term that is given a special meaning by any
provision in this Lease shall, unless otherwise specifically stated, have such
meaning whenever used in this Lease or any Addenda or amendment hereto. In
addition to the terms defined in Article 1, the following terms shall have the
following means:
A. Real Property Taxes: The term "Real Property Tax" or
Real Property Taxes" shall each mean (i) all taxes, assessments, levies and
other charges of any kind or nature whatsoever, general and specific, foreseen
and unforeseen (including all installments of principal and interest required
to pay any general or special assessments for public improvements and any
increases resulting from reassessments caused by any change in ownership or new
construction), now or hereafter imposed by any governmental or
quasi-governmental authority or special district having the direct or indirect
power to tax or levy assessments, which are levied or assessed for whatever
reason against the Project or any portion thereof, or Landlord's interest
therein, or the fixtures, equipment and other property of Landlord that is an
integral part of the Project and located thereon, or Landlord's business of
owning, leasing or managing the Project or the gross receipts, income or
rentals from the Project; (ii) all charges, levies or fees imposed by any
governmental authority against Landlord by reason of or based upon the use of
or number of parking spaces within the Project, the amount of public services
or public utilities used or consumed (e.g. water, gas, electricity, sewage or
surface water disposal) at the Project, the number of persons employed by
tenants of the Project, the size (whether measured in area, volume, number of
tenants or whatever) or the value of the Project, or the type of use or uses
conducted within the Project; and (iii) all costs and fees (including
attorneys' fees) incurred by Landlord in contesting any Real Property Tax and
in negotiating with public authorities as to any Real Property Tax. If, at any
time during the Lease Term, the taxation or assessment of the Project
prevailing as of the Effective Date of this Lease shall be altered so that in
lieu of or in addition to any Real Property Tax described above there
<PAGE> 38
shall be levied, assessed or imposed (whether by reason of a change in the
method of taxation or assessment, creation of a new tax or charge, or any other
cause) an alternate, substitute, or additional tax or charge (i) on the value,
size, use or occupancy of the Project or Landlord's interest therein or (ii) on
or measured by the gross receipts, income or rentals from the Project, or on
Landlord's business of owning, leasing or managing the Project or (iii)
computed in any manner with respect to the operation of the Project, then any
such tax or charge, however designated, shall be included within the meaning of
the terms "Real Property Tax" or "Real Property Taxes" for purposes of this
Lease. If any Real Property Tax is partly based upon property or rents
unrelated to the Project, then only that part of such Real Property Tax that is
fairly allocable to the Project shall be included within the meaning of the
terms "Real Property Tax" or "Real Property Taxes". Notwithstanding the
foregoing, the terms "Real Property Tax" or "Real Property Taxes" shall not
include estate, inheritance, transfer, gift or franchise taxes of Landlord or
the federal or state income tax imposed on Landlord's income from all sources.
B. Landlord's Insurance Costs: The term "Landlord's
Insurance Costs" shall mean the costs to Landlord to carry and maintain the
policies of fire and property damage insurance, including quake and flood, for
the Project and general liability insurance required, or permitted, to be
carried by Landlord pursuant to Article 9, together with any deductible amounts
paid by Landlord upon the occurrence of any insured casualty or loss.
C. Project Maintenance Costs: The term "Project
Maintenance Costs" shall mean all costs and expenses (except Landlord's
Insurance Costs and Real Property Taxes) paid or incurred by Landlord in
protecting, operating, maintaining, repairing and preserving the Project and
all parts thereof, including without limitation, (i) professional management
fees (equal to three percent of the annualized Base Monthly Rent), (ii) the
amortizing portion of any costs incurred by Landlord in the making of any
modifications, alterations or improvements as set forth in Article 6, which are
so amortized during the Lease Term, (iii) costs of complying with governmental
regulations governing Tenant's use of Hazardous Materials, and Landlord's costs
of monitoring Tenant's use of Hazardous Materials including fees charged by
Landlord's consultants to periodically inspect the Premises and the Property,
and (iv) such other costs as may be paid or incurred with respect to operating,
maintaining and preserving the Project, such as repairing replacing and
resurfacing the exterior surfaces of the buildings (including roofs),
repairing, replacing, and resurfacing paved areas, repairing structural parts
of the buildings, cleaning, maintaining, repairing, or replacing the interior
of the Leased Premises both during the Lease Term and upon the termination of
the Lease, and maintaining, repairing or replacing, when necessary electrical,
plumbing, sewer, drainage, heating, ventilating and air conditioning systems
serving the buildings, providing utilities to the common areas, maintenance,
repair, replacement, or installation of lighting fixtures, directional or other
signs and signals, irrigation or drainage systems, trees, shrubs, materials,
maintenance of all landscaped areas, and depreciation and financing costs on
maintenance and operating machinery and equipment (if owned) and rental paid
for such machinery and equipment (if leased).
D. Ready for Occupancy: The term "Ready for Occupancy"
shall mean the date upon which (i) the Leased Premises are available for
Tenant's occupancy in a broom clean condition and (ii) the improvements, if
any, to be made to the Leased Premises by Landlord as a condition to Tenant's
obligation to accept
<PAGE> 39
possession of the Leased Premises have been substantially completed and the
appropriate governmental building department (i.e. the City building
department, if the Project is located within a City, or otherwise the County
building department) shall have approved the construction of the improvements
as substantially complete or is willing to so approve the construction of such
improvements as substantially complete subject only to compliance with
specified conditions which are the responsibility of Tenant to satisfy or is
willing to allow Tenant to occupy subject to its receiving assurances that
specified work will be completed.
E. Tenant's Proportionate Share: The term "Tenant's
Proportionate Share" or "Tenant's Share", as used with respect to an item
pertaining to the Building, shall each mean that percentage obtained by
dividing the leasable square footage contained within the Leased Premises (as
set forth in Article 1) by the total leasable square footage contained within
the Building as the same from time to time exists or, as used with respect to
an item pertaining to the Project, shall each mean that percentage obtained by
dividing the leasable square footage contained within the Leased Premises (as
set forth in Article 1) by the total leasable square footage contained within
the Project as the same from time to time exists, unless, as to any given item,
such a percentage allocation unfairly burdens or benefits a given tenant(s), in
which case Landlord shall have the exclusive right to equitably allocate such
item so as to not unfairly burden or benefit any given tenant(s). Landlord's
determination of any such special allocation shall be final and binding upon
Tenant unless made in bad faith.
F. Building's Proportionate Share: The term "Building's
Proportionate Share" or "Building's Share" shall each mean that percentage
which is obtained by dividing the leasable square footage contained within the
Building by the leasable square footage contained with all buildings located
within the Project, unless, as to any given item, such a percentage allocation
unfairly burdens or benefits a given building(s), in which case Landlord shall
have the exclusive right to equitably allocate such item so as to not unfairly
burden or benefit any given building(s). Landlord's determination of any such
special allocation shall be final and binding upon Tenant unless made in bad
faith.
G. Building Operating Expenses: The term "Building
Operating Expenses" shall mean and include the Building's Share of all Real
Property Taxes, plus the Building's Share of all Landlord's Insurance Costs,
plus the Building's Share of all Project Maintenance Costs.
H. Law: The term "Law" shall mean any judicial decision
and any statute, constitution, ordinance, resolution, regulation, rule,
administrative order, or other requirement of any municipal, county, state,
federal, or other governmental agency or authority having jurisdiction over the
parties to this Lease, the Leased Premises, the Building or the Project, or any
of them in effect either at the Effective Date of this Lease or at any time
during the Lease Term, including, without limitation, any regulation, order, or
policy of any quasi-official entity or body (e.g. a board of fire examiners or
a public utility or special district).
I. Lender: The term "Lender" shall mean the holder of
any Note or other evidence of indebtedness secured by the Project or any
portion thereof.
<PAGE> 40
J. Private Restrictions: The term "Private
Restrictions" shall mean all recorded covenants, conditions and restrictions,
private agreements, easements, and any other recorded instruments affecting the
use of the Project, as they may exist from time to time.
K. Rent: The term "rent" shall mean collectively Base
Monthly Rent and all Additional Rent.
13.13 General Waivers: One party's consent to or approval of any
act by the other party, requiring the first party's consent or approval shall
not be deemed to waive or render unnecessary the first party's consent to or
approval of any subsequent similar act by the other party. No waiver of any
provision hereof or any breach of any provision hereof shall be effective
unless in writing and signed by the waiving party. The receipt by Landlord of
any rent or payment with or without knowledge of the breach of any other
provision hereof shall not be deemed a waiver of any such breach. No waiver of
any provision of this Lease shall be deemed a continuing waiver unless such
waiver specifically states so in writing and is signed by both Landlord and
Tenant. No delay or omission in the exercise of any right or remedy accruing
to either party upon any breach by the other party under this Lease shall
impair such right or remedy or be construed as a waiver of any such breach
theretofore or thereafter occurring. The waiver by either party of any breach
of any provision of this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or any other provisions herein contained.
13.14 Miscellaneous: Should any provision of this Lease prove to be
invalid or illegal, such invalidity or illegality shall in no way affect,
impair or invalidate any other provision hereof, and such remaining provisions
shall remain in full force and effect. Time is of the essence with respect to
the performance of every provision of this Lease in which time of performance
is a factor. Any copy of this Lease which is executed by the parties shall be
deemed an original for all purposes. This Lease shall, subject to the
provisions regarding assignment, apply to and bind the respective heirs,
successors, executors, administrators and assigns of Landlord and Tenant. The
term "party" shall mean Landlord or Tenant as the context implies. If Tenant
consists of more than one person or entity, then all members of Tenant shall be
jointly and severally liable hereunder. This Lease shall be construed and
enforced in accordance with the Laws of the State in which the Leased Premises
are located. 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. The captions used in this Lease are for
convenience only and shall not be considered in the construction or
interpretation of any provision hereof. 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. The
terms "must", "shall", "will" and "agree" are mandatory. The term "may" is
permissive. When a party is required to do something by this Lease, it shall
do so at its sole cost and expense without right of reimbursement from the
other party unless specific provision is made therefore. Where Tenant is
obligated not to perform any act or is not permitted to perform any act, Tenant
is also obligated to restrain any others reasonably within its control,
including agents, invitees, contractors, subcontractors and employees, from
performing said act. Landlord shall not become or be deemed a partner or joint
venturer with Tenant by reason of any of the provisions of this Lease.
<PAGE> 41
ARTICLE 14
CORPORATE AUTHORITY
BROKERS AND ENTIRE AGREEMENT
14.1 Corporate Authority: If Tenant is a corporation, each
individual executing this Lease on behalf of said corporation represents and
warrants that Tenant is validly formed and duly authorized and existing, that
Tenant is qualified to do business in the State in which the Leased Premises are
located, that Tenant has the full right and legal authority to enter into this
Lease, that he or she is duly authorized to execute and deliver this Lease on
behalf of Tenant in accordance with the bylaws and/or a board of directors'
resolution of Tenant, and that this Lease is binding upon Tenant in accordance
with its terms. Tenant shall, within thirty days after execution of this Lease,
deliver to Landlord a certified copy of the resolution of its board of directors
authorizing or ratifying the execution of this Lease.
14.2 Brokerage Commissions: Tenant warrants that it has not had
any dealings with any real estate broker(s), leasing agent(s), finder(s) or
salesmen, other than those persons or entities named in Article I as the
"Brokers" with respect to the lease by it of the Leased Premises pursuant to
this Lease, and that it will indemnify, defend with competent counsel, and hold
Landlord harmless from any liabilities for the payment of any real estate
brokerage commissions, leasing commissions or finder's fees claimed by any other
real estate broker(s), leasing agent(s), finder(s) or salesmen to be earned or
due and payable by reason of Tenant's agreement or promise (implied or
otherwise) to pay (or have Landlord pay) such a commission or finder's fee by
reason of its leasing the Leased Premises pursuant to this Lease.
14.3 Entire Agreement: This Lease, the Exhibits (as described in
Article 1) and the Addenda (as described in Article 1), which Exhibits and
Addenda are by this reference incorporated herein, constitute the entire
agreement between the parties, and there are no other agreements, understandings
or representations between the parties relating to the lease by Landlord of the
Leased Premises to Tenant, except as expressed herein. No subsequent changes,
modifications or additions to this Lease shall be binding upon the parties
unless in writing and signed by both Landlord and Tenant.
14.4 Landlord's Representations: Tenant acknowledges that neither
Landlord nor any of its agents made any representations or warranties respecting
the Project, the Building or the Leased Premises, upon which Tenant relied in
entering into this Lease, which are not expressly set forth in this Lease.
Tenant further acknowledges that neither Landlord nor any of its agents made any
representations as to (i) whether the Leased Premises may be used for Tenant's
intended use under existing law or (ii) the suitability of the Leased Premises
for the conduct of Tenant's business or (iii) the exact square footage of the
Leased Premises, and that Tenant relied solely upon its own investigations
respecting said matters. Tenant expressly waives any and all claims for damage
by reason of any statement, representation, warranty, promise or other agreement
of Landlord or Landlord's agent(s), if any, not contained in this Lease or in
any Addenda hereto. IN WITNESS WHEREOF, Landlord and Tenant have executed this
Lease as of the
<PAGE> 42
respective dates below set forth with the intent to be legally bound thereby as
of the Effective Date of this Lease.
AS LANDLORD: AS TENANT:
By: By:
Title: Title:
By: By:
Title: Title:
Dated: Dated:
If Tenant is a CORPORATION, the authorized officers must sign on behalf
of the corporation and indicate the capacity in which they are signing. This
Lease must be executed by the chairman of the board, president or vice
president, and the secretary, assistant secretary, the chief financial officer
or assistant treasurer, unless the bylaws or a resolution of the board of
directors shall otherwise provide, in which event a certified copy of the bylaws
or a certified copy of the resolution, as the case may be, must be attached to
this Lease.
<PAGE> 43
FIRST ADDENDUM TO LEASE
THIS FIRST ADDENDUM TO LEASE ( Addendum ) is made to that Industrial
Space Lease dated as of November 9, 1995 (the Lease ) by and between Renco
Associates, a California partnership (as Landlord ), and Weitek Corporation, a
California corporation (as Tenant ), for the lease of space located at 2801
Orchard Parkway in San Jose, California (the Leased Premises ).
Unless otherwise expressly provided herein, all terms which are given
a special definition by the Lease that are used herein are intended to be used
with the definition given to them by the Lease. The provisions of the Lease
shall remain in full force and effect except as specifically amended hereby.
In the event of any inconsistency between the Lease and this Addendum, the
terms of this Addendum shall prevail.
The paragraphs below are numbered to correspond to the paragraph,
article or exhibit number or letter of the Lease to which they relate. The
parties hereto agree that, notwithstanding anything in the Lease, the Lease is
amended, changed and modified by the following provisions, which are hereby
added to the Lease:
1, 2.1, 2.3, 2.5, 4.7, 4.8, & 4.11. Condition of Premises and
Completion of Tenant Improvements: As of the Lease Commencement Date, except for
punchlist items which do not materially interfere with the use of the Premises
by Tenant, (i) the structural components, electrical, sewer, water, heating,
ventilating, air conditioning, life safety, and fire protection systems, and the
roof of the Building shall be watertight and in good operating condition, order
and repair, (ii) the Project shall comply with all laws, rules, requirements,
and building codes applicable thereto, and (iii) the Tenant Improvements shall
be completed in accordance with Exhibits "B" and "C". Landlord shall correct any
punchlist (which shall be prepared by Landlord and Tenant within thirty (30)
days from the actual Lease Commencement Date) or such longer time as may be
reasonably required to complete the correction. In no event shall the expiration
of the Punchlist Period, Tenant's failure to specify any punchlist item,
Tenant's acceptance of the Premises or actual commencement of the Lease waive
Tenant's right to require compliance with the foregoing.
1.1T. The Base Monthly Rent: The Base Monthly Rent shall be increased
at the end of the thirty fourth (34th) month of the Lease Term by multiplying
the Base Monthly Rent for the thirty fourth (34th) month times a fraction the
numerator of which shall be the Consumer Price Index published immediately prior
to the period including the thirty fourth (34th) month of the Term and the
denominator of which shall be the Consumer Price Index published immediately
prior to the first (1st) month of the Lease Term. In no event, however, shall
the Base Monthly Rent for the thirty fifth (35th) and succeeding months of the
Lease Term be less than the quantity of one and eighty-five thousandths (1.085)
multiplied times the Base Monthly Rent for the first thirty four (34) months of
the Lease Term nor more than one and one hundred ninety eight thousandths
(1.198) multiplied times the Base Monthly Rent for the first thirty four (34)
months of the Lease Term.
<PAGE> 44
The term "Consumer Price Index" shall mean the Consumer Price Index,
All Urban Consumers, Subgroup "All Items", for the San Francisco-Oakland-San
Jose Area (1982-1984=100), now being published by the United States Department
of Labor, Bureau of Labor Statistics. If the Consumer Price Index is changed
so that the base year is altered from that used as of the Lease Commencement
Date, then the Consumer Price Index shall be converted in accordance with the
conversion factor published by the United States Department of Labor, Bureau of
Labor Statistics, to obtain the same result that would have been obtained had
the base year not been changed. If no conversion factor is available, or if
the Consumer Price Index is otherwise changed, revised or discontinued for any
reason, there shall be substituted in lieu thereof and the term "Consumer Price
Index" shall thereafter refer to the most nearly comparable official price
index of the United States Government reasonably designated by Landlord in
order to obtain substantially the same result for any adjustment required by
this Lease as would have been obtained had the original Consumer Price Index
not been changed, revised or discontinued.
2.1 Leased Premises: Tenant acknowledges that a closet on the
second floor contains telephone wiring for the adjacent tenant. Tenant shall
not have access to the closet, and Tenant shall provide access to the closet
for the adjacent tenant during normal business hours and subject to prior
notice.
2.3 & 2.7. Entry Prior to Lease Commencement Date: Provided Lessee
does not adversely affect the construction of the Tenant Improvements, Lessee,
during the construction of the Tenant Improvements and without any obligation
to pay Base Monthly Rent or Additional Rent, may enter the Leased Premises and
the Building for the purpose of fitting-up the Leased Premises for its use,
including, without limitation, installing its equipment, data,
telecommunications and cabling systems, and trade fixtures.
2.5 Acceptance of Possession: The terms of this section regarding
Tenant's Punchlist Period shall be subject to the sections in this Addendum
relating to the Punch List.
2.6. Surrender. Subject to section 4.14E, Tenant's obligation to
surrender the Leased Premises shall be fulfilled if Tenant surrenders
possession of the Leased Premises in the condition existing at the lease
Commencement Date, excepting ordinary wear and tear, acts of God, casualties,
condemnation, and alterations which Tenant may leave on the Leased Premises
pursuant to Section 6.1 of the Lease. Tenant shall perform all work required
to be done inside the Leased Premises and Landlord shall perform (and Tenant
shall reimburse Tenant's Proportionate Share of) any work required to be done
outside the Leased Premises provided that such work is required to be paid for
by Tenant pursuant to section 2.6 or other sections of the Lease.
3.4. and Tenant has received written notice that Base Monthly Rent
and/or Additional Rent are due.
In the event of a billing for Additional Rent that is not concurrent
with a billing for Base Monthly Rent, Landlord shall provide Tenant with the
billing and a notice of delinquency requiring payment within six (6) days from
the delivery to Tenant of a delinquency notice. No late fee shall be charged,
nor shall Tenant be in default under the terms of this Lease unless payment is
not received within the six day period.
<PAGE> 45
4.2 without the prior written consent of Landlord which consent shall
not be unreasonably withheld.
4.4 in an area provided by Landlord
4.6 Signs: Landlord shall permit Tenant to install exterior
signage which is consistent with the design of the Building and which does not
violate the requirements of the City of San Jose or the CC&R's of Orchard Park
relating to such signage.
4.7 of record or provided to Tenant as of the date of this Lease
4.12 & 5.3. Landlord shall not voluntarily cooperate with
governmental agencies in such a manor that materially interferes with the
conduct of Tenant's business or results in an additional cost or expense to
Tenant.
4.14 Environmental: Notwithstanding anything to the contrary in
this Lease, Tenant shall have no liability under any provision of the Lease and
Landlord hereby waives and releases Tenant, its stockholders, officers,
directors, employees, successors, subtenants and assigns from and against all
liabilities, claims, suits, judgments, damages, costs, and expenses (including
attorneys' and experts' fees) arising out of or in connection with
Contamination (as herein defined) (i) present in, on, under or about the
Project as of the Lease Commencement Date, or (ii) which is caused by Landlord,
any other tenant of the Project, or their respective agents, employees,
representatives, contractors, invitees, subtenants or assigns. Although Tenant
shall be liable to the full extent provided in this Lease for any Contamination
caused in, on or about the Project during the Lease Term by Tenant or its
agents, employees, contractors, invitees, permitees, subtenants, and assigns,
all other Contamination in the Common Area shall be deemed a Project
Maintenance Cost. As used herein the term Contamination shall mean the
presence of Hazardous Materials in the soil, air, improvements, groundwater,
surface water or building materials. The foregoing shall survive the
expiration or sooner termination of this Lease.
Removal of Hazardous Materials, whether in the Leased Premises or
elsewhere shall not be a capital repair or improvement and to the extent
payable by Tenant hereunder shall not be subject to the limit on costs to be
paid for by Tenant pursuant to section 13.12C or any other section of this
Addendum.
4.14C. Tenant may use small quantities of office and janitorial
cleaning supplies.
4.14E Tenant's obligation to remove Hazardous Materials upon the
expiration or sooner termination of the Lease Term shall be limited to removal
of Hazardous Materials caused by Tenant, its agents, contractors, invitees,
permitees, employees, contractors, subtenants, and assigns. Tenant shall also
be obligated to pay Tenant's Proportionate Share of Building Operating Expenses
which pursuant to section 4.14 of this Addendum include costs to remove certain
Contamination in the Common Area.
5.1.B & 13.12.C. Landlord's Maintenance. Subject to the Tenant
reimbursement Provisions of this Lease, Landlord shall maintain in good
condition and repair (i) the roof membrane, and utility and HVAC systems
located outside
<PAGE> 46
the demising walls of the Leased Premises, and (ii) the Common Area. Tenant's
obligation to reimburse Landlord for its Proportionate Share of the costs
incurred by Landlord to perform maintenance shall be determined in accordance
with the other provisions of this Lease; provided, however, that Tenant shall
not be required to reimburse Landlord for the cost of structural repairs to the
roof structure, foundation, walls, floors, subflooring or other structural
portions of the Project. This provision shall not apply to normal maintenance
including painting of structural portions of the Project which costs Tenant
shall pay its Proportionate Share. Tenant shall also pay the cost of repairs
or replacement of the water proofing material in accordance with section 13.12
C. This section is subject to the ceiling on the cost of repairs and
replacements contained in the noted section of this Addendum.
6.1 & 6.2 Alterations by Tenant. Notwithstanding anything in this
Section, Tenant may make alterations, modifications, or improvements
("Alterations") to the Leased Premises without obtaining Landlord's prior
approval provided that Tenant complies with all of the following: (i) the
Alterations shall not exceed a total cost of ten thousand dollars ($10,000.00)
in any twelve (12) month period, (ii) Tenant's Alterations shall not remove any
improvements constructed by Landlord, (iii) Tenant's Alterations shall not
effect the structure of the building, and (iv) Tenant shall provide
architectural drawings to Landlord, obtain appropriate governmental approvals
and otherwise comply with the terms of this Lease regarding construction of
improvements. Landlord may elect to require Tenant to remove any Alterations
made by Tenant to the Leased Premises. Upon request at the time Tenant
requests approval of the Alteration, Landlord shall decide whether it will
reserve the right to require such removal of an Alteration and, thereafter,
Landlord shall be bound by its election.
Article 7. If Tenant is a publicly traded corporation, or Tenant is
not a publicly traded corporation but the Lease does not represent
substantially all of the assets of Tenant, then Landlord's consent shall not be
required for any assignment or sublease (i) made in connection with a merger,
consolidation, or other reorganization of Tenant, (ii) made in connection with
a sale of substantially all of the assets of Tenant, or (iii) involving any
corporation which controls, is controlled by, or is under common control with
Tenant. For the purpose of the Lease, if Tenant is a corporation, the sale, or
other transfer of Tenant's capital stock shall not be deemed an assignment,
subletting, or any other transfer of the Lease or the Leased Premises. In the
case of any of the above-described transfers, Tenant shall not be obligated to
pay any assignment consideration or excess rentals to Landlord. The following
costs shall be deducted from (a) all consideration received by Tenant with
respect to an assignment and (b) all consideration received by Tenant in excess
of rent due to Landlord under the Lease for the same period with respect to
subletting, to determine the meaning of the terms "assignment consideration" or
"excess rentals" (i) any commissions paid by Tenant to a licensed real estate
broker for arranging such sublease or assignment (not to exceed then standard
rates); reasonable legal fees; (iii) any costs of retro-fit or restoration
necessary for a subtenant or assignee which work Landlord determines in its
reasonable judgment has continuing value to the Leased Premises.
7.4C. Tenant shall not be in default under Article 12 of this Lease.
8.2. This indemnity shall not apply to Landlord's negligence or
willful misconduct.
<PAGE> 47
12.1.A. Monetary Default: Tenant shall not be deemed to be in default
under this lease for failure to pay Base Monthly Rent and/or Additional Rent
unless Tenant's failure to pay continues for six (6) calendar days after
Tenant's receipt of written notice that the amount is due, nor for any other
failure to pay amounts owing to Landlord unless Tenants failure to Pay
continues for six (6) calendar days after Tenant's receives written notice that
the amount is due. In the event of a billing for additional Rent that is not
concurrent with a billing for Base Monthly Rent, Tenant shall not be in default
unless Tenant has failed to pay the amount of the billing within six (6) days
after Tenants receipt of a delinquency notice stating that Tenant has failed to
pay the amount when first due.
12.1.B & 12.1.C. Nonmonetary Default: Tenant shall not be in default
under Sections 12.1.B or C of the Lease, if Tenant promptly commences to cure
such breach and completes said cure within the shortest reasonable time period.
12.1E Abandonment: Tenant shall not be in default under Section 12.1.E
unless Tenant shall have failed to continuously occupy the Leased Premises for a
period of ten (10) consecutive days and failed to maintain reasonable security
measures with respect to the Leased Premises.
12.2D(2). applicable to the remaining Term of this Lease
13.7. Provided that so long as Tenant is a public corporation,
Tenant shall only be required to provide Landlord with financial information
that is publicly available.
13.12B. Tenant shall not be required to pay the cost of Landlord's
insurance premiums for earth quake and flood insurance coverage to the extent
that the annual insurance for earth quake and flood insurance coverage exceeds
eight (8) times the annual cost of the total of all other insurance premiums
(fire, rental, liability, etc.).
At this time Landlord's insurance policy generally provides for a deductible of
five thousand dollars ($5,000.00) for casualties other than earth quake and
flood and a deductible of ten percent (10%) of replacement cost for earth quake
and flood. In the event that these deductibles more than double, Landlord
shall notify Tenant of the increased deductibles. Nothing in this section
shall alter Landlord's insurance rights, requirements, options or alternatives
as contained in this Lease nor shall Landlord's failure to advise Tenant of the
change in deductible amounts limit Landlord's right to collect any insurance
deductible amount from Tenant.
13.12C. Project Maintenance Costs: The following shall not be included
as Project Maintenance Costs, and Tenant shall not be required to pay for any
repairs, maintenance, costs, expenses of any type in connection with the
following:
(1) restorations and repairs of property
then owned by Landlord following any casualty or
otherwise covered by insurance actually carried by
Landlord (or which would be covered by insurance
Landlord is required to carry), other than the
deductible amount of any insurance carried (or which
should
<PAGE> 48
have been carried by Landlord) with respect to damage
and destruction of the Leased Premises.
(2) items for which Landlord has
received reimbursement from others (such as other
tenants, contractors, warrantors, or insurers).
(3) Landlord's breach of this Lease,
willful misconduct, active negligence or violation of
any law, rule, regulation, or statute.
(4) items fairly attributable only to
other tenant(s) of the Projects including, utility or
service supplied by Landlord to other occupants of
the Project, or costs incurred in connection with
negotiations or disputes with such tenants).
4.7, 4.8, 5.1, 6.3, and 13.12C. The following shall modify sections
4.7, 4.8, 5.1, 6.3, and 13.12C of the Lease:
Capital Repairs and Improvements. If any capital repair or
replacement is needed for the Leased Premises or if any capital improvement to
the Leased Premises is required because of any law, code, rule, or regulation
made applicable to the Leased Premises after the Lease Commencement Date (other
than as a consequence of (i) Tenant's application for any permit or
governmental approval, (ii) Tenant's making any modifications, alterations, or
improvements to or within the Leased Premises, or (iii) as a consequence of
Tenant's peculiar use of the Leased Premises), then, notwithstanding any
provision of this Lease to the contrary, Landlord shall promptly undertake and
complete such capital repair, replacement or improvement and Tenant's liability
for reimbursement to Landlord shall be determined in accordance with the
following:
Tenant shall pay Tenant's Proportionate Share up to fifteen thousand
dollars ($15,000.00) and the balance of the cost, if any, shall be amortized
over the useful life of the capital repair or replacement and Tenant shall pay
the amortized amount together with interest at the annual rate of twelve
percent (12%) per annum. Tenant's amortization payments shall be made on a
monthly basis as Additional Rent, and the payments shall continue as during the
Term of this Lease (including extensions) until the excess cost of the repair
or replacement is amortized.
Notwithstanding anything to the contrary in this Lease, in the event
of any repair or replacement of the roof, parking areas, HVAC, electrical, or
plumbing systems of the Leased Premises, or the Project, which repair or
replacement is customarily considered to be of a capital nature under generally
accepted accounting principals with a life of not less than five (5) years
ahead if Tenants Proportionate Share of the cost for the repair or replacement
is in excess of fifteen thousand dollars ($15,000.00), then, Tenant shall pay
Tenant's Proportionate Share up to fifteen thousand dollars ($15;000.00) and
the balance of the cost, if any, shall be amortized over the useful life of the
repair or replacement and Tenant shall pay the amortized amount together with
interest at the annual rate of twelve percent (12%) per annum. Tenants
amortization payments shall be made on a monthly basis as Additional Rent, and
the payments shall continue as during the Term of this Lease (including
extensions) until the excess cost of the repair or replacement is amortized.
<PAGE> 49
The printed form of the Lease has been amended to delete certain
requirements for Tenant to maintain certain areas outside the Leased Premises
and not under the direct control of Tenant and the requirement for Tenant to
maintain, repair or replace glass inside and outside the Leased Premises. It
is the intent of the parties that Landlord shall perform maintenance outside
the Leased Premises and Landlord shall maintain glass inside and outside the
Leased Premises, but Tenant shall reimburse Landlord for the entire cost or
Tenant's Proportionate Share of the cost (as appropriate) for maintenance,
repair, or replacement of these items. Accordingly, Landlord and Tenant affirm
that, subject to the limits of the preceding paragraph Tenant shall pay the
entire cost (including any insurance deductibles) of repairs and maintenance
for items inside the Leased Premises (including glass items that exclusively
benefit Tenant and Tenant shall pay its Proportionate Share (again subject to
the preceding paragraph) of maintenance, repairs, or replacements of the areas
outside the Leased Premises. In the event that Landlord does not carry
insurance for plate glass, Tenant shall pay the uninsured cost of replacement
of glass both inside the Leased Premises and on the parameter of the Leased
Premises.
15. Letter of Credit: At the time Tenant enters into this Lease,
Tenant shall post an irrevocable commercial letter of credit in the amount of
two hundred fifty thousand dollars ($250,000.00) from a national bank
reasonably acceptable to Landlord in a form acceptable to Landlord in its sole
discretion. The letter of credit shall secure a portion of Tenant's
obligations under the terms of this Lease. Landlord may draw on the letter of
credit in full or in part in the event Tenant defaults under the terms of this
Lease or in the event the term of the letter of credit is less than thirty (30)
days and Tenant has not provided Landlord with a replacement letter of credit
in the same amount with a term of the lesser of one year or the remaining term
of this Lease. In the event of a default by Tenant Landlord shall specify the
estimated monetary amount for the default, and Landlord shall draw that amount
under the letter of credit. The letter of credit will provide for multiple
partial draws. The bank providing the letter of credit shall not question
Landlord's determination of the monetary value for the default. Landlord shall
return the letter of credit to Tenant at such time as all of the following have
occurred: (i) Tenant has reported net after tax income from operations during a
period of eight 8 consecutive quarters with a total of at least six million
dollars ($6,000,000.00), (ii) Tenant has cash and short term investments of not
less than eight million dollars ($8,000,000.00) in total, (iii) Tenant's ratio
of current assets divided by current liabilities is at least two and five
tenths (2.5), (iv) Tenant reports shareholders' equity of at least fifteen
million dollars ($15,000,000.00), (v) Tenant is not in default under the Lease
under Article 12, and (vi) Tenant has not been in default in the payment of
Base Monthly Rent or Additional Rent more than two (2) times in the immediately
preceding twelve (12) month period.
16. Option to Renew: Landlord hereby grants to Tenant one (1)
option to renew the Lease for an additional term of five (5) years (the
"Renewal Term") with the option commencing on the Lease Expiration Date (the
"First Renewal Commencement Date") and ending five (5) years thereafter (the
"First Renewal Expiration Date").
A. The lease of the Leased Premises for the Renewal Term
shall be on the same terms and conditions as set forth in the Lease, except:
<PAGE> 50
1. That the rental for the Leased Premises
during the Renewal Term shall be as set forth below in Paragraph 3, and
2. That the Security Deposit shall be increased
to the rental amount determined in Paragraph 3 (the "Increased Security
Deposit-Amount").
B. Tenant shall notify Landlord of Tenant's exercise of
its right to renew the Lease for the Renewal Term only by giving to Landlord
written notice not sooner than eight (8) months prior to the Renewal
Commencement Date and not later than six (6) months prior to the Renewal
Commencement Date (time is expressly of the essence to Landlord). Any
attempted exercise of this Option made other than within the time period stated
or in the manner stated shall be void and of no force or effect. In the event
that Tenant does not or is not entitled to exercise its option Tenant shall
have no further rights hereunder.
C. If Tenant shall have properly and timely exercised
its right to renew the term of the Lease, the term of the Lease shall be so
extended for the Renewal Term on the same terms and conditions contained in the
Lease; provided, however, the Base Monthly Rent for each month of the Renewal
Term shall be calculated as follows: The new Base Monthly Rent for the Renewal
Term shall be the greater of: (i) the Base Monthly Rent being paid by Tenant to
Landlord during the final full month of the final year of the initial Lease
Term, or (ii) the then Monthly Market Rental Rate for the Leased Premises.
D. The term "Then Monthly Market Rental Rate" shall be
determined by mutual agreement between Landlord and Tenant or, in the event
such agreement cannot be made within twenty (20) days from the date Tenant
shall have exercised this option, Landlord and Tenant shall each notify the
other of the appointment of a real estate appraiser with at least five (5)
years full-time commercial industrial appraisal experience in Santa Clara
County to appraise and determine the fair market monthly rental rate for the
Leased Premises, in their then existing condition for the use specified in the
Lease, to a qualified tenant ready, willing and able to lease the Leased
Premises for a term-equal to the Renewal Term.
In determining the Then Monthly Market Rental Rate, the parties shall
include any adjustments in monthly rental amounts then customary in the market
place and shall exclude from the opinion of rent the value of interior
improvements paid for and constructed by Tenant. The parties shall also take
into consideration any amounts then being paid by Tenant to amortize any
capital improvements performed by Landlord during the initial term of the
Lease.
If either party does not appoint an appraiser within twenty (20)
days after the other party has given notice of the name of its appraiser, the
other party can then apply to the President of the Santa Clara County Real
Estate Board or the presiding Judge of the Superior Court of that County for
the selection of a second appraiser who meets the qualifications stated above.
The failing party shall bear the cost of appointing the second appraiser and of
paying the second appraiser's fee. The two appraisers shall attempt to
establish the Then Monthly Market Rental Rate for the Leased Premises. If the
two appraisers are unable to agree on the Then Monthly Market Rental Rate for
the Leased Premises within twenty (20) days after the second appraiser has been
selected or appointed, then the two appraisers shall attempt to select a third
appraiser meeting the
<PAGE> 51
qualifications stated above. If they fail to agree on a third appraiser,
either party can follow the above procedure for having an appraiser appointed
by the Real Estate Board or a judiciary. 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. Unless the three appraisers are able to agree on the
Then Monthly Market Rental Rate for the Leased Premises within twenty (20) days
after the selection or appointment of the third appraiser, the two appraisal
amounts being calculated most closely together, after having discarded the
appraisal amount which most greatly varies from the other two appraisal
amounts, shall be added together then divided by two (2). The resulting rental
amount shall be defined as the Then Monthly Market Rental Rate for the Leased
Premises. In no event, however, shall the resulting Then Monthly Market Rental
Rate for the Renewal Term be less than the Base Monthly Rent paid during the
final full month of the initial Lease Term.
18. Right of First Refusal: Provided that Tenant is not in default
of the terms of this Lease pursuant to Article 12, then in the event that
during the Term of this Lease, or any extension period hereof, any of the
Building not leased to Tenant, should become available for lease, Landlord
thereby agrees to provide written notice thereof to Tenant, and Tenant shall
have a right of first refusal on such premises. Landlord shall give to Tenant
written notice of the terms upon which Landlord intends to lease the space to
another tenant. Tenant shall have seven (7) days from the date of said notice
to accept or reject Landlord's offer and, should Tenant fail to respond within
such period of time or refuse to lease the space, said offer shall be deemed
rejected. Upon rejection of Landlord's offer, expressly or by lapse of the
seven (7) day period, Landlord may proceed to rent said space to a third party
on terms not more favorable to the tenant than those offered to Tenant. In the
event Tenant accepts Landlord's offer, Tenant shall enter into a lease on the
terms contained in Landlord's offer and the other terms and conditions of this
Lease not inconsistent with said offered terms.
Exhibit C. If the Leased Premises are damaged or destroyed after
execution of this Lease but prior to the Lease Commencement Date, and if in the
reasonable opinion of Landlord's architect the Leased Premises cannot be
restored to the condition existing immediately prior to the destructive event
within nine (9) months following the Destructive event, Tenant may terminate
this Lease and Landlord shall pay to Tenant all sums previously paid by Tenant,
including without limitation, all amounts paid to Landlord for the construction
of the Tenant Improvements, provided, however, that Landlord shall retain any
amounts paid to a real estate broker for this transaction. The Tenant
Improvements shall be constructed in accordance with all Laws and the plan
attached hereto as Exhibit "B". Upon completion, the Tenant Improvements shall
comply with the approved plans therefore. Landlord shall use all reasonable
efforts to substantially complete the Tenant Improvements as soon as reasonably
possible.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First
Addendum To Lease with the intent, to be legally bound thereby, to be effective
as of the date the second party signs this First Addendum To Lease.
AS LANDLORD AS TENANT
Renco Associates Weitek Corporation
a California partnership a California corporation
<PAGE> 52
By: By:
Title: Partner Title:
By: Date:
Title: Partner
Dated:
<PAGE> 53
EXHIBIT "C"
TENANT IMPROVEMENT AGREEMENT
INTERIOR ALLOWANCE
Design and Construction of Improvements in and about the Leased
Premises ("Tenant Improvements ): Landlord agrees to construct within, under,
and above the building housing the Leased Promises certain "Tenant Improvements"
(or "Interior Improvements) as described in Exhibit "B" and as set forth in this
Exhibit "C" in accordance with the schedule described herein. The Tenant
Improvements shall be similar in type and quality to the general purpose
interior improvements previously installed by Landlord in the building. Landlord
shall install interior finishes including carpet, paint, tile, acoustical tile
ceiling, floor and wall cover, doors and hardware all with a quality and color
similar to those previously installed in the building. Subject to Landlord's
reasonable approval Tenant shall have the flexibility to design a floor plan
that suits Tenant's needs so long as Tenant's plan preserves the general purpose
nature of the building.
The term "general purpose improvements" is intended to mean those
improvements (and, the configuration of such improvements) that can be used by
a majority of users who have or are likely to locate in Landlord's building and
includes all the Tenant Improvements specifically shown on Exhibit B attached
hereto. Special purpose improvements include but are not limited to the
following: raised computer floors, compressed air systems, gas or liquid
distribution systems, haylon fire extinguishing systems, excess or redundant
HVAC equipment or distribution systems, flammable or solvent storage or waste
systems, special electrical systems (anything other than duplex plugs on office
walls), lighting levels in excess of Title 24 limitations, redundant or backup
electrical power, telephone systems, alarm systems, public address systems,
fire sprinkler monitoring equipment, computer cabling, burn in rooms, sound
insulated rooms, plumbing other than for domestic use, special cabinetry, clean
rooms, window covering, moveable partitions, equipment used in eating or food
handling facilities, materials (or the arrangement of materials) that are
unique to one segment of users (such as semiconductor manufacturers), the
connection of Tenant's equipment to building HVAC, electric, or plumbing
systems ("fit up"), and the like. Subject to Landlord's approval, Tenant at
its sole cost and expense shall install all required improvements and fixtures
to provide for any Hazardous Materials.
Landlord shall pay for the cost of general purpose Tenant improvements
up to a maximum of three hundred thousand dollars ($300,000.00), the
"Allowance". The Allowance shall have two components. An amount not to exceed
two hundred forty thousand dollars ($240,000.00) may be used for general
purpose interior improvements An amount not to exceed sixty thousand dollars
($60,000.00) may be used to construct a new entry at the front (east) side of
the building. If Tenant elects not to have Landlord construct an entrance on
the east side of the building, Landlord will make available a total of ten
thousand dollars ($10,000.00) from the component of the Allowance for the entry
to construct alterations to the existing entry on the south side of the
building. In no event shall Landlord be required to spend more than two
hundred forty thousand dollars ($240,00.00) for the cost of interior
improvements nor more than sixty thousand dollars ($60,000.00) for an entry on
the east side, nor more than ten thousand dollars ($10,000.00) for an entry on
the south side of the building. Landlord
<PAGE> 54
shall not be required to construct both a new entry on the east and remodel the
existing entry on the south side. The allowance for the cost of construction
of interior improvements shall also be used to pay the cost to split the
building for use by two tenants which costs shall include the cost of a
demising wall, and the cost to separately meter gas and electric service and
the cost to split the existing HVAC and electrical systems for use by two
tenants.
Tenant agrees to pay the entire cost of Tenant Improvements in excess
of the Allowance. In the event that the actual cost of construction of
Interior Improvements is less than the Allowance, the Base Monthly Rent payable
by Tenant shall be reduced by an amount equal to eight tenths of one percent
(0.8%) times the amount of the difference between the amount of the Allowance
and the amount actually spent by Landlord.
After the adjustment to Base Monthly Rent becomes ascertainable,
Landlord and Tenant shall specify the same in writing by attaching an amendment
to this Lease. In the event the cost of any Tenant Improvements approved by
Tenant in accordance with this Agreement exceeds the Allowance as provided
above, Tenant shall pay such excess amount within five (5) days of receipt of a
written statement from Landlord therefore. Landlord may require Tenant to pay
such excess amount prior to, and as a condition of, the commencement of
construction of the improvements. If at any time during the design or
construction of Tenant Improvements Tenant requests changes in the scope of
Tenant Improvements which changes increase the cost of the work above what
Landlord has agreed to spend, then Tenant shall pay to Landlord Tenant's share
of the cost of improvements above the Allowance, and Tenant shall pay the
amount due within five (5) days from receipt of a written statement from
Landlord. All amounts due from Tenant as provided herein shall be considered
as "rent" and all amounts due shall be subject to the terms of the Lease. In
the event that Tenant fails to make any payment within the required time
period, Tenant shall pay interest and late charges on the delinquent amount in
accordance with Section 3 of the Lease. In addition, should any amounts not be
paid when due, Landlord may suspend the construction of Interior Improvements
until said amounts have been paid. Each day that Tenant is late in its
payments as provided herein shall be a Delay Day.
(a) Tenant's Schematic Plan: Landlord's architect has
prepared a Schematic Plan for construction of the improvements which plan is
approved by Landlord and Tenant and is attached hereto as Exhibit "B".
(b) Construction Drawings for the Tenant Improvements
("Construction Drawings"): Landlord's Architect shall prepare Construction
Drawings based on the approved Schematic Plan and deliver to Tenant the
Construction Drawings which reflect the requirements of the approved Schematic
Plan. Within five (5) days from receipt of the Construction Drawings, Tenant
shall review the Construction Drawings and deliver any proposed changes to
Landlord. If Tenant does not deliver to Landlord any proposed changes to the
Construction Drawings within such five (5) day period, Tenant shall be deemed
to have approved the Construction Drawings as submitted. If Tenant does
deliver to Landlord any proposed changes to the Construction Drawings within
such five (5) day period, the parties shall thereupon endeavor to agree upon
the changes to be made to the Construction Drawings. When Landlord and Tenant
agree upon the Construction Drawings, a representative of each party shall sign
the same. Any changes in the Construction Drawings shall only be made pursuant
to the provisions of subsection (d) of this Exhibit "C". If the parties are
unable to agree
<PAGE> 55
upon the Construction Drawings within five (5) days after Tenant delivers its
proposed changes to Landlord, Landlord may terminate this Lease, and upon
termination Landlord shall refund to Tenant all amounts previously paid to
Landlord (except such amounts that the parties have elsewhere agreed are
non-refundable for other reasons) after first deducting therefrom Landlord's
costs for brokerage commissions, legal fees, architect's fees, and other third
party costs in connection with the preparation of the Lease, the design and/or
construction of Tenant Improvements, and other costs related to the transaction
with Tenant. In the event that Tenant's deposits are not sufficient to pay
Landlord's actual third party costs, Tenant shall pay to Landlord the amount by
which Tenant's deposits are not sufficient to cover Landlord's third party
costs. Notwithstanding anything above to the contrary, each party agrees to
approve the Construction Drawings to the extent that they are prepared in
accordance with the Approved Schematic Plan.
(c) Time for Construction of Tenant Improvements:
Promptly following approval of the Construction Drawings by Landlord and
Tenant, Landlord shall apply for and use its best efforts to obtain the
necessary building permits to allow the construction of the Tenant
Improvements. Promptly following the issuance of the necessary building
permits, Landlord shall commence construction of the Tenant Improvements and
shall use its best efforts to complete the improvements within thirty (30) days
following the issuance of the necessary building permits; provided , however,
that Landlord shall be excused for a delay in the completion of construction of
the Tenant Improvements for such period of time as construction is delayed
because of any fault or neglect of Tenant, because of changes requested by
Tenant, because of any law, regulation, ordinance, or order of any public
agency, or because of acts of God, labor disputes, strikes, inability to obtain
materials or labor, fires, floods, inclement weather, earthquakes, epidemics,
quarantine, restrictions, freight embargoes, acts of public agencies, or other
causes or contingencies beyond the control of Landlord.
(d) Changes, Delays: The design and construction process
specified above is intended to assist Tenant in the definition of its
improvements so that the drawings can be completed as quickly as possible and,
once the drawings are complete, the work may progress without interruption and
be completed and ready for occupancy by Tenant at the soonest possible date.
Despite the best efforts of both parties, Landlord recognizes that Tenant, for
its own reasons, may want to delay providing its Conceptual Plan, alter or
delay the approval of the Schematic Plan or the Construction Drawings, or
otherwise delay the design, approval, construction, and/or completion of the
Tenant Improvements. Landlord and Tenant agree on the need to establish a
procedure to make such changes or permit such delays so that Tenant may obtain
the improvements it desires and Landlord may be compensated for the cost it
incurs either through delays or as the result of additional costs incurred
because of changes required by Tenant. In consideration of the above, Landlord
and Tenant agree as follows:
If Tenant falls to pay funds due pursuant to the terms of this
Exhibit, fails to deliver Tenant's Conceptual Plan (or any other information
requested by Landlord) by the date specified above (or if no date is specified
then within five (5) days following request by Landlord), or fails to approve
the Schematic Plan or the Construction Drawings within the time provided for
such approval, or otherwise delays the construction of the Tenant Improvements,
then Tenant shall be charged a Delay Day (as defined below) for each day that
the payment, design,
<PAGE> 56
construction, approval, or completion of Tenant Improvements is so delayed or
postponed. If Tenant after its initial approval of Construction Drawings
delivers any proposed change to the Construction Drawings which in Landlord's
reasonable judgment would delay completion of construction of the Tenant
Improvements as indicated in the Construction Drawings prepared by Landlord's
Architect, Landlord may require Tenant, at Tenant's election, to either (a)
agree to accept a Delay Day for each day that Landlord reasonably believes that
the design, approval, construction, or completion of the improvements shall be
delayed, or (b) delete such proposed change. If Tenant fails to deliver its
written agreement pursuant to (1) above within two (2) days after Landlord
notifies Tenant of the fact that such proposed change will result in a delay in
construction, Tenant shall be deemed to have elected to delete the proposed
change.
Tenant shall be solely responsible for the design, approval, and
payment of the costs of construction of any and all work, fixtures, or
materials required for Tenant's transportation, storage, use, and disposal of
Hazardous Materials, which Hazardous Materials shall only enter the Property or
any portion thereof pursuant to the terms of the Lease. Tenant shall also be
solely responsible for the design, approval, and payment of the costs of
construction for any and all work, fixtures, or materials required for the
handling, service, or provision of food on the Premises and the monitoring of
the fire sprinkler system serving the Premises. Landlord's work is limited to
the construction of building components as shown on Construction Drawings
approved by Landlord and Tenant. Landlord's work (and the funds that Landlord
has agreed to spend) specifically exclude any and all fees charged by
governmental agencies for Tenants use of Hazardous Materials or Tenants service
of food which fees include but are not limited to: sewer or sanitary district
fees, health department fees, air quality fees, excess water usage fees, and
the like. Any and all such fees shall be paid by Tenant to the appropriate
governmental agency. In the event that the design, approval, construction, or
completion of any work to be performed by Landlord is delayed directly or
indirectly for any reason as a result of (i) Tenant's use of Hazardous
Materials, (ii) Tenant's handling or intention to handle food or provide food
service, or (iii) Tenant's failure to provide a fire sprinkler monitoring
system that satisfies governmental regulations, then Tenant shall be charged a
Delay Day for each and every day that the specification, design, approval,
construction, or completion of Landlord's work is delayed.
(e) Delay Days Defined: A Delay Day is each and every
single day that Tenant is late in providing any funds required pursuant to the
terms of this Exhibit, or providing any information requested by Landlord or
required to be provided to Landlord by the terms of this Exhibit. Where no
time or date is specified for any information requested of Tenant by Landlord,
then the required time period shall be five (5) days from Landlord's request
for information. A Delay Day shall also be each and every day that Tenant
through its actions, interference, or otherwise delays the approval,
specification, design, construction, or completion of Interior Improvements.
For the purposes of this section, any information requested of Tenant by any of
Landlord's consultants, contractors, subcontractors, architects, or agents
shall be the same as if it were requested directly by Landlord. The sum of all
such Delay Days shall be the "Total Delay Days".
(f) Acceleration of Lease Commencement Date: The Lease
Commencement Date shall be accelerated by one (1) day for each and every Tenant
<PAGE> 57
caused Delay Day so that Landlord shall cause the Base Monthly Rent and
Additional Rent to commence prior to the completion of construction of the
Tenant Improvements. The Lease Commencement Date shall occur on that date
which precedes the date that the Leased Premises are actually Ready for
Occupancy by the Total Delay Days.
(g) Cost of Tenant Improvements: As used in the Lease
and the Lease Exhibits, the "Cost of Tenant Improvements" shall include all
costs paid or incurred by Landlord in connection with the design, approval,
and/or construction of the Tenant Improvements (or any improvements) as shown
on the Construction Drawings (as they may be amended), including but not
limited to:
(1) The fees of architects, engineers,
consultants, utility companies, or governmental agencies for the design,
supervision, construction or approval of improvements or alterations to the
basic Building, which improvements or alterations are requested by Tenant or
required by Tenant's use,
(2) The costs and charges by Landlord's general
contractor, subcontractors, material suppliers, labors, and employees who
provide goods and services for the actual construction of Tenant's Improvements
or Building alterations requested or required by Tenant for its use of the
Leased Premises. In the event that Landlord (or an affiliate of Landlord) acts
as a general contractor or subcontractor, Landlord may charge all of its direct
costs as well as a construction management fee, profit, and/or overhead, which
charge shall equal eight percent (8%) times the total cost of the work.
(3) Direct costs of procuring and installing the
improvements or items required for Tenant's use of the Leased Premises
including, but not limited to: building permits (but excluding the cost of the
"shell" building permit), inspections, filings, taxes, governmental fees; any
installation, connection or service fees required to provide utility service to
the Building or into the Leased Premises (such costs to be prorated where
required based on Tenant's floor area), the cost of utility service or security
service, or any service or material provided to the Building during the
construction of Tenant Improvements,
(4) Costs of cleaning the Building during the
course of construction of the improvements,
(5) Costs of performance or payment bond
premiums,
(6) All other costs and expenses incurred by
Landlord in connection with such construction.
EXHIBIT D
ACCEPTANCE AGREEMENT
This Acceptance Agreement is made as of _______, 1994, by and between
the parties hereto with regard to that Lease dated __________, 1994, by and
between ___________, a California general partnership, as Landlord
<PAGE> 58
("Landlord"), and ____________, a _________ corporation, as Tenant ("Tenant"),
affecting those premises commonly known as __________, located at ___________
in the City of __________, State of California ("the Premises"). The parties
agree as follows:
1. All improvements required to be constructed by Landlord by the
Lease have been completed in accordance with the terms of the Lease and are
hereby accepted by Tenant, subject to the completion of punchlist items
identified on Exhibit A attached hereto.
2. Possession of the Premises has been delivered to Tenant and
Tenant has accepted and taken possession of the Premises.
3. The Lease Commencement Date is ________, 1994.
4. The Lease Term shall expire on ________, 19__, unless sooner
terminated according to the terms of the Lease or by mutual agreement.
5. The Base Monthly Rent due pursuant to the Lease is as follows:
___________ thru __________ __________
___________ thru __________ __________
___________ thru __________ __________
6. Landlord has received a Security Deposit in the amount of
______ Dollars ($___________).
7. Landlord has received Prepaid Rent in the amount of _______
Dollars ($___________), which shall be applied to the first installment(s) of
Base Monthly Rent.
8. The Lease is in full force and effect, neither party is in
default of its obligations under the Lease, and Tenant has no setoffs, claims,
or defenses to the enforcement of the Lease.
AS LANDLORD: AS TENANT:
a California general partnership a __________ corporation
By: By:
Title: General Partner Title:
<PAGE> 59
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment") dated for reference
purposes as of February 5, 1996 is made to that Industrial Space Lease dated as
of November 9, 1995, (the "Lease") by and between Weitek Corporation, a
California Corporation as ("Tenant"), and Renco Associates, a California
general partnership as ("Landlord"), for the lease of space located at 2801
Orchard Parkway in San Jose, California (the "Leased Promises"). The parties
hereto agree that the Lease is amended, changed and modified by the following
provisions, which are hereby added to the Lease:
Unless otherwise expressly provided herein, all terms which are given
a special definition by the Lease that are used herein are intended to be used
with the definition given to them by the Lease. The provisions of the Lease
shall remain in full force and effect except as specifically amended hereby.
In the event of any inconsistency between the Lease and this Amendment, the
terms of this Amendment shall prevail.
1.1 E Lease Commencement Date: The Actual Lease Commencement Date is January
22, 1996.
1.1 T. Base Monthly Rent: As a result of cost savings in the construction of
interior improvements the Base Monthly Rent is hereby reduced by the
amount of $156.00 per month for each month or the Lease Term. The
Base Monthly Rent shall be as follows:
Thirty-two thousand nine hundred fifty-six dollars and no cents
($32,956.00) for each of the first thirty four (34) months of the
Lease Term. Pursuant to the terms of the Lease, the Base Monthly Rent
shall be increased pursuant to section 1.lT of the Addendum at the end
of the thirty fourth (34th) month of the Lease Term.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First
Amendment To Lease with the intent to be legally bound thereby, to be
effective as of the date the second party signs this First Amendment
To Lease.
AS LANDLORD: AS TENANT:
Renco Associates Weitek Corporation
a California general partnership a California corporation
By: By:
Title: General Partner Title:
By: By:
Title: Title:
Dated: February 13, 1996 Dated: February 7, 1996
<PAGE> 1
EXHIBIT 10.7
BUSINESS LOAN AGREEMENT
Borrower: Weitek Corporation Lender: Silicon Valley Bank
1060 East Arques Ave. 3003 Tasman Drive
Sunnyvale, CA 94086 Santa Clara, CA 95054
THIS BUSINESS LOAN AGREEMENT between WEITEK CORPORATION ("Borrower")
and Silicon Valley Bank ("Lender") is made and executed on the following terms
and conditions. Borrower has received prior commercial loans from Lender or
has applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations
from Lender to Borrower, are referred to in this Agreement individually as the
"Loan" and collectively as the "Loans." Borrower understands and agrees that:
(a) in granting, renewing, or extending any Loan, Lender is relying upon
Borrower's representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Lender at
all times shall be subject to Lender's sole judgment and discretion; and (c)
all such Loans shall be and shall remain subject to the following terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of December 6, 1995, and
shall continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings
when used in this Agreement. Terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Uniform Commercial
Code. All references to dollar amounts shall mean amounts in lawful money of
the United States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement as
this Business Loan Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this
Business Loan Agreement from time to time.
BORROWER. The word "Borrower" means WEITEK CORPORATION. The word
"Borrower" also includes, as applicable, all subsidiaries and
affiliates of Borrower as provided below in the paragraph titled
"Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
COLLATERAL. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security for
a Loan, whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted
in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien
or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
COMMITTED LINE. The words "Committed Line" shall mean Three Million
and 00/100 Dollars ($3,000,000.00).
<PAGE> 2
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended. EVENT OF DEFAULT. The words "Event of
Default" mean and include without limitation any of the Events of
Default set forth below in the section titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation
each and all of the persons or entities granting a Security Interest
in any Collateral for the Indebtedness, including without limitation
all Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well
as all claims by Lender against Borrower, or any one or more of them;
whether now or hereafter existing, voluntary or involuntary, due or
not due, absolute or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others; whether
Borrower may be obligated as a guarantor, surety, or otherwise;
whether recovery upon such Indebtedness may be or hereafter may become
barred by any statute of limitations; and whether such Indebtedness
may be or hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means Silicon Valley Bank, its successors
and assigns.
LINE OF CREDIT. The words "Line of Credit" shall mean and refer to
that certain Promissory Note of even date herewith, in the original
principal amount of Three Million and 00/100 Dollars ($3,000,000.00),
together with all renewals of, modifications of, extensions of, and
substitutions thereof.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand
plus Borrower's receivables.
LOAN. The word "Loan" or "Loans" means and includes without
limitation any and all commercial loans and financial accommodations
from Lender to Borrower, whether now or hereafter existing, and
however evidenced, including without limitation those loans and
financial accommodations described herein or described on an exhibit
or schedule attached to this Agreement from time to time.
MATURITY DATE. The words "Maturity Date" shall mean December 5, 1996,
or as set forth in the Line of Credit.
NOTE. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing Borrower's
Loan obligations in favor of Lender, as well as any substitute,
replacement or refinancing note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender:
(b) liens for taxes, assessments, or similar charges either not yet
due or being contested in good faith; (c) liens of materialmen,
mechanics, warehousemen, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (d) purchase money liens; (e) purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement title "Indebtedness and Liens"; (e) liens and
security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; (f) those liens
and security interests which in the aggregate constitute an immaterial
and insignificant monetary amount with respect to the net value of
Borrower's assets or (g) equipment leases to a maximum of $500,000.00.
<PAGE> 3
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing, representing, or creating a
Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the
form of a lien, charge, mortgage, deed of trust, assignment, pledge,
chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien or title retention contract,
lease or consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law,
contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness
and liabilities of Borrower which have been subordinated by written
agreement to indebtedness owed by Borrower to Lender in form and
substance acceptable to Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's
total assets excluding all intangible assets (i.e., goodwill,
trademarks, patents, copyrights, organizational expenses, and similar
intangible items, but including leaseholds and leasehold improvements)
less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current
liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b)
Security Agreements granting to Lender security interests in the
Collateral, (c) Financing Statements perfecting Lender's Security
Interests; (d) evidence of insurance as required below; and (e) any
other documents required under this Agreement or by Lender or its
counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties
set forth in this Agreement, in the Related Documents, and in any
document or certificate delivered to Lender under this Agreement are
true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance
a condition which would constitute an Event of Default under this
Agreement.
<PAGE> 4
CONDITION PRECEDENT TO ALL ADVANCES. The obligation of Lender to make each
Advance, including the initial Advance, is further subject to the following
conditions:
Borrower's execution of Lender's Commercial Finance Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
California and is validly existing and in good standing in all states
in which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in
which it is presently engaged or presently proposes to engage.
Borrower also is duly qualified as a foreign corporation and is in
good standing in all states in which the failure to so qualify would
have a material adverse effect on its business or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly
authorized by all necessary action by Borrower, do not require the
consent or approval of any other person, regulatory authority or
governmental body; and do not conflict with, result in a violation of,
or constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Borrower or (b) any law, government
regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied
to Lender truly and completely disclosed Borrower's financial
condition as of the date of the statement, and there has been no
material adverse change in Borrower's financial condition subsequent
to the date of the most recent financial statement supplied to Lender.
Borrower has no material contingent obligations except as disclosed in
such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective
terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender
and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable, Borrower owns and has good title to all
of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are titled
in Borrower's legal name, and Borrower has not used, or filed a
financing statement under, any other name for at least the last five
(5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used
in this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 49 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of
Division 20 of the California Health and Safety Code, Section 25100,
et seq., or other applicable state or Federal laws, rules, or
regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's
ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or substance by any person on, under,
about or from any of the properties. (b) Borrower has no knowledge
of, or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened
release of any hazardous waste or substance on, under, about or from
the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower
nor any tenant, contractor, agent or other authorized user of any of
the properties shall use, generate, manufacture, store, treat dispose
of, or release any hazardous waste or
<PAGE> 5
substance on, under, about or from any of the properties; and any such
activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, or ordinances, including without
limitation those laws, regulations and ordinances described above.
Borrower authorizes Lender and its agents to enter upon the properties
to make such inspections and tests as Lender may deem appropriate to
determine compliance of the properties with this of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and
for Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are
based on Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower hereby (a) releases
and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section of
the Agreement or as a consequence of any use, generation, manufacture,
storage, disposal, release or threatened release occurring prior to
Borrower's ownership or interest in the properties, whether or not the
same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or
expiration of this Agreement and shall not be affected by Lender's
acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no other
event has occurred which may materially adversely affect Borrower's
financial condition or properties other than litigation, claims, or
other events, if any, that have been disclosed to and acknowledged by
Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and
reports of Borrower that are or were required to be filed, have been
filed, and all taxes, assessments and other governmental charges have
been paid in full, except those presently being or to be contested by
Borrower in good faith in the ordinary course of business and for
which adequate reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreement, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
and all of the Related Documents are binding upon Borrower as well as
upon Borrower's successors, representatives and assigns, and are
legally enforceable in accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which
Borrower may have any liability complies in all material respects with
all applicable requirements of law and regulations, and (i) no
Reportable Event nor Prohibited Transaction (as defined in ERISA) has
occurred with respect to any such plan, (ii) Borrower has not
withdrawn from any such plan or initiated steps to do so, and (iii) no
steps have been taken to terminate any such plan.
INVESTMENT COMPANY ACT. Borrower is not an "investment company" or a
company "controlled" by an "investment company", within the meaning of
the Investment Company Act of 1940, as amended.
<PAGE> 6
PUBLIC UTILITY HOLDING COMPANY ACT. Borrower is not a "holding
company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company", within the meaning of the Public Utility Holding
Company Act of 1935, as amended. REGULATIONS G, T AND U. Borrower is
not engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the
Board of Governors of the Federal Reserve System).
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more
than one place of business, is located at 1060 East Arques Avenue,
Sunnyvale, CA 94086. Unless Borrower has designated otherwise in
writing this location is also the office or offices where Borrower
keeps its records concerning the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
CLAIMS AND DEFENSES. There are no defenses or counterclaims, offsets
or other adverse claims, demands or actions of any kind, personal or
otherwise, that Borrower, Grantor, or any Guarantor could assert with
respect to the Note, Loan, Indebtedness, this Agreement, or the
Related Documents.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations
and warranties shall be continuing in nature and shall remain in full
force and effect until such time as Borrower's Indebtedness shall be
paid in full, or until this Agreement shall be terminated in the
manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Prompt inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition and (b) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor
which could materially affect the financial condition of Borrower or
the financial condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent
basis, and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall deliver
to Lender: (a) as soon as available, but in any event within twenty
(20) days after the end of each month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated
operations during such period, certified by an officer of Borrower
reasonably acceptable to Lender; (b) as soon as available, but in any
event within ninety (90) days after the end of Borrower's fiscal year,
audited consolidated financial statements of Borrower prepared in
accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an independent
certified public accounting firm reasonably acceptable to Lender; (c)
within five (5) days of filing, copies of all statements, reports and
notices sent or made available generally by Borrower to its security
holders or to any holders of Subordinated Debt and all reports on Form
10- K, 10-Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any legal
actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of
<PAGE> 7
One Hundred Thousand Dollars ($100,000) or more; and (e) such budgets, sales
projections, operating plans or other financial information as Lender may
reasonably request from time to time.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE; AUDIT. Provide to Lender
not later than twenty (20) days after and as of the end of each month,
with a Borrowing Base Certificate and aged lists of accounts
receivable and accounts payable. In the event there are no
outstandings under the Line of Credit, Borrower shall provide such
borrowing base and agings within twenty (20) days after the end of
each quarter. Lender shall perform a collateral audit prior to any
borrowings under the Note. Thereafter, such audits shall be performed
semi-annual basis while Borrower is borrowing and on an annual basis
if Borrower is not borrowing. Borrower's deposit account will be
debited for the audit expense and a notification will be mailed to
Borrower.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide
Lender monthly, within twenty (20) days, and at the time of each
disbursement of Loan proceeds with a certificate executed by
Borrower's chief financial officer, or other officer or person
acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of
the certificate, no Event of Default exists under this Agreement.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:
Following the attainment of profitability, and in any event no later
than the period ended June 30, 1996, Borrower shall maintain on a
monthly basis, a minimum quick ratio of .75 to 1.00; minimum tangible
net worth of $4,000,000.00, plus 75% of net income with no deduction
for losses plus 100% of new equity; and a maximum total debt to
tangible net worth ratio of 1.80 to 1.00. Furthermore, Borrower shall
achieve profitability on a quarterly basis; provided, however,
Borrower may incur losses, provided such losses shall not exceed
$1,750,000.00 for the quarter ending December 31, 1995 and
$1,100.000.00 for the quarter ending March 31, 1996. Until such time
as the Borrower reaches profitability, Borrower shall maintain, on a
quarterly basis, a minimum liquidity covenant $4,000,000.00, to be
measured as either: (i) cash plus 50% of gross accounts receivable
less any outstandings under the Line of Credit (excluding outstanding
letters of credit) or (ii) cash plus 80% of eligible accounts
receivable less outstandings under the Line of Credit (excluding
letters of credit). The calculation of the liquidity covenant shall
be determined by Borrower using the foregoing formulas.
Except as provided above, all computations made to determine
compliance with the requirements contained in this paragraph shall be
made in accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as being true
and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender.
Borrower, upon request of Lender, will deliver to Lender from time to
time the policies or certificates of insurance in form satisfactory to
Lender, including stipulations that coverages will not be canceled or
diminished without at least ten (10) days' prior written notice to
Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Borrower or any other person.
In connection with all policies covering assets in which Lender holds
or is offered a security interest for the Loans, Borrower will provide
Lender with such loss payable or other endorsements as Lender may
require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the properties insured; (e) the
<PAGE> 8
then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (f)
the expiration date of the policy. In addition, upon request of
Lender (however not more often than annually), Borrower will have an
independent appraiser satisfactory to Lender determine, as applicable,
the actual cash value or replacement cost of any Collateral. The cost
of such appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and
any other party and notify Lender immediately in writing of any
default in connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income or profits. Provided however,
Borrower will not be required to pay and discharge any such
assessment, tax, charge, levy, lien or claim so long as (a) the
legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books
adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish
to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written
statement of any assessments, taxes, charges, levies, liens and claims
against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender
of any change in executive and management personnel; conduct its
business affairs in a reasonable and prudent manner and in compliance
with all applicable federal, state and municipal laws, ordinances,
rules and regulations respecting its properties, charters, businesses
and operations, including without limitation, compliance with the
Americans With Disabilities Act and with all minimum funding standards
and other requirements of ERISA and other laws applicable to
Borrower's employee benefit plans.
ENVIRONMENTAL STUDIES. Promptly conduct and complete, at Borrower's
expense, all such investigations, studies, samplings and testing as
may be requested by Lender or any governmental authority relative to
any substance defined as toxic or a hazardous substance under any
applicable federal, state, or local law, rule, regulation, order or
directive, or any waste or by-product thereof, at or affecting any
property or any facility owned, leased or used by Borrower.
INSPECTION. Permit employees or agents of Lender at any reasonable
time to inspect any and all Collateral for the Loan or Loans and
Borrower's other properties and to examine or audit Borrower's books,
accounts, and records and to make copies and memoranda of Borrower's
books, accounts, and records. If Borrower now or at any time
hereafter maintains any records (including without limitation computer
generated records and computer software programs for the generation of
such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free
access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
<PAGE> 9
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital lease (other than Permitted Liens), (b)
except as allowed as a Permitted Lien, sell, transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any
of Borrower's assets, or (c) sell with recourse any of Borrower's
accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrower's stock (other than
dividends payable in its stock), provided, however that
notwithstanding the foregoing, but only so long as no Event of Default
has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in
the Internal Revenue Code of 1986, as amended), Borrower may pay cash
dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their ownership
of shares of stock of Borrower, or (d) purchase or retire any of
Borrower's outstanding shares or alter or amend Borrower's capital
structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement
or any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender, (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor claims or otherwise attempts
to limit, modify or revoke such Guarantor's guaranty of the Loan or any other
loan with Lender.
LOAN ADVANCES. Lender, in its discretion, will make loans to Borrower, in
amounts determined by Lender, up to the amounts as defined and permitted in
this Agreement and the Related Documents, including, but not limited to, any
Promissory Notes, executed by Borrower (the "Credit Limit"). Borrower is
responsible for monitoring the total amount of Loans and Indebtedness
outstanding from time to time, and Borrower shall not permit the same, at any
<PAGE> 10
time to exceed the Credit Limit. If at any time the total of all outstanding
Loans and Indebtedness exceeds the Credit Limit, Borrower shall immediately
pay the amount of the excess to Lender, without notice or demand.
BORROWING BASE FORMULA. Funds shall be advanced under the Borrower's Line of
Credit facility according to a borrowing base formula, as determined by Lender,
defined as follows: The lesser of (i) Committed Line minus (a) the Daylight
Overdraft Reserve, (b) the Merchant Services Reserve, (c) all drawn but
unreimbursed letters of credit, and (d) the FX Reserve or (ii) the Borrowing
Bass minus (a) the Daylight Overdraft Reserve, (b) the Merchant Services
Reserve, (c) the FX Reserve, and (d) all drawn but unreimbursed letters of
credit. Eligible accounts receiveable shall include, but not be limited to,
those accounts outstanding less than 90 days from the date of invoice,
including those foreign accounts pre-approved by Lender, accounts secured by
letters of credit (acceptable to Lender) and those specific foreign accounts
from Seimens and Ryoyo; but shall exclude all other foreign, government,
contra and intercompany accounts; and exclude accounts wherein 50% or more of
the account is outstanding more than 90 days from the date of invoice. Other
than the foregoing pre-approved foreign accounts and those certain accounts
which Lender, in its sole discretion deems eligible at an increased
concentration limit, any account which alone exceeds 35% of total accounts will
be ineligible to the extent said account exceeds 35% of total accounts. Also
exclude any credit balances which are aged past 90 days. Also ineligible are
any accounts which Lender in its sole judgment excludes for valid credit
reasons. The term "Borrowing Base" shall mean the sum of (a) eighty percent
(80%) of eligible accounts receivable plus (b) one hundred percent (100%) of
cash formally pledged to Lender (minus the exclusions as provided above).
LOCK BOX AGREEMENT. Borrower shall enter into a lock box agreement
with Lender, in form and substance acceptable to Lender, in its sole
discretion.
Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Lender
agrees to issue or cause to be issued letters of credit for the account of
Borrower in an aggregate face amount not to exceed (i) the lesser of the
Committed Line or the Borrowing Base minus (ii) the then outstanding principal
balance of the advances under the Committed Line provided that the face amount
of outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) shall not in any case exceed Two Million and 00/100 Dollars
($2,000,000.00). Each such letter of credit shall have an expiry date no later
than six (6) months after the Maturity Date of the Line of Credit provided that
Borrower's letter of credit reimbursement obligation shall be secured by cash
on terms acceptable to Lender at any time after such Maturity Date if the term
of this Agreement is not extended by Lender. All such letters of credit shall
be, in form and substance, acceptable to Lender in its sole discretion and
shall be subject to the terms and conditions of Lender's form of application
and letter of credit agreement.
(b) The obligation of Borrower to immediately reimburse Lender for
drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend and hold Lender harmless from any loss, cost,
expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with any letters of credit.
Letter of Credit Reimbursement; Reserve.
(a) Borrower may request that Lender issue a letter of credit
payable in a currency other than United States Dollars. If a demand for
payment is made under any such letter of credit, Lender shall treat such demand
as an advance to Borrower of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate of exchange in
San Francisco, California, for sales of that other currency for cable transfer
to the country of which it is the currency.
(b) Upon the issuance of any letter of credit payable in a
currency other than United States Dollars, Lender shall create a reserve under
the Committed Revolving Line for letters of credit against fluctuations in
currency exchange rates, in an amount equal to twenty percent (20%) of the face
amount of such letter of credit. The amount of such reserve may be amended by
Lender from time to time to account for fluctuations in the exchange
<PAGE> 11
rate. The availability of funds under the Committed Line shall be reduced by
the amount of such reserve for so long as such letter of credit remains
outstanding.
Foreign Exchange Contract; Foreign Exchange Settlements.
(a) Subject to the terms of this Agreement, Borrower may utilize
up to $2,000,000.00 for foreign exchange contracts (the "Exchange Contracts"),
pursuant to which Lender shall sell to or purchase from Borrower foreign
currency on a spot or future basis. All Exchange Contracts must provide for
delivery of Settlement on or before the Maturity Date of the Line of Credit.
The limit available at any time shall be reduced by the following amounts (the
"Foreign Exchange Reserve") on each day (the "Determination Date"): (i) on all
outstanding Exchange Contracts on which delivery is to be effected or
Settlement allowed more than two business days from the Determination Date, 10%
of the gross amount of the Exchange Contracts; plus (ii) on all outstanding
Exchange Contracts on which delivery is to be effected or Settlement allowed
within two business days after the Determination Date, 100% of the gross amount
of the Exchange Contracts. In lieu of the Foreign Exchange Reserve for 100% of
the gross amount of any Exchange Contract. Borrower may request that Lender
treat such amount as an advance under the Committed Line.
(b) Lender may, in its discretion, terminate the Exchange
Contracts at any time (a) that an Event of Default occurs or (b) that there is
no sufficient availability under the Committed Revolving Line and Borrower does
not have available funds in its bank account to satisfy the Foreign Exchange
Reserve. If Lender terminates the Exchange Contracts, and without limitation
of any applicable indemnities, Borrower agrees to reimburse Lender for any and
all fees, costs and expenses relating thereto or arising in connection
therewith.
(c) Borrower shall not permit the total gross amount of all
Exchange Contracts on which delivery is to be effected and Settlement allowed
in any two business day period to be more than $2,000,000.00 nor shall Borrower
permit the total gross amount of all Exchange Contracts to which Borrower is a
party, outstanding at any one time, to exceed $2,000,000.00.
(d) Borrower shall execute all standard form applications and
agreements of Lender in connection with the Exchange Contracts and, without
limiting any of the terms of such applications and agreements, Borrower will
pay all standard fees and charges of Lender in connection with the Exchange
Contracts.
Notwithstanding anything to the contrary provided by the foregoing, in
no event shall the outstandings under the Letter of Credit Sublimit and the
Foreign Exchange Reserve exceed $2,000,000.00.
Merchant Services Reserve.
(a) A subfacility in the amount of Five Hundred Thousand
and 00/100 Dollars ($500,000.00) has been reserved under the Committed
Line for credit card services (the "Merchant Services Reserve"). Lender may,
in its sole discretion, charge as advances under the Committed Line, any
amounts that may become due or owing to Lender in connection with merchant
credit card processing services and/or business Visa credit card services
furnished to Borrower by or through Lender. Collectively, the "Credit Card
Services".
(b) Borrower shall execute all standard form applications and
agreements, including without limitation, the Agreement Regarding Merchant
Services/Business VISA Program, of Lender in connection with the merchant
account and, without limiting any of the terms of such applications and
agreements, Borrower will pay all standard fees and charges of Lender in
connection with the Credit Card Services.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment
when due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or
to perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
<PAGE> 12
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of
the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false or
misleading at any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as
a going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws
by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
Indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of,
or liability under, any Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligations to make Loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice of
any kind to Borrower, except that in the case of an Event of Default of the
type described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take
action to perform an obligation of Borrower or of any Grantor shall not affect
Lender's right to declare a default and to exercise its rights and remedies.
DEFAULT RATE. Upon default, including failure to pay upon final maturity,
Lender, at its option, may do one or both of the following: (a) increase the
variable interest rate on the Note to five percentage points (5.000%) over the
Interest Rate otherwise payable thereunder, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in the Note.
IMPOSITION OF COMMERCIAL FINANCE AGREEMENT. Without limiting the rights and
remedies of Lender hereunder, or under any of the Related Documents, upon the
occurrence of an Event of Default, Lender shall require
<PAGE> 13
Borrower to comply with all the terms and conditions of the Commercial Finance
Agreement, being concurrently executed herewith.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in writing
and signed in writing and signed by the party or parties sought to be
charged or bound by the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of California. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of
the courts of Santa Clara County, the State of California. Lender and
Borrower hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Borrower
against the other. (Initial Here ______) This Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower
under this Agreement shall be joint and several, and all references to
Borrower shall mean each and every Borrower. This means that each of
the Borrowers signing below is responsible for all obligations in this
Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to
Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers,
whether related or unrelated to Lender. Lender may provide, without
any limitation whatsoever, to any one or more purchasers, or potential
purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower
hereby waives any rights to privacy it may have with respect to such
matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of
such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as
the absolute owners of such interests in the Loans and will have all
the rights granted under the participation agreement or agreements
governing the sale of such participation interests. Borrower further
waives all rights of offset or counterclaim that it may have now or
later against Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower's obligation under the Loans
irrespective of the failure or insolvency of any holder of any holder
of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its
interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
BORROWER INFORMATION. Borrower consents to the release of information
on or about Borrower by Lender in accordance with any court order, law
or regulation and in response to credit inquiries concerning Borrower.
NON-LIABILITY OF LENDER. The relationship between Borrower and Lender
is a debtor and creditor relationship and not fiduciary in nature, nor
is the relationship to be construed as creating any partnership or
joint venture between Lender and Borrower. Borrower is exercising its
own judgment with respect to Borrower's business. All information
supplied to Lender is for Lender's protection only and no
other party is entitled to rely on such information. There is no
duty for Lender to review, inspect, supervise, or inform Borrower of
any matter with respect to Borrower's business. Lender and Borrower
intend that Lender may reasonably rely on all information supplied by
Borrower to Lender, together with all representations and warranties
given by Borrower to Lender, without investigation or confirmation by
Lender and that any investigation or failure to investigate will not
diminish Lender's right to so rely.
<PAGE> 14
Notice of Lender's Breach. Borrower must notify Lender in writing of
any breach of this Agreement or the Related Documents by Lender and
any other claim, cause of action or offset against Lender within
thirty (30) days after the occurrence of such breach or after the
accrual of such claim, cause of action or offset. Borrower waives any
claim, cause of action or offset for which notice is not given in
accordance with this paragraph. Lender is entitled to rely on any
failure to give such notice.
BORROWER INDEMNIFICATION. Borrower shall indemnify and hold Lender
harmless from and against all claims, costs, expenses, losses,
damages, and liabilities of any kind, including but not limited to
attorneys' fees and expenses, arising out of any matter relating
directly or indirectly to the indebtedness, whether resulting from
internal disputes of the Borrower, disputes between Borrower and any
Guarantor, of whether involving any third parties, or out of any other
matter whatsoever related to this Agreement or the Related Documents,
but excluding any claim or liability which arise as a direct result of
Lender's gross negligence or willful misconduct. This indemnity shall
survive full repayment and satisfaction of the Indebtedness and
termination of this Agreement.
COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts, taken together, shall constitute
one and the same Agreement.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of
Lender's expenses, including without limitation attorneys' fees,
incurred in connection with the preparation, execution, enforcement,
modification and collection of this Agreement or in connection with
the Loans made pursuant to this Agreement. Lender may pay someone
else to help collect the Loans and to enforce this Agreement, and
Borrower will pay the amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal
expenses, whether or not there is a lawsuit, including attorneys' fees
for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court
costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall
be given in writing, may be sent by telefacsimile, and shall be
effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited in the United States mail,
first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice
purposes, Borrower agrees to keep Lender informed at all times of
Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified
to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and
all other provisions of this Agreement in all other respects shall
remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of
any provisions of this Agreement makes it appropriate, including
without limitation any representation, warranty or covenant, the word
"Borrower" as used herein shall include all subsidiaries and
affiliates of Borrower. Notwithstanding the foregoing however, under
no circumstances shall this Agreement be construed to require Lender
to make any Loan or other financial accommodation to any subsidiary or
affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or
on behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest herein, without the prior written consent of
Lender.
<PAGE> 15
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of
this Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing
between Lender and Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender's rights or of any obligations of
Borrower or of any Grantor as to any future transactions. Whenever
the consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute
continuing in subsequent instances where such consent is required, and
in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
DECEMBER 6,1995.
BORROWER:
WEITEK CORPORATION
By:
Name:
Title:
LENDER:
SILICON VALLEY BANK
By:
Name:
Title:
<PAGE> 16
COMMERCIAL SECURITY AGREEMENT
Borrower: Weitek Corporation Lender: Silicon Valley Bank
1060 East Arques Ave. 3003 Tasman Drive
Sunnyvale, CA 94086 Santa Clara, CA 95054
THIS COMMERCIAL SECURITY AGREEMENT is entered into between WEITEK
CORPORATION (referred to below as "Grantor"); and Silicon Valley Bank (referred
to below as "Lender"). For valuable consideration, Grantor grants to Lender a
security interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement' means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
INVENTORY, CHATTEL PAPER, ACCOUNTS, CONTRACT RIGHTS, DEPOSIT
ACCOUNTS, INSTRUMENTS, DOCUMENTS, EQUIPMENT, GENERAL
INTANGIBLES AND FIXTURES
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All attachments, accessions, accessories, tools,
parts, supplies, increases, and additions to and all
replacements of and substitutions for any property described
above.
(b) All products and produce of any of the property
described in this Collateral section.
(c) All accounts, contract rights, general intangibles,
instruments, rents, monies, payments, and all other rights,
arising out of a sale, lease, or other disposition of any of
the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the
sale, destruction, loss, or other disposition of any of the
property described in this Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
EVENT OF DEFAULT. The words "Event of Default mean and include
without limitation any of the Events of Default set forth below in the
section titled "Events of Default."
GRANTOR. The word "Grantor" means WEITEK CORPORATION, its successors
and assigns.
<PAGE> 17
GUARANTOR. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related
Documents. (Initial Here: _____________).
LENDER. The word "Lender" means Silicon Valley Bank, its successors and
assigns.
NOTE. The word "Note" means the notes, letters of credit or credit
agreements in any principal amount from Borrower to Lender, together
with all renewals of, extensions of, modifications of, refinancings
of, consolidations of and substitutions for the notes, letters of
credit or credit agreements.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender
any and all of the documents evidencing or constituting the
Collateral, and Grantor will note Lender's interest upon any and all
chattel paper if not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as its irrevocable attorney-in-fact for
the purpose of executing any documents necessary to perfect or to
continue the security interest granted in this Agreement. Lender may
at any time, and without further authorization from Grantor, file a
carbon, photographic or other reproduction of any financing statement
or of this Agreement for use as a financing statement. Grantor will
reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL
AND EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO
LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is
a party, and its certificate or articles of incorporation and bylaws
do not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists
of accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies
with applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated
on the Collateral have authority and capacity to contract and are in
fact obligated as they appear to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property
owned or being purchased by Grantor; (b) all real property being
rented or leased by Grantor; (c) all storage facilities owned, rented,
leased, or being used by Grantor; and (d) all other properties where
Collateral is or may be located. Except in the ordinary course of its
business, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as
accounts, the records concerning the Collateral) at Grantor's address
shown
<PAGE> 18
above, or at such other locations as are acceptable to Lender. Except
in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of California, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or
dispose of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course
of its business and only to buyers who qualify as a buyer in the
ordinary course of business. A sale in the ordinary course of
Grantor's business does not include a transfer in partial or total
satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject to
any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if
junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for
Lender and shall not be commingled with any other funds; provided
however, this requirement shall not constitute consent by Lender to
any sale or other disposition. Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good
and marketable title to the Collateral, free and clear of all liens
and encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consented. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral
consists of inventory, Grantor shall deliver to Lender, as often as
Lender shall require, such lists, descriptions, and designations of
such Collateral as Lender may require to identify the nature, extent,
and location of such Collateral. Such information shall be submitted
for Grantor and each of its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
intangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any
part of the Collateral. Lender and its designated representatives and
agents shall have the right at all reasonable times to examine,
inspect, and audit the Collateral wherever located. Grantor shall
immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of
any request for credit or adjustment or of any other dispute arising
with respect to the Collateral; and generally of all happenings and
events affecting the Collateral or the value or the amount of the
Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral
is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender
as an additional obligee under any surety bond furnished in the
contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to
<PAGE> 19
the ownership, production, disposition, or use of the Collateral.
Grantor may contest in good faith any such law, ordinance or regulation
and withhold compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation,
manufacture, storage, transportation, treatment, disposal, release or
threatened release of any hazardous waste or substance, as those terms
are defined in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et. seq., the Resource Conservation and
Recovery Act, 49 U.S.C. Section 6901, et. seq., Chapters 6.5 through
7.7 of Division 20 of the California Health and Safety Code, Section
25100, et. seq., or other applicable state or Federal laws, rules, or
regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include,
without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos. The representations and warranties
contained herein are based on Grantor's due diligence in investigating
the Collateral for hazardous wastes and substances. Grantor hereby
(a) releases and waives any future claims against Lender for indemnity
or contribution in the event Grantor becomes liable for cleanup or
other costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to
indemnify shall survive the payment of the Indebtedness and the
satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages
and basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished
without at least ten (10) days' prior written notice to Lender and not
including any disclaimer of the insurer's liability for failure to
give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Grantor or any
other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will
provide Lender with such loss payable or other endorsements as Lender
may require. If Grantor at any time fails to obtain or maintain any
insurance as required under this Agreement, Lender may (but shall not
be obligated to) obtain such insurance as Lender deems appropriate,
including if it so chooses "single interest insurance," which will
cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify
Lender of any loss or damage to the Collateral. Lender may make proof
of loss if Grantor fails to do so within fifteen (15) days of the
casualty. All proceeds of any insurance on the Collateral, including
accrued proceeds thereon, shall be held by Lender as part of the
Collateral. If Lender consents to repair or replacement of the
damaged or destroyed Collateral, Lender shall, upon satisfactory proof
of expenditure, pay or reimburse Grantor from the proceeds for the
reasonable cost of repair or restoration. If Lender does not consent
to repair or replacement of the Collateral, Lender shall retain a
sufficient amount of the proceeds to pay all of the Indebtedness, and
shall pay the balance to Grantor. Any proceeds which have not been
disbursed within six (6) months after their receipt and which Grantor
has not committed to the repair or restoration of the Collateral shall
be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with
Lender reserves for payment of insurance premiums, which reserves
shall be created by monthly payments from Grantor of a sum estimated
by Lender to be sufficient to produce, at least fifteen (15) days
before the premium due date, amounts at least equal to the insurance
premiums to be paid. If fifteen (15) days before payment is due, the
reserve funds are insufficient, Grantor shall upon demand pay any
deficiency to Lender. The reserve funds shall be held by Lender as a
general deposit and shall constitute a non-interest-bearing account
which Lender may satisfy by payment of the insurance premiums required
to be paid by Grantor as they become due. Lender
<PAGE> 20
does not hold the reserve funds in trust for Grantor, and Lender is not
the agent of Grantor for payment of the insurance premiums required to
be paid by Grantor. The responsibility for the payment of premiums
shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on
the basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and may
use it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole
discretion, shall deem appropriate under the circumstances, but failure to
honor any request by Grantor shall not of itself be deemed to be a failure to
exercise reasonable care. Lender shall not be required to take any steps
necessary to preserve any rights in the Collateral against prior parties, nor
to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the Note
and be apportioned among and be payable with any installment payments to become
due during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will
be due and payable at the Note's maturity. This Agreement also will secure
payment of these amounts. Such right shall be in addition to all other rights
and remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when
due on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
INSOLVENCY. The dissolution or termination of Grantor's existence as
a going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws
by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender.
<PAGE> 21
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the California Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following rights
and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to
pay, immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession of
and remove the Collateral. If the Collateral contains other goods not
covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes
reasonable efforts to return them to Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days, or such
lesser time as required by state law, before the time of the sale or
disposition. All expenses relating to the disposition of the
Collateral, including without limitation the expenses of retaking,
holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date
of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interests at the Note rate from date
of expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the
Indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, chooses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral
as Lender may determine, whether or not Indebtedness or Collateral is
then due. For these purposes, Lender may, on behalf of and in the
name of Grantor, receive, open and dispose of mail addressed to
Grantor; change any address to which mail and payments are to be sent;
and endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to
Lender.
OBTAIN DEFICIENCY. It Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all
<PAGE> 22
amounts received from the exercise of the rights provided in this
Agreement. Grantor shall be liable for a deficiency even if the
transaction described in this subsection is a sale of accounts or
chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and
remedies it may have available at law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Grantor
under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in writing
and signed by the party or parties sought to be charged or bound by
the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of California. If there is a lawsuit
Grantor agrees upon Lender's request to submit to the jurisdiction of
the courts of Santa Clara County, State of California. Lender and
Grantor hereby waive the right to any jury trial in any action,
proceeding, or counterclaim brought by either Lender or Grantor
against the other. (INITIAL HERE ------) This Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
ATTORNEYS' FEES EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this
Agreement, and Grantor shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's attorneys' fees and
legal expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (and including
efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services.
Grantor also shall pay all court costs and such additional fees as may
be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor
under this Agreement shall be joint and several, and all references to
Grantor shall mean each and every Grantor. This means that each of
the Borrowers signing below is responsible for all obligations in this
Agreement.
NOTICES. All notices required to be given under this Agreement shall
be given in writing, may be sent by telefacsimile, and shall be
effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited in the United States Mail,
first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Grantor, notice to any
Grantor will constitute notice to all Grantors. For notice purposes,
Grantor agrees to keep Lender informed at all times of Grantor's
current address(es).
<PAGE> 23
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for, sue
and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c)
to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any
claim or claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the Indebtedness,
and the authority hereby conferred is and shall be irrevocable and
shall remain in full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the EXPENDITURES BY LENDER paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified
to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and
all other provisions of this Agreement in all other respects shall
remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing
between Lender and Grantor, shall constitute a waiver of any of
Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted
or withheld in the sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is
obligated for the Indebtedness, Borrower irrevocably waives,
disclaims and relinquishes all claims against such other person which
Borrower has or would otherwise have by virtue of payment of the
Indebtedness or any part thereof, specifically including but not
limited to all rights of indemnity, contribution or exoneration.
ADDITIONAL PROVISION. If any law is passed that requires additional action on
the part of Lender, Borrower and/or Grantor shall fully cooperate with Lender
in complying with the law and accordingly, shall reimburse Lender for all costs
and expenses which Lender incurs in compliance with the law.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
DECEMBER 6, 1995.
GRANTOR:
WEITEK CORPORATION
<PAGE> 24
By:
Name:
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File numbers 33-26277, 33-35857 and 33-41764) of Weitek
Corporation of our report dated January 19, 1996, except Note 10, which is as of
March 21, 1996 appearing on page 13 of this Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
April 1, 1996
27
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<ARTICLE> 5
<CIK> 0000719322
<NAME> WEITEK CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,028
<SECURITIES> 0
<RECEIVABLES> 1,606
<ALLOWANCES> 716
<INVENTORY> 1,730
<CURRENT-ASSETS> 9,636
<PP&E> 14,502
<DEPRECIATION> 12,904
<TOTAL-ASSETS> 11,268
<CURRENT-LIABILITIES> 5,675
<BONDS> 0
0
0
<COMMON> 23,095
<OTHER-SE> (17,502)
<TOTAL-LIABILITY-AND-EQUITY> 11,268
<SALES> 17,600
<TOTAL-REVENUES> 17,600
<CGS> 10,726
<TOTAL-COSTS> 11,584
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,305)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,305)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> 0
</TABLE>
