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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10 - Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the quarterly period ended June 30, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 0-19084
SIERRA SEMICONDUCTOR
CORPORATION
(Exact name of registrant as specified in its charter)
A California Corporation - I.R.S. NO. 94-2925073
2075 NORTH CAPITOL AVENUE
SAN JOSE, CALIFORNIA 95132
Telephone (408) 263-9300
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 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
----- -----
Common shares outstanding at June 30, 1996 - 27,343,886
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<PAGE>
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- Consolidated condensed balance sheets 3
- Consolidated condensed statements of income 4
- Consolidated condensed statements of cash flows 5
- Notes to consolidated condensed financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote by Shareholders 16
Item 6. Exhibits and Reports on Form 8 - K 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SIERRA SEMICONDUCTOR CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------------- -----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 20,994 $ 41,933
Short-term investments 1,050 4,004
Accounts receivable, net 40,205 39,320
Inventories 30,417 14,843
Prepaid expenses and other current assets 3,398 9,813
----------------- -----------------
Total current assets 96,064 109,913
Property and equipment, at cost 55,017 49,375
Accumulated depreciation and amortization (31,191) (26,671)
----------------- -----------------
23,826 22,704
Goodwill and other intangible assets, net 13,055 13,856
Investments and other assets 8,103 5,147
Deposits for wafer fabrication capacity 42,240 33,240
================= =================
$ 183,288 $ 184,860
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 15,658 $ 22,866
Accrued liabilities 9,288 8,494
Accrued income tax 7,412 7,737
Short-term debt and current portion of obligations under
capital leases and long-term debt 22,921 33,979
Net liabilities of discontinued operations 2,655 4,096
----------------- -----------------
Total current liabilities 57,934 77,172
Deferred income taxes 2,115 2,179
Noncurrent obligations under capital leases and long-term debt 8,691 8,979
Special shares of PMC convertible into Sierra common stock 13,595 15,530
Shareholders' equity:
Common stock, no par value 123,656 119,758
Accumulated deficit (22,702) (38,726)
----------------- -----------------
100,954 81,032
Less shareholders' notes receivable (1) (32)
----------------- -----------------
Total shareholders' equity 100,953 81,000
----------------- -----------------
$ 183,288 $ 184,860
================= =================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
SIERRA SEMICONDUCTOR CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 53,022 $ 42,201 $117,418 $ 79,140
Cost of revenues 25,357 21,365 59,464 40,214
------------- ------------- ------------- -------------
Gross profit 27,665 20,836 57,954 38,926
Other costs and expenses:
Research and development 7,885 5,182 16,291 10,554
Marketing, general and administrative 8,842 7,286 17,507 14,279
------------- ------------- ------------- -------------
Income from operations 10,938 8,368 24,156 14,093
Interest income (expense), net 137 83 497 126
------------- ------------- ------------- -------------
Income before provision for income taxes 11,075 8,451 24,653 14,219
Provision for income taxes 3,877 1,979 8,629 3,343
------------- ------------- ------------- -------------
Net income from continuing operations 7,198 6,472 16,024 10,876
Loss from discontinued operations - (533) - (837)
------------- ------------- ------------- -------------
Net income $ 7,198 $ 5,939 $ 16,024 $ 10,039
============= ============= ============= =============
Income from continuing operations per share $ 0.24 $ 0.23 $ 0.52 $ 0.39
Loss from discontinued operations per share $ - $ (0.02) $ - $ (0.03)
------------- ------------- ------------- -------------
Net income per share $ 0.24 $ 0.21 $ 0.52 $ 0.36
============= ============= ============= =============
Shares used in calculation of net income per share 30,578 27,862 30,684 27,618
============= ============= ============= =============
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
SIERRA SEMICONDUCTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, July 2,
1996 1995
--------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,024 $ 10,039
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,621 4,000
Changes in assets and liabilities
Accounts receivable (885) (6,266)
Inventories (15,574) (224)
Prepaid expenses and other (2,494) (629)
Accounts payable and accrued expenses (6,802) 2,417
Net assets/liabilities associated with discontinued operations (1,441) (1,095)
--------------- ----------------
Net cash provided by (used in) operating activities (5,551) 8,242
Cash flows from investing activities:
Proceeds from maturities of short-term investments 15,984 -
Purchases of short-term investments (13,030) -
Investments in other companies (3,000) (920)
Decrease in investments and other - 150
Additions to plant and equipment (4,361) (4,280)
--------------- ----------------
Net cash (used in) investing activities (4,407) (5,050)
Cash flows from financing activities:
Proceeds from issuance of notes payable and long-term debt 4,113 269
Proceeds from issuance of common stock 1,963 2,094
Proceeds from payments of notes receivable 31 22
Principal payments under capital lease obligations (813) (567)
Repayment of notes payable and long-term debt (16,275) (868)
--------------- ----------------
Net cash provided by (used in) financing activities (10,981) 950
--------------- ----------------
Net increase (decrease) in cash and cash equivalents (20,939) 4,142
Cash and cash equivalents, beginning of the period 41,933 12,622
=============== ================
Cash and cash equivalents, end of the period $ 20,994 $ 16,764
=============== ================
See notes to consolidated condensed financial statements.
<PAGE>
<FN>
SIERRA SEMICONDUCTOR CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying financials statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules or regulations. The
interim financial statements are unaudited, but reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary to present a fair statement of results for the interim
periods presented.
These financial statements should be read in conjunction with the
financial statements and the notes thereto incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
The results of operations for the three and six months ended June 30,
1996 are not necessarily indicative of results to be expected in future periods.
2. In the fourth quarter of 1995, the Company approved a plan to sell or
discontinue the operations of Prometheus Products, Inc. (Prometheus). The
Company purchased Prometheus in the third quarter of 1994, and has operated it
as a separate business unit. Accordingly, Prometheus is being treated for
reporting purposes as a discontinued operation, and the Company's statements of
continuing operations for fiscal 1994 and 1995 have been restated to remove
Prometheus' previously reported operating results.
The Company also recorded a charge in the quarter ended December 31,
1995 for the disposal of Prometheus of $17,906,000. This discontinued operations
charge includes the write-down of assets and the accrual of additional
liabilities of Prometheus, as well as a provision for estimated future losses
that may be incurred. Prometheus' operating results for the first six months
ended June 30, 1996 have been recorded against this provision.
3. The components of inventories are as follows (in thousands):
June 30, Dec 31,
1996 1995
-------- --------
Work-in-progress $ 8,912 $ 6,604
Finished goods 21,505 8,239
-------- --------
$30,417 $14,843
4. Net income (loss) per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of warrants and stock options (using
the treasury stock method). Fully diluted earnings per share have not been
presented because the amounts do not differ materially from primary earnings per
share. For purposes of computing net income per share, the shares reserved for
issuance in exchange for the PMC Special Shares outstanding are considered in
the weighted average number of common shares outstanding.
<PAGE>
5. The Company announced a two-for-one stock split of its Common Stock on
September 7, 1995. The distribution of the additional stock was October 5, 1995,
based on shareholders of record on September 21, 1995. All share and per share
amounts in these consolidated condensed financial statements have been adjusted
to reflect the stock split.
</FN>
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Second Quarters of 1996 and 1995
Net Revenues
- ------------
Second Second
Quarter Quarter
1996 Change 1995
--------- -------- ---------
Net revenues ($000,000) $53.0 26% $42.2
The increase in net revenues was due to significant growth in revenue of
PMC-Sierra, Inc. ("PMC") plus an increase in revenue from the communications
product groups, especially in the V.34 (28,800 bps) product. The Company
experienced a decrease in V.32 bis (14,400 bps) product unit shipments, and a
decrease in the multimedia product group.
Gross Profit
- ------------
Second Second
Quarter Quarter
1996 Change 1995
--------- -------- ---------
Gross profit ($000,000) $27.7 33% $20.8
Percentage of net revenues 52% 49%
Gross profit increased as a result of increased revenues during this period.
Gross profit as a percentage of net revenues increased as a result of an
increase in proportion of sales of products with higher margins. In the future,
the Company may experience flat or declining gross profits as a percentage of
net revenues if decreases in ASPs ("Average Selling Prices"), particularly ASPs
of modem products, are not offset by reductions in production costs, or by sales
of products with higher gross profit. Such a decline may have a material adverse
effect on the Company's results of operations.
Operating Expenses ($000,000)
- ----------------------------
Second Second
Quarter Quarter
1996 Change 1995
--------- -------- ---------
Research and development $7.9 52% $5.2
Percentage of net revenues 15% 12%
Marketing, general & administrative $8.8 21% $7.3
Percentage of net revenues 17% 17%
<PAGE>
Research and development expenses increased primarily due to increases in
research and development personnel at PMC as well as other product groups. As a
percentage of sales, research and development expenses increased as a result of
the rate of growth of expenses exceeding the rate of growth of net revenues. In
the near term future, the Company expects research and development spending in
absolute dollars to remain at approximately the present levels.
Marketing, general and administrative expenses grew due to increases in
marketing, sales and administrative personnel at PMC as well as other product
groups. As a percentage of net revenues, these expenses remained at the same
levels. In the near term future, these expenses are expected to remain at
approximately the same level in absolute dollars.
Interest Income (Expense), Net ($000,000)
- ----------------------------------------
Second Second
Quarter Quarter
1996 Change 1995
--------- -------- ---------
Interest income (expense) $0.14 65% $0.08
Percentage of net revenues 0.3% 0.2%
Interest income increased due to higher cash balances available to invest and
earn interest. Interest expense remained at approximately the same absolute
dollar level. Interest expense currently relates primarily to the Company's
financing arrangements for working capital financing.
Income taxes have been provided for at an estimated annual tax rate of
approximately 35% in 1996 vs. 24% in 1995. This increase in rate results
primarily from net operating loss and credit carryforwards having been available
in 1995, and substantially all such tax benefits have now been utilized.
First Six Months of 1996 and 1995
Net Revenues
- ------------
First First
Six Months Six Months
1996 Change 1995
---------- -------- ----------
Net revenues ($000,000) $117.4 48% $79.1
The increase in net revenues was due to significant growth in revenue of PMC
plus an increase in revenue from the communications product groups, especially
in the V.34 (28,800 bps) product. The Company experienced a decrease in V.32 bis
(14,400 bps) product unit shipments, and a decrease in the multimedia product
group.
<PAGE>
Gross Profit
- ------------
First First
Six Months Six Months
1996 Change 1995
---------- -------- ----------
Gross profit ($000,000) $58.0 49% $38.9
Percentage of net revenues 49% 49%
Gross profit increased as a result of increased net revenues during the period.
Gross profit as a percentage of net revenues remained unchanged. In the future,
the Company may experience flat or declining gross profits as a percentage of
net revenues, if decreases in ASPs are not offset by reductions in production
costs, or by sales of products with higher gross profit. Such a decline may have
a material adverse effect on the Company's results of operations.
Operating Expenses ($000,000)
- ----------------------------
First First
Six Months Six Months
1996 Change 1995
---------- -------- ----------
Research and development $16.3 54% $10.6
Percentage of net revenues 14% 13%
Marketing, general & administrative $17.5 22% $14.3
Percentage of net revenues 15% 18%
Research and development expenses increased primarily due to increases in
research and development personnel at PMC as well as other product groups. As a
percentage of sales, research and development expenses increased as the rate of
growth of spending exceeded the rate of growth in net revenues. The Company
expects research and development expenses in absolute dollars to remain at
approximately the same levels in the near term future.
Marketing, general and administrative expenses grew due to increases in
marketing, sales and administrative personnel at PMC as well as other product
groups. As a percentage of net revenues, these expenses declined as the rate of
growth of net revenues exceeded the rate of growth of these expenses. In the
near term future, these expenses are expected to remain at approximately the
same level in absolute dollars.
Interest Income (Expense), Net ($000,000)
- ----------------------------------------
First First
Six Months Six Months
1996 Change 1995
---------- -------- ----------
Interest income (expense) $0.5 400% $0.1
Percentage of net revenues 0.4% 0.1%
Interest income increased due to higher cash balances available to invest and
earn interest. Interest expense remained at approximately the same absolute
dollar level. Interest expense currently relates primarily to the Company's
financing arrangements for working capital financing.
<PAGE>
Income taxes have been provided for at an estimated annual tax rate of
approximately 35% in 1996 vs. 24% in 1995. This increase in rate results
primarily from net operating loss and credit carryforwards having been available
in 1995, and substantially all such tax benefits have now been utilized.
Factors Affecting Future Results
Fluctuation in Operating Results. The Company's quarterly and annual operating
results may vary due to a number of factors, including, among others, the timing
of new product introductions, decreased demand or average selling prices for
products, market acceptance of products, demand for products of the Company's
customers, the introduction of products or technologies by the Company's
competitors, competitive pressure on product pricing, the Company's and its
customers' inventory levels of the Company's products, product availability from
outside foundries, variations in manufacturing yields for the Company's
products, expenditures for new product and process development, the acquisition
of wafer fabrication capacity, and the acquisition of businesses, products or
technologies. At various times in the past, the Company's foundry suppliers have
experienced lower than anticipated yields that have adversely affected
production and, consequently, the Company's operating results. There can be no
assurance that the Company's existing or future foundry suppliers will not
experience irregularities which could have an adverse effect on the Company's
operating results. The Company from time to time may order in advance of
anticipated customer demand from its foundries in response to anticipated long
lead times to obtain inventory and materials, which might result in excess
inventory levels if expected orders fail to materialize or other factors render
the Company's product or its customer's products less marketable. The Company is
dependent on sales of graphics products to Apple Computer, which represented
less than 10% of net revenues in the first six months of 1996, down from 28% in
the first six months of 1995. Any delay or cancellation of existing orders, or
any decline in projected future orders, by the Company's customers could have a
material adverse effect on the Company's operating results. The Company's
operating results also are affected by the state and direction of the
electronics industry and the economy in the United States and other markets
the Company serves. Recently, the electronics industry has been experiencing a
slowdown in business activity. The Company's revenues declined in the second
quarter of 1996, from the first quarter of 1996, principally as a result of
reduced unit shipments of V.34 modem products. Historically, the industry has
also experienced seasonal slowdowns in the third calendar quarters of prior
years. If these conditions and trends continue, the Company may experience a
material adverse effect on revenues and operating results in the near term
future. The occurrence of any of the foregoing or other factors could have a
material adverse effect on the Company's operating results.
Historically, ASPs (average selling prices) in the semiconductor industry have
decreased over the life of a particular product. The willingness of prospective
customers to design the Company's products into their products depends to a
significant extent upon the ability of the Company to price its products at a
level that is cost effective for such customers. The markets for most of the
applications for the Company's products are characterized by intense price
competition. As the markets for the Company's modem products mature and
competition increases, the Company anticipates that ASPs on such products will
continue to decline, particularly as product technologies mature. ASPs on
<PAGE>
existing products can decline dramatically when the PC industry transitions to
new product standards. Recently, one or more of the Company's competitors have
been aggressively pricing V.32 modem products to reduce their inventories. The
Company continues to get orders for these products. Given this competitive
environment, however, the Company's results may be adversely impacted by
declining revenues and margins in these products. If the Company is unable to
reduce its costs sufficiently to offset declines in ASPs or is unable to
introduce new higher performance products with higher ASPs, the Company's
operating results would be materially and adversely affected. Any yield or other
production problems, shortages of supply that increase the Company's
manufacturing costs, or failure to reduce manufacturing costs, would have a
material adverse effect on the Company's operating results.
Access to Wafer Fabrication Capacity. The Company does not own or operate a
wafer fabrication facility, and all of its semiconductor device requirements are
supplied by outside foundries. Substantially all of the Company's semiconductor
products are currently manufactured by third party foundry suppliers. The
Company's foundry suppliers fabricate products for other companies and produce
products of their own design. The Company's reliance on independent foundries
involves a number of risks, including the absence of adequate capacity, the
unavailability of or interruptions in access to certain process technologies and
reduced control over delivery schedules, manufacturing yields and costs. In the
event that these foundries are unable or unwilling to continue to manufacture
the Company's products in required volumes, the Company will have to identify
and qualify acceptable additional or alternative foundries. This qualification
process could take six months or longer. No assurance can be given that any such
source would become available to the Company or that any such source would be in
a position to satisfy the Company's production requirements in a timely basis,
if at all. Any significant interruption in the supply of semiconductors to the
Company would result in the allocation of products to customer, which in turn
could have a material adverse effect on the Company's operating results.
The Company has considered and will continue to consider various possible
transactions in order to obtain an adequate supply of wafers, especially wafers
manufactured using advanced process technologies. These transactions may include
equity investments in or loans to independent wafer fabrication companies in
exchange for access to production capacity, non-refundable deposits or advances
on subsequent deliveries, capital equipment purchases or leases on behalf of the
foundries, the formation of joint ventures to own and operate foundries, or the
usage of "take or pay" contracts that commit the Company to purchase specified
quantities of wafers over extended periods. The Company is evaluating
transactions with its existing and potential new foundry suppliers. The Company
believes that it will be required to commit substantial capital in return for
access to wafer production capacity, and the inability of the Company to timely
and cost effectively secure such capacity would have a material adverse effect
on the Company's operating results. Also, if the industry continues to be in an
oversupply position, some Company assets may be impaired which could have a
material adverse effect on the Company's operating results.
All of the Company's semiconductor products are assembled by sub-assemblers in
Asia. Shortages of raw materials or disruptions in the provision of services by
the Company's assembly houses or other circumstances that would require the
Company to seek additional or alternative sources of supply or assembly could
lead to supply constraints or delays in the delivery of the Company's products.
<PAGE>
Such constraints or delays may result in the loss of customers or other adverse
effects on the Company's operating results. The Company's reliance on
independent assembly houses involves a number of other risks, including reduced
control over delivery schedules, quality assurances and costs and the possible
discontinuance of such contractors' assembly processes. Any supply or other
problems resulting from such risks would have a material adverse effect on the
Company's operating results.
Cyclical Nature of the Personal Computer Industry. The Company produces a number
of semiconductor products for the personal computer industry, including
communications and multimedia devices. The personal computer semiconductor
industry has historically been characterized by wide fluctuations in product
supply and demand. From time to time, the industry has also experienced
significant downturns, often in connection with, for in anticipation of,
declines in general economic conditions. These downturns, which in some cases
have lasted for more than a year, have been characterized by diminished product
demand, production over-capacity and anticipated accelerated erosion of ASPs.
Because the sales of the Company's user interface products, particularly in
Company's modem products, are significantly dependent on sales of PCs, any
decrease in demand for PCs, or any erosion of the ASP for PCs, would have a
material adverse effect on the Company's operating results.
Technological Change. The markets for the Company's products are characterized
by evolving industry standards and rapid technological change and product
obsolescence. Technological change may be particularly pronounced in the
developing market for semiconductor devices used in multimedia personal
computers in which the Company competes and in the market for communications
semiconductor devices used in high-speed networks. The Company's future success
will be highly dependent upon the timely completion and introduction of new
products at competitive price and performance levels. The success of new
products depends on a number of factors, including proper definition of such
products, successful and timely completion of product development and
introduction to market, correct judgment with respect to product demand, market
acceptance of the Company's and its customers' fabrication yields by the
Company's independent foundries and the continued ability of the Company to
offer new products at competitive prices. Many of these factors are outside the
control of the Company. There can be no assurance that the Company will be able
to identify new product opportunities successfully, develop and bring to market
new products, achieve design wins or be able to respond effectively to new
technological changes or product announcements by others. A failure in any of
these areas would materially and adversely affect the Company's operating
results.
Products for telecommunications and data communications applications are based
on industry standards that are continually evolving. The modem marketplace
continues to experience a rapid transition from the V.32 standard, which
operates at 14,400 bps, to the V.34 standard, which operates at 28,800 bps.
Sales of V.32 modems are continuing to decline industry-wide. Future transitions
in customer preferences could quickly obsolete other Sierra products. The
Company is also developing products for the Asynchronous Transfer Mode ("ATM")
telecommunications and networking market, which is in an early stage of
development. The emergence and adoption of new industry standards that compete
with ATM or maintenance by the industry of existing standards in lieu of new
standards could render the Company's ATM products unmarketable or obsolete. The
Company's development efforts are focused on ATM and related products that
operate at faster speeds and at higher layers of protocol processing. A material
<PAGE>
portion of the Company's revenues and a substantial portion of the Company's
profits are derived from sales of ATM, T1/E1, DST/E3 and SONET/SDH, based
products. There can be no assurance that a significant market for the Company's
ATM-based telecommunications products will emerge or, if it does emerge, that
the Company will be able to develop and market these or other ATM-related
products in a timely and commercially viable manner. The adoption or maintenance
by the industry of high speed transmission standards other than ATM or the
inability of the Company to develop and market its ATM-related products would
have a material adverse effect on the Company's operating results.
Many of the Company's products under development are complex semiconductor
devices that require extensive design and testing before prototypes can be
manufactured. The integration of a number of functions in a single chip or in a
chipset requires the use of advanced semiconductor manufacturing technique. This
can result in chip redesigns if the initial design does not permit acceptable
manufacturing yields. The Company's telecommunications products are designed for
customers who in many instances have not yet fully defined their hardware
products. Design delays or redesigns by these customers could in turn delay
completion or require redesign of the semiconductor devices needed for the final
hardware product. In this regard, many of the relevant standards and protocols
for ATM-based products have not been widely adopted or ratified by the relevant
standard-setting bodies. Redesigns or design delays often are required for both
the hardware manufacturer's products and the Company's chipsets as industry and
customer standards, protocols or design specifications are determined. Any
resulting delay in the production of the Company's products could have a
material adverse effect on the Company's operating results.
Due to the foregoing and other factors, past results, such as those described in
this report, may not be indicative of future results. In addition, the
securities of many high-technology companies have historically been subject to
extreme price and volume fluctuations. The Company may be subject to these same
fluctuations which may adversely affect the market price of the Company's common
stock.
Liquidity and Capital Resources
The Company's cash and cash equivalents and short term investments decreased
from $45.9 million on December 31, 1995 to $22.0 million on June 30, 1996. The
decline was principally attributable to $17.1 million of payments made during
this period to reduce debt and capital lease obligations (principally related to
a foundry agreement for future production capacity), and a $15.6 million
increase in inventories. Other cash consuming activities were an increase in
deposits for wafer capacity of $9.0 million (related to commitments made in
1995), a decrease of $6.8 million in accounts payable and accrued expenses, a
$4.4 million net increase in capital assets, equity investment in a foundry
source of $3.0 million, a $1.4 million change in net liabilities of discontinued
operations (Prometheus), and a $0.9 million increase in accounts receivables.
These were offset by net income of $16.0 million, proceeds of $7.0 million from
the sale of SiTel-Sierra in the fourth quarter of 1995, $5.6 million in non-cash
depreciation and amortization expenses, proceeds of $3.8 million from the
Company's line of credit, and proceeds of $2.0 million from issuance of common
stock (principally under the Company's stock option and purchase plans.)
<PAGE>
As of June 30, 1996, the Company's principal sources of liquidity included cash
and cash equivalents and short term investments of $22.0 million, and
approximately $6.2 million available under its bank line of credit. The current
line of credit agreement expires on July 1, 1997. The Company believes that
existing sources of liquidity and anticipated funds from operations will satisfy
the Company's projected working capital expenditure requirements through fiscal
1996. Capital expenditures for the remainder of fiscal 1996 are anticipated to
be approximately $9 million.
The Company's future capital requirements will depend on many factors,
including, among others, the extent to which the Company pursues additional
wafer fabrication capacity from existing foundry suppliers or new suppliers,
product development, and acquisitions or complementary businesses, products or
technologies. To the extent that existing resources and the funds generated by
future earnings are insufficient to fund the Company's operations and its
investments to secure wafer fabrication capacity, the Company may need to raise
additional funds through public or private debt or equity financings. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of current shareholders will be reduced and such equity
securities may have rights, preferences or privileges senior to those of the
holders of the Company's Common Stock. No assurance can be given that additional
financing will be available or that, if available, it can be obtained on terms
favorable to the Company and its shareholders. If adequate funds are not
available, the Company may be required to delay, limit or eliminate some or all
of its proposed operations. The failure to obtain financing would also hinder
the Company's ability to make continued investments in capital equipment and
access wafer fabrication capacity and other facilities which could have a
material adverse effect on the Company's operating results.
The Company entered into a seven (7) year lease agreement for an approximately
83,000 square foot facility in San Jose, California, which the Company plans to
occupy in the fourth quarter of 1996. The new lease takes effect January 1, 1997
and has an annual rent of approximately $0.8 million.
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE BY SHAREHOLDERS
The Annual Meeting of Shareholders of Sierra Semiconductor Corporation was held
on June 5, 1996 for the purposes of electing directors of the Company, approving
certain changes to the 1991 Employee Stock Purchase Plan and the 1994 Incentive
Stock Plan, and confirming the appointment of Ernst & Young LLP as the
independent auditors of the Company for the 1996 fiscal year ending December 29,
1996. All nominees for directors were elected, the changes to the 1991 Employee
Stock Purchase Plan and 1994 Incentive Stock Plan were approved, and the
appointment of Ernst & Young LLP was confirmed. The voting on each matter is set
forth below:
(A) Election of Directors:
Nominee: For Withheld
James V. Diller 21,991,084 497,479
Richard J. Koeltl 22,043,434 497,479
Alexandre Balkanski 20,972,364 497,479
Donald T. Valentine 22,054,054 497,479
Michael L. Dionne 22,034,284 497,479
Frank J. Marshall 22,111,300 497,479
(B) Proposal to approve an amendment to the 1991 Employee Stock Purchase Plan:
For Against Abstain No Vote
21,381,636 738,222 100,407 145,735
(C) Proposal to approve an amendment to the 1994 Incentive Stock Plan:
For Against Abstain No Vote
17,151,396 4,951,108 117,761 145,735
(D) Proposal to confirm the appointment of Ernst & Young as the independent
auditors of the Company for fiscal year ending December 29, 1996:
For Against Abstain No Vote
22,268,123 58,296 39,581 -0-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
o 11.1 - (calculation of earnings per share)
(b) No report on Form 8-K was filed during the quarter ended June 30, 1996
<PAGE>
Exhibit 11.1
SIERRA SEMICONDUCTOR CORPORATION
CALCULATION OF EARNINGS PER SHARE
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------------------------
1996 1995
<S> <C> <C>
Income from continuing operations $ 7,198 $ 6,472
Loss from discontinued operations - (533)
------------------ ------------------
Net income 7,198 5,939
================== ==================
Weighted average common shares outstanding 29,356 26,221
Common stock options 1,222 1,641
------------------ ------------------
Shares used in calculation of net income per share 30,578 27,862
================== ==================
Income from continuing operations per share $ 0.24 $ 0.23
Loss from discontinued operations per share $ - $ (0.02)
------------------ ------------------
Net income per share $ 0.24 $ 0.21
================== ==================
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIERRA SEMICONDUCTOR CORPORATION
(Registrant)
Date: July 26, 1996 /s/ James V. Diller____________________
James V. Diller
Chairman and Chief Executive Officer
Date: July 26, 1996 /s/ Glenn C. Jones_____________________
Glenn C. Jones
Senior Vice President, Finance
Chief Financial Officer (Principal Accounting
Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000767920
<NAME> SIERRA SEMICONDUCTOR CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> APR-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 20,994
<SECURITIES> 1,050
<RECEIVABLES> 40,205
<ALLOWANCES> 0
<INVENTORY> 30,417
<CURRENT-ASSETS> 96,064
<PP&E> 55,017
<DEPRECIATION> (31,191)
<TOTAL-ASSETS> 183,288
<CURRENT-LIABILITIES> 57,934
<BONDS> 0
0
0
<COMMON> 123,656
<OTHER-SE> (22,703)
<TOTAL-LIABILITY-AND-EQUITY> 183,288
<SALES> 53,022
<TOTAL-REVENUES> 53,022
<CGS> 25,357
<TOTAL-COSTS> 25,357
<OTHER-EXPENSES> 16,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137
<INCOME-PRETAX> 11,075
<INCOME-TAX> 3,877
<INCOME-CONTINUING> 7,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,198
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<PAGE>
</TABLE>
<PAGE>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
June 15, 1996, is made by and between UNUM Life Insurance Company of America, a
Maine corporation ("LESSOR") and Sierra Semiconductor Corporation, a California
corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 2222 Qume Drive, the City of San Jose, located in
the County of Santa Clara, State of California and generally described as
(describe briefly the nature of the property) that certain industrial building
of approximately 82,500 square feet together with the parking area and
landscaping on a total of approximately 5.328 acres of land (excepting the
northeast corner of the property, where a small building and cellular phone
antenna are in place) ("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 TERM: 7 years and 0 months ("ORIGINAL TERM") commencing January 1,
1997 ("COMMENCEMENT DATE") and ending December 31, 2003 ("EXPIRATION DATE").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: November 1, 1996 ("EARLY POSSESSION DATE"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $67,650.00 per month ("BASE RENT"), payable on the
first day of each month commencing January 1, 1997 (see Addendum attached
hereto, Paragraph 49). (See Paragraph 4 for further provisions.) /X/ If this box
is checked, there are provisions in this Lease for the Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $67,650.00 as Base Rent for the
period January 1, 1997 to January 31, 1997.
1.7 SECURITY DEPOSIT: $78,375.00 ("SECURITY DEPOSIT"). (See Paragraph
5 for further provisions.)
1.8 PERMITTED USE: general office, the design and packaging of
semiconductors and other legal related uses. (See Paragraph 6 for further
provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes): CPS,
the commercial property services company represents / /Lessor exclusively
("LESSOR'S BROKER"); /X/ both Lessor and Lessee, and _________________represents
/ /Lessee exclusively ("LESSEE'S BROKER")
/ /both Lessee and Lessor. (See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by _________________________("GUARANTOR") (See Paragraph 37 for
further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 61 and Exhibits_____________________ all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee atLessee's sole cost and expense.[See Paragraph 54]
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 [Omitted on original]
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term. See Paragraph 52.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease and such delay has been
as a result of Lessor's actions, omissions or negligence as aforesaid, the
period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee. All other delays shall not affect the Commencement Date or
Early Occupancy Date specified in Paragraph 1.3 and 1.4.
4. RENT
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent
or charges as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due under the terms of this Lease. Base Rent and
all other rent and charges for any period during the term hereof which is for
less than one (1) full calendar month shall be prorated based upon the actual
number of days of the calendar month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit, to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and within 30 days after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
be paid by Lessee under this Lease.
6. USE.
6.1 USE.Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay unreasonably its consent to
any written request by Lessee, Lessees assignees or subtenants, and by
prospective assignees and subtenants of the Lessee, its assignees and
subtenants, for a modification of said permitted purpose for which the premises
may be used or occupied, so long as the same will not impair the structural
integrity of the improvements on the Premises, the mechanical or electrical
systems therein, is not significantly more burdensome to the Premises and the
improvements thereon, and is otherwise permissible pursuant to this Paragraph 6.
If Lessor elects to withhold such consent, Lessor shall within five (5) business
days give a written notification of same, which notice shall include an
explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance in
a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority.
Reportable Use shall also include Lessee's being responsible for the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Law requires that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but in compliance with all Applicable Law,
use any ordinary and customary materials reasonably required to be used by
Lessee in the normal course of Lessee's business permitted on the Premises, so
long as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or therefor,
including, but not limited to, the installation (and removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof. See Addendum:
Paragraph 61
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the Premises,
other than as known by Lessor, Lessee shall immediately give written notice of
such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all loss of rents and/or
damages, liabilities, judgments, costs, claims, liens, expenses, penalties,
permits and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for Lessee
or under Lessee's control. Lessee's obligations under this Paragraph 6 shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under the Lease, with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises excluding changes required of the foundation, roof or sidewalls
(including but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill or release of
any Hazardous Substance or storage tank), now in effect or which may hereafter
come into effect, and whether or not reflecting a change in policy from any
previously existing policy. Lessee shall, within five (5) days after receipt of
Lessor's written request, provide Lessor with copies of all documents and
information, including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with any
Applicable Law specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined
in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination caused or materially contributed to by Lessee. In any such
case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case
may be, for the costs and expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's
warranty as to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc),
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and
14 (condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior) (excluding structural repairs required of foundation, roof or
sidewalls), ceilings, roofs [see Paragraph 55], floors, windows, doors, plate
glass, skylights landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7)years. Lessee shall pay to Lessor professional management fees equal to one
and one half percent (1.5%) of annualized Base Rent, but not to exceed $1,000
per month.
(b) Lessee shall, at Lessee's sole cost and expense, procure
and maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural excepting that Lessor shall perform structural repairs required
of the foundation, roof or sidewalls, all of which obligations are intended to
be that of the Lessee under Paragraph 7.1 hereof. It is the intention of the
Parties that the terms of this Lease govern the respective obligations of the
Parties as to maintenance and repair of the Premises. Lessee and Lessor
expressly waive the benefit of any statute now or hereafter in effect to the
extent it is inconsistent with the terms of this Lease with respect to, or which
affords Lessee the right to make repairs at the expense of Lessor or to
terminate this Lease by reason any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning equipment, plumbing, and fencing in, on or
about the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and
equipment that can be removed without doing material damage to the Premises. The
term "ALTERATIONS" shall mean any modification of the improvements on the
Premises from that which are provided by Lessor under the terms of this Lease,
other than Utility Installations or Trade Fixtures, whether by addition or
deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by lessee that are not yet owned
by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations
or Utility Installations in, on, under or about the Premises without Lessor's
prior written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof), as long as
they are not visible from the outside, do not involve puncturing, relocating or
removing the roof or any existing walls, and the cumulative cost thereof during
the term of this Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law, Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. If Lessor shall require, Lessee
shall furnish to Lessor a surety bond indemnifying Lessor against liability for
the same, as required by law for the holding of the Premises free from the
effect of such lien or claim. In addition, Lessor may require Lessee to pay
Lessor's attorney's fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal or become the owner thereof as hereinafter provided in this Paragraph
7.4, all Alterations and Utility Additions made to the Premises by Lessee shall
be the property of and owned by Lessee, but considered a part of the Premises.
Lessor may, at any time and at its option, elect in writing to Lessee to be the
owner of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
their installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
with all of the improvements, parts and surfaces thereof clean and free of
debris and in good operating order, condition and state of repair, ordinary wear
and tear excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee
is the insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1 000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) [Omitted on original]
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage including earthquake (see Paragraph 50) and flood
insurance including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Premises required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
cause of loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $10,000.00 per occurrence, and Lessee
shall be liable for such deductible amount in the event of an Insured Loss, as
defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition,
obtain and keep in force during the term of this Lease a policy or policies in
the name of Lessor with loss payable to Lessor and Lender(s), insuring the loss
of the full rental and other charges payable by Lessee to Lessor under this
Lease for one (1) year (including all real estate taxes, insurance costs, and
any scheduled rental increases). Said insurance shall provide that in the event
the Lease is terminated by reason of an insured loss, the period of indemnity
for such coverage shall be extended beyond the date of the completion of repairs
or replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring
Party, the Lessor shall not be required to insure Lessee Owned Alterations and
Utility Installations unless the item in question has become the property of
Lessor under the terms of this Lease. If Lessee is the Insuring Party, the
policy carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned
Alterations and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or at Lessor's
option, by endorsement to a policy already carried, maintain insurance coverage
on all of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8 . If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of such insurance with the insureds and loss payable clauses as
required by this Lease. No such policy shall be cancellable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the
Insuring Party shall fall to procure and maintain the insurance required to be
carried by the Insuring Party under this Paragraph 8, the other Party may, but
shall not be required to, procure and maintain the same, but at Lessee's
expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
Warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees, or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations the repair cost of which damage or destruction is 50% or more of
the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence
or discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (1 0) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
a Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease of effective sixty (60) days following
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within thirty (30) days after the date of occurrence
of such damage. Provided, however, if Lessee at that time has an exercisable
option to extend this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, within twenty (20) days following the occurrence of the
damage, or before the expiration of the time provided in such option for its
exercise, whichever is earlier ("Exercise Period"), (i) exercising such option
and (ii) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs. If Lessee duly exercises such
option during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a)In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES.Lessee shall pay the Real Property Taxes,
as defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand. See Paragraph 62.
(b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right
at Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Real Property Taxes to be paid
in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c)The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "NET WORTH OF
LESSEE" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market value or one hundred ten percent (110%) of the Base Rent then in
effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not: (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable on the Lease or sublease and without obtaining
their consent, and such action shall not relieve such persons from liability
under this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's
obligations under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or any one else responsible for the performance of the Lessee's
obligations under this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of $1,000 as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) [Omitted on original]
(h) [Omitted on original]
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
this or any other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublessee, be deemed liable to the sublessee for
any failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to such sublessor or for any other prior
Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "DEFAULT" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises, if, in either case, Lessee
fails to pay rent when due.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The
making by lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101
or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given
to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurance or security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the guarantors that existed at the
time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The
reasonable costs and expenses of any such performance by Lessor shall be due and
payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor
by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at
its option, may require all future payments to be made under this Lease by
Lessee to be made only by cashier's check. In the event of a Breach of this
Lease by Lessee, as defined in Paragraph 13.1, with or without further notice or
demand, and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) 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 the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expense of reletting, including necessary renovation
and alteration of the Premises, reasonable attorneys' fees, and that portion of
the leasing commission paid by Lessor applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's
Default or Breach of this Lease shall not waive Lessor's right to recover
damages under this Paragraph. If termination of this Lease is obtained through
the provisional remedy of unlawful detainer, Lessor shall have the right to
recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under subparagraphs 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two such grace periods shall constitute both an unlawful detainer and a Breach
of this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1 , any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to three percent (3%) of
such overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of be Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of
this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease
whether such transfer is by agreement or by operation of law, shall be deemed to
have assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises,
any part thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the forgoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in
writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notice purposes. Either
Party may by written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to be
given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate by
written notice to Lessee.
23.2 Notices delivered by United States Express Mail or overnight
courier that guarantees next day delivery shall be deemed given twenty-four (24)
hours after delivery of the same to the United States Postal Service or courier.
If any notice is transmitted by facsimile transmission or similar means, the
same shall be deemed served or delivered upon telephone confirmation of receipt
of the transmission thereof, provided a copy is also delivered via delivery or
mail. If notice is received on a Sunday or legal holiday, it shall be deemed
received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT.Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
such subordination or non-subordination, attornment and/or non-disturbance
agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party brings an action or proceeding to enforce the
terms hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorney's fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term, "PREVAILING PARTY" shall include,
without limitation, a Party who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or the
abandonment by the other Party of its claim or defense. The attorney's fees
award shall not be computed in accordance with any court fee schedule, but shall
be such as to fully reimburse all attorney's fees reasonably incurred. Lessor
shall be entitled to attorney's fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lessor estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this
Lease are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude the
imposition by Lessor at the time of consent of such further or other conditions
as are then reasonable with reference to the particular matter for which consent
is being given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph
1.11, the form of the guaranty to be executed by each such Guarantor shall be in
the form most recently published by the American Industrial Real Estate
Association, and each said Guarantor shall have the same obligations as Lessee
under this Lease, including but not limited to the obligation to provide the
Tenancy Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if
any such Guarantor fails or refuses, upon reasonable request by Lessor to give:
(a) evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION.As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Promises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Promises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE.Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said parties and any permitted assignee under Paragraph 12
above.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease
40. MULTIPLE BUILDINGS. [Omitted on original]
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection Premises, Lessee, its
agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent and other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS 0R HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS 0R EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Portland, Maine Executed at San Jose, California
on 6/27/96 on 6-26-96
by LESSOR: by LESSEE:
UNUM Life Insurance Company of America, Sierra Semiconductor Corporation,
a Maine corporation a California Corporation
By: /s/ James D. Means By: /s/ Glenn C. Jones
Name Printed: James D. Means Name Printed: Glenn C. Jones
Title: Director of Property Management Title: SR VP, CFO
By By
Name Printed: Name Printed:
Title: Title:
Address: Address:
Tel. No. (207) 770-4044 Tel. No. (408) 263-9300
Fax No. (207) 770-4000 Fax No. (408) 263-1969
<PAGE>
Addendum by and between
UNUM Life Insurance Company of America, Lessor
and
Sierra Semiconductor Corporation, Lessee
for that lease dated June 26, 1996
49. Rent: Rent for the term shall be:
Months Rent/Mo Net
------ ------------
January 1, 1997 -August 31, 1998 $67,650.00
September 1, 1998- April 30, 2000 $70,125.00
May 1, 2000-December 31, 2001 $72,600.00
January 1, 2002-December 31, 2003 $78,375.00
50. Earthquake Insurance. Lessee agrees to pay for Earthquake Insurance. Lessor
shall purchase such insurance and Lessee shall reimburse Lessor for the cost.
However, Lessee's obligation to pay for such insurance shall be limited to a
maximum of $20,000 during any single year. The current cost for such Insurance
is approximately $11,550 per year.
A. Earthquake Insurance Deductibles. Lessee shall be responsible for
the payment of the deductibles of Earthquake Insurance. However,
Lessee's obligation to pay shall not exceed $50,000 for any single
occurrence and, in the event that the deductible exceeds the $50,000
specified, any further amount shall be amortized over the remaining
portion of this Lease at an interest rate of 10% and, in no event,
shall this cost exceed $1,650 per month. Lessee shall not be
responsible for the payment of any deductible if the Lessor should
elect to not re-build or repair.
51. Option. Lessor hereby extends to Lessee one (1) five (5) year option to
extend this lease. In order for Lessee to exercise this option, Lessee must give
notice to Lessor six (6) months before the termination of this lease-before July
1, 2003. The terms and conditions of this extension shall be identical to the
terms and conditions stated herein with the exception of rent.
Rent for the option period shall be the then prevailing Fair Market Rent. Fair
Market Rent shall mean the terms and conditions then currently in effect for
leasing similar buildings in the San Jose marketplace. Upon receipt of notice by
Lessee, Lessor and Lessee shall have thirty (30) days to agree upon Fair Market
Rent. Fair Market Rent shall include, but not be limited to, rent concessions
and rental increases during the term. In the event that Lessor and Lessee are
unable to agree on a market rent, Lessor and Lessee will agree to binding
arbitration in the following manner:
Within thirty (30) days after the expiration of said thirty (30) day
period (during which Lessor and Lessee were to have agreed upon Fair
Market Rent) Lessor and Lessee shall jointly appoint a disinterested
qualified real estate appraiser for the purpose of determining the fair
market rental rate for the Premises at the commencement of the option
period, or failing this joint action, shall each separately designate a
disinterested qualified real estate appraiser and, within fifteen (15)
days after their appointment, the two (2) designated appraisers shall
jointly designate a third similarly disinterested qualified real estate
appraiser. Failure of either Lessor or Lessee to appoint an appraiser
within the time allowed shall be deemed equivalent to appointing the
appraiser appointed by the other party. Each of the appraisers
appointed shall be a Commercial Real Estate Broker, and each shall have
at least five (5) years experience in leasing comparable real estate in
the San Jose area. On the first working day after the commencement of
the fifth (5th) calendar month before the expiration date of the term
of this Lease, the three (3) appraisers shall get together with the
Lessor's attorney, unless a different time or place is mutually agreed
upon by the parties. At such meeting, the three (3) appraisers shall
deliver to Lessor and Lessee sealed envelopes-their appraisals of the
fair market rental period in question. The appraisal farthest from the
median of the three appraisals shall be disregarded and the
mathematical average of the remaining two appraisals shall be deemed to
be the fair market rental rate for the Premises and shall be binding
and conclusive. Lessee shall thereupon have five(5) days to elect to
cancel the option exercise. Lessor and Lessee shall each pay the cost
and expenses of the appraiser appointed by it, and shall share equally
the expenses and costs of the third appraiser. In the event this
provision cannot be enforced, for whatever reason, the fair market rent
shall be determined by binding arbitration through the American
Arbitration Association.
52. Early Possession. Effective the date this Lease is executed, Lessee and
Lessor shall pursue diligently the planning and construction of Lessor approved
Lessee Improvements (See Paragraph 53). Upon completion of those improvements,
as evidenced by a signed off Building Permit, Lessee shall have occupancy of the
property for the purposes of installing fixtures and furniture and "fit-up" of
manufacturing. From the date of Lessee's occupancy until October 31, 1996,
Lessee shall not be responsible for the payment of base rent taxes or insurance.
Lessee shall pay for its utilities cost and exterior and interior maintenance
during this period.
However, upon occupancy, Lessee shall be bound by all other terms and conditions
of this Lease. Specifically, but not limited to, Lessee shall provide evidence
of insurance on its employees who are in occupancy and Lessee shall be
responsible for all acts of its employees, contractors, assigns or agents.
53. Lessee's Improvements.
A. Lessee will, with the aid of a licensed architect or engineer,
complete plans and specifications for Lessee's improvements to the
premises ("Lessee's Improvements") and submit them to Lessor by July 1,
1996. Lessee's Improvements shall also include all work specified in
change orders approved in accordance with this section.
For the purpose of this Lease, the term "Lessee Improvement Costs"
shall mean the aggregate of:
(i) the cost and expense of architectural, design and engineering
services required to produce the Lessee Plans;
(ii) all sums paid by Lessee to the general contractor, material
suppliers and subcontractors and all other construction costs with
regard to the Lessee Improvements;
(iii) a Construction Management fee equal to five percent (5%) of all
general contractor costs;
(iv) the license, permit, inspection, processing and/or approval fees
payable to the applicable governmental agency with respect to
obtaining the Lessee Improvements; and
(v) the cost and expense of modifying the ducting of the heating,
ventilating and air-conditioning system.
The construction contract between the Lessee and the general contractor
shall provide that all Lessee Improvements shall be completed in a good
and workmanlike manner and all materials and equipment incorporated
into the Lessee Improvements (i) will be new and free of defects, (ii)
will conform to all applicable laws, ordinances and regulations of all
duly constituted authorities, including without limitation, Title III
of the Americans with Disabilities Act of 1990, all regulations issued
thereunder and the Accessibility Guidelines for Buildings and
Facilities issued pursuant thereto, as the same are in effect on the
date permits are issued ("Applicable Laws"), and (iii) will conform to
the final working drawings approved by Lessor and Lessee, including all
changes or modifications thereto approved by Lessor. The Lessor shall
be an expressed third party beneficiary of the construction contract.
Lessor will reasonably approve or disapprove said plans and
specifications within seven (7) days of receipt of plans and
specifications. If Lessor has not notified Lessee, in writing, of
approval or reasonable disapproval and the reasons therefor within
seven (7) days of receipt of plans and specifications, the plans and
specifications shall be deemed approved.
All substantive changes will be required to be approved by Lessor. This
approval shall not be unreasonably withheld or delayed.
Lessee may select a general contractor subject to Lessor's reasonable
consent. Lessee and general contractor shall diligently pursue to
completion said improvements in accordance with the approved plans and
specifications. Lessee acknowledges that Lessor may record a Notice of
Non-Responsibility in regards to the construction of Lessee
Improvements.
Lessor agrees to contribute Four Hundred Ninety-Five Thousand Dollars
($495,000.00), "Lessee Improvement Allowance" toward Lessee's
Improvement Costs. Lessee shall arrange, contract and pay for all
services related to the design and installation of the Lessee
Improvements. Lessor shall make progress payments to Lessee based upon
Applications for Payment from the Contractor submitted by the
Contractor to Lessee and the appropriate additions required to cover
other Lessee's Improvement Costs (collectively an "Application for
Lessor Disbursement"). Lessee shall review and approve Applications for
Payment prior to submittal to Lessor. Applications for Lessor
Disbursement shall be subject to review and approval by Lessor and
based on Lessor approval which shall not be unreasonably withheld or
delayed. Lessor shall make progress payments on account of the "Lessee
Improvement Allowance" to the Lessee for the period ending the last day
of the month as follows:
Application for Lessor Disbursement is to be submitted by the 25th of
any given month for the period through the last day of the month, but
not later than fifteen (15) days following the end of the period
covered by the Application for Lessor Disbursement. Payment will be
made by Lessor to Lessee by the 15th day following submission of the
Application for Lessor Disbursement in the amount of ninety percent
(90%) of the portion of the "Lessee Improvement Cost" described in the
Application for Lessor Disbursement for completed work and properly
allocated to materials and equipment suitably stored at the site or at
some other location agreed upon in writing in the period covered by the
Application for Payment, less the aggregate of previous payments of the
"Lessee Improvement Allowance" less such amounts as the Lessor shall
reasonably determine to be required to be withheld for all incomplete
Work and unsettled claims as provided in the Contract Documents between
Lessee and the Contractor.
In connection with the installation of the Lessee Improvements, Lessee,
at its cost and expense shall comply with all codes requiring
compliance as a result of Lessee's specific use of the Premises or as
required in connection with obtaining building and occupancy permits,
including without limitation, local building codes and the Americans
with Disabilities Act.
B. Total Lessee Improvement Costs. Within thirty (30) days after the
Lessee's Improvements are substantially completed, Lessor and Lessee
shall confirm in writing the Total Lessee Improvement Cost (as
hereinafter defined).
If the Lessee Improvement Costs ("Total Lessee Improvement Costs") are
less than the Allowance, the following shall occur:
a. If the amount of the allowance used is more than
$400,000 and less than the Allowance, the monthly
rent shall be reduced by 1.5% of every dollar not
used. For example, should the Lessee not use
$50,000.00 of the Allowance, the monthly rent would
be reduced by $750.00.
b. If the amount of the allowance used is less than
$400,000 the difference between the $400,000 and the
amount of the Allowance used by Lessee, up to a
maximum of $50,000, shall be applied to the first
rental due under this lease and, in addition, the
rent shall be reduced by $1,425.00 per month.
c. No other reduction in rent or unused Allowance
applied to first rentals shall be due to Lessee. If
the Lessee uses less than $350,000, all unused
Allowance less than $350,000 shall become the
property of the Lessor.
54. In addition, Lessor agrees to extend the notice period and to warrant the
conditions specified in Paragraph 2.2 for one (1) year. During that year, Lessee
shall be responsible for the normal maintenance of those systems only. Lessor
shall be responsible for any repairs or replacements required or identified
during the first year.
55. Lessee is aware that the current roof leaks in several places and that
Lessor is in the process of determining the appropriate method of repairing the
roof. Lessor agrees that it will deliver the building to the Lessee with a water
tight roof in good condition. Therefore, during the term of this lease, Lessor
shall perform and Lessee shall reimburse to Lessor the costs of regular
maintenance of the roof and any repairs up to and including $2,000 per year
only. Any repairs over that amount shall be at the sole cost of the Lessor. In
no event, during the term of the lease or extensions thereof, shall Lessee be
responsible for the replacement of the roof.
In addition, Lessor agrees to perform all work or repairs required because of
the previous leaks in the roof at Lessor's sole cost and expense and such cost
shall not be a part of the Lessee's Improvement Allowance. This work includes,
but is not limited to, replacing of doors in the warehouse area, replacing of
insulation, ceiling tiles and patching any sheetrock walls that have been water
damaged.
56. Concerning Paragraphs 54 and 55, Lessor's responsibility for the equipment,
building systems and roof shall not extend to any conditions caused by the
negligence or acts of Lessee, Lessee's contractors, assigns or agents.
57. In addition to the Allowance, Lessor agrees to pay to Lessee the sum of
$30,000 to reimburse Lessee for moving expenses. Lessor shall pay $30,000 within
5 days after receipt of Lessee's rent for February 1997.
58. Hold Harmless and Indemnification. Lessor shall not be released or
indemnified from, and shall indemnify, defend, protect and hold harmless Lessee
from, all losses, damages, liabilities, judgments, actions, claims, attorneys'
fees, consultants' fees, payments, costs and expenses arising from the
negligence or willful misconduct of Lessor or its agents, contractors, or
employees, Lessor's violation of any Applicable Law, and/or a breach of Lessor's
obligations or representations under the Lease.
59. Paragraph 39 is modified as follows: Lessor and Lessor's agents, except in
the case of an emergency, shall provide Lessee with twenty-four (24) hours'
notice prior to entry of the Premises. Any such entry by Lessor and Lessor's
agents shall comply with all reasonable security measures of Lessee and shall
not impair Lessee's operations more than reasonably necessary. During any such
entry, Lessor and Lessor's agents shall at all times be accompanied by a
representative of Lessee.
60. Property Taxes. Lessee at its cost shall have the right, at any time, to
seek a reduction in the assessed valuation of the Premises, or to contest any
Tax Increase that is to be paid by Lessee. Lessor shall not be required to join
in any proceeding or contest brought by Lessee unless the provisions of any law
require that the proceeding or contest be brought by or in the name of Lessor.
In that case Lessor shall join in the proceeding or contest or permit it to be
brought in Lessor's name as long as Lessor is not required to bear any cost.
Lessee, on final determination of the proceeding or contest, shall immediately
pay or discharge its share of any Tax Increase based on the decision or judgment
rendered, together with all costs, charges, interest, and penalties incidental
to the decision or judgment.
61. Hazardous Materials. Lessee is required to submit to the City of San Jose an
Hazardous Materials Management Plan-or similar plan as may be designated by the
City of San Jose-HMMP. This disclosure details the nature and volumes of
Hazardous Materials and their method of storage. From time to time, Lessee may
change the items on their HMMP and re-submit this to the City of San Jose.
Lessor's prior approval is not required. However, Lessee shall, upon submittal
of a revised HMMP to the City of San Jose, send a duplicate of the revised Plan
to Lessor and the revision of the HMMP is subject to the reasonable approval of
the Lessor.
Prior to occupancy, Lessee shall send to Lessor its HMMP and this HMMP is
subject to the reasonable approval of Lessor.
Additionally, Lessor represents that it has complied with all environmental
disclosure obligations imposed upon Lessor by Applicable Law with respect to
this transaction and known by Lessor.
62. Real Property Taxes. Lessor and Lessee understand that the current tax bill
for the property is as follows:
Total Full Cash Value $57,393.10
Special Assessments $28,604.02
Lessee agree to pay for all taxes due on Special Assessments. Lessee agrees to
pay for taxes due on Total Full Cash Value up to a maximum of $130,000.00. Any
taxes due over and above the $130,000.00 shall be split 50/50 between Lessor and
Lessee.
63. ADA and Title 24 Compliance. In addition to Lessee's Improvement Allowance,
Lessor agrees to reimburse to Lessee costs for American's with Disabilities Act
(ADA) and Title 24 upgrades as follows:
Title 24. Lessor recognizes that Lessee's modification of the interior
of the premises may require the addition of "compression bars" in the
ceiling and additional support for the fluorescent lights in the
ceiling. Lessor agrees to reimburse Lessee for those costs.
ADA. Lessor also recognizes that the modifications may require some
construction in the restrooms to bring them into compliance with ADA.
Lessor agrees to reimburse Lessee for those costs.
However, in no event, shall Lessor pay more that $50,000 to reimburse
the total of the Title 24 and ADA upgrades.
Lessee shall submit a separate and itemized invoice from Lessee's contractor
specifying these costs and said invoice shall be subject to the reasonable
approval of the Construction Manager. Upon approval of the Construction Manager,
Lessor shall reimburse all approved costs to Lessee within 15 days (not to
exceed $50,000 specified above).
A copy of this Addendum is hereby acknowledged
Lessor: UNUM Life Insurance Company Lessee: Sierra Semiconductor Corporation
of America
By: /s/ James D. Means By: /s/ Glenn C. Jones
Date: 6/27/96 Date: 6-26-96
