<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C 20549
FORM 10-K
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required) for the fiscal
year ended January 31, 1995.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required) for the
transition period from _________ to __________.
Commission file number: 15116
SIGMA DESIGNS, INC.
(Exact name of Registrant as specified in its charter)
California 95-2848099
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
46501 Landing Parkway
Fremont, California 94538
(Address of principal executive offices)
Registrant's telephone number, including area code: (510) 770-0100
Securities registered pursuant to Section 12(g) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $31.8 million as of April 6, 1995 based upon the
closing price on the NASDAQ National Market System reported for such date.
Shares of Common Stock held by each executive officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded
in that such persons may under certain circumstances be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
Number of Shares of Common Stock outstanding as of April 6, 1995:
7,511,472
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following document are incorporated by reference to Part III of
this Form 10-K report: Proxy Statement for Registrant's Annual Meeting of
Shareholders to be held June 2, 1995.
<PAGE> 2
SIGMA DESIGNS, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 1995
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . 5
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . 11
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . 11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . 11
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K . . . . 12
</TABLE>
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PART I
ITEM 1. BUSINESS
The Company designs, manufactures (using subcontractors) and markets
multimedia products and imaging display systems for use with personal
computers. The emergence of multimedia technology in the personal computer
market has dramatically changed the way users interact with computers.
Multimedia integrates different elements, such as sound and video, to enhance
the computing experience and deliver a heightened sense of realism. Through
its RealMagic product line incorporating MPEG (Moving Picture Experts Group)
technology, Sigma Designs has made itself a leader in this emerging market.
Prior to MPEG's introduction, video on personal computers suffered from
serious drawbacks. Motion was jerky and video was confined to small window
sizes. MPEG, a defined ISO (International Standards Organization) standard for
compression, eliminated those problems and revolutionized multimedia on the PC
platform. For the first time, MPEG users could play back full-screen,
full-motion video combined with stereo audio, even from a standard CD-ROM. A
single CD-ROM using MPEG compression technique can store up to 72 minutes of
full-motion video and audio.
Because of MPEG technology, producers could now create (and users enjoy)
an interactive, television-like experience right on the desktop PC. The result
was a significant new visual impact and the birth of many possibilities for a
wide range of entertainment, education, training and business presentation
applications.
THE REALMAGIC MPEG STANDARD
Since its first shipment in November 1993, RealMagic technology has
received widespread support from PC industry leaders, software developers as
well as OEM and retail customers.
Partnership with PC Industry Leaders: Sigma has received endorsement for
its RealMagic technology from companies such as Microsoft, IBM, Novell and
Starlight Networks. On the operating system side, RealMagic is being supported
by Microsoft NT and O/S 2 2.0 WARP. Additionally, Novell and Starlight
Networks are both compatible with RealMagic in a network environment.
Widespread Support from Software Developers: Support for Sigma's
RealMagic MPEG standard has grown rapidly in the software development
community. One year ago the Company listed 50 authorized RealMagic software
developers; by the end of fiscal 1995, Sigma's roster of developers rose to
more than 950, including such prominent names as Activision, Tsunami Media,
Mindscape, Virgin Interactive Entertainment, Time Warner, and Interplay. This
widespread developer support has led to the introduction of more than 50
interactive software titles in the RealMagic format and many more currently
under development. The RealMagic DOS MPEG API (Application Programming
Interface) has also become the de facto standard for MPEG software development,
further evidence of widespread support from the software development community.
With its robust functionality, the RealMagic API is so far the only technology
available that allows the creation of fully interactive MPEG software titles.
Support from OEMs: In the U.S., Digital Equipment Corporation began
private labeling RealMagic and selling it under Digital's FullVideo brand name.
Additionally IBM has begun taking shipments of RealMagic boards for systems
targeted at vertical kiosk applications. In the Far East, where the popularity
of Karaoke and videoCD has made RealMagic a very well received product, the
Company's OEM customers include NEC and Midori in Japan, and Hyundai in Korea.
<PAGE> 4
Acceptance by Retail Channel: In 1994, Sigma secured distribution of its
RealMagic family of products in major superstores such as CompUSA, Computer
City. In addition, national distributors such as Ingram Micro D and Tech Data
are also carrying RealMagic, further evidence of the channel's acceptance and
interest in MPEG technology.
REALMAGIC BUSINESS STRATEGIES
Sigma's corporate objective is to continue to be the leading provider of
multimedia products that enable full-screen, full-motion, TV-like quality video
on standard PC and other desktop platforms. To accomplish this goal, the
Company intends to promote the widespread acceptance of the RealMagic
technology. The key parts of this strategy include:
Encourage Continued Development of Software Utilizing the RealMagic
Technology: The Company continues to encourage widespread software title
development by providing free technical support and licensing its comprehensive
API free of charge to all developers who wish to publish RealMagic-compatible
software titles. In addition, the Company has begun shipping RealMagic
Producer, the industry's first low-cost MPEG authoring system. It enables
compression of MPEG video and audio in order to create high-quality multimedia
presentation and titles. The Company expects that the availability of
RealMagic producer will lead to the development of more RealMagic MPEG titles,
and therefore increase the demand for RealMagic playback cards.
Win more OEM partnerships and further penetrate retail channel: To
establish RealMagic as a true standard, the Company will continue to seek
design wins with major PC manufacturers worldwide in which the OEMs will
factory-install the RealMagic card or chip set inside personal computers. On
the retail side, the Company plans to expand its network of national and
regional distributors as well as computer superstores. In Europe and Asia, the
Company will continue to expand its relationship with distributors as well as
OEMs and VARs.
Offer RealMagic at Attractive Prices and Continually Reduce Product
Costs: The current RealMagic card has a suggested retail price of $399, the
RealMagic Lite $299, the RealMagic MPEG CD-ROM Kit $699. The Company plans to
continue the cost reduction program so that it can go on lowering the price to
expand the market demand for RealMagic products.
Introduce New Generations of RealMagic: A significant aspect of the
Company's product strategy is to continue developing newer versions and
generations of the RealMagic products for both playback and compression
markets. The general direction is to continue to offer consumers with
better-features and lower price products over time. The intention is to stay
one step ahead of competition.
REALMAGIC PRODUCTS
The Company now offers a complete family of RealMagic product line
including:
(1) RealMagic: a combination of 16-bit sound plus MPEG full-motion
Video and MPEG audio playback card.
(2) RealMagic Lite: an MPEG Video and audio playback card for users
with existing sound card.
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(3) RealMagic CD-ROM Upgrade Kit: a full featured kit including
RealMagic, a CD-ROM drive, a pair of speakers and several of the best selling
MPEG and DOS software titles.
While many MPEG cards are being introduced by competitors, RealMagic
remains the only MPEG playback card capable of playing the existing interactive
MPEG software titles. The ability to play interactive titles distinguishes
RealMagic from the many new MPEG cards soon to be introduced to the market
place.
(4) RealMagic Producer: It enables compression of MPEG video and audio
in order to create high-quality multimedia presentations and titles. RealMagic
producer takes advantage of AVI Editable MPEG, a new file format co-defined
between Sigma and Microsoft, which permits the product to edit MPEG files using
any off-the-shelf AVI editing software package.
MARKETING AND SALES
Sigma Designs currently distributes its products through sales to
national and regional distributors and computer superstores. The Company also
intends to expand the sales of its products to OEMs and VARs. However, there
can be no assurance that the Company will achieve significant sales so as to
achieve profitability in the near term, if at all. The Company's national
distributors include Ingram Micro D and Tech Data and computer superstores
include CompUSA and Computer City. The Company's international OEMs include
NEC and Midori in Japan, Hyundai in Korea; its many international distributors
are strategically located in many countries throughout the world.
The Company generally acquires and maintains products for distribution
through retail channels based on forecasts rather than firm purchase orders.
Additionally, the Company generally only acquires products for sales to its OEM
customers after receiving purchase orders from such customers, such purchase
orders are typically cancelable without substantial penalty from such OEM
customers. The Company currently places noncancelable orders to purchase
semiconductor products from its suppliers on a twelve to sixteen-week lead time
basis. Consequently, if, as a result of inaccurate forecasts or canceled
purchase orders, anticipated sales and shipments in any quarter do not occur
when expected, expenses and inventory levels could be disproportionately high,
requiring significant working capital resulting in severe pressure on the
Company's financial condition.
RESEARCH AND DEVELOPMENT
The Company had a staff of 33 research and development personnel, which
conducts all the Company's product development, as of January 31, 1995. The
Company is focusing its development efforts primarily on multimedia products,
including new and improved versions of RealMagic, new software titles, low-cost
compression technology and cost reduction processes.
To achieve and maintain its technological leadership, the Company must
continue to make technological advancements in the areas of MPEG video and
audio compression, decompression. These advancements include compatibility
with emerging standards and multiple platforms, improvements to the RealMagic
architecture, enhancements to RealMagic API. There can be no assurance that
the Company will be able to make any of such advancements to the RealMagic MPEG
technology or, if they are made, that the Company will be able to market such
advancements to achieve profitability and maintain its technological
leadership.
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During fiscal 1995, 1994 and 1993, the Company's research and development
expenses were approximately $4.3 million, $12.0 million (including $8.1 million
of acquired research and development relating to the acquisition of EMI), and
$5.0 million respectively. The Company plans to continue to devote substantial
resources to the research and development of the future generation of MPEG
compression and decompression products.
COMPETITION
The market for Multimedia PC products is highly competitive. While the
Company does not believe that any product currently sold by a third party is in
direct competition with the RealMagic playback controller card in terms of
price and performance. The possibility that other companies with more
marketing and financial resources may develop a competitive product may inhibit
the wide acceptance of RealMagic technology. The Company believes that many
computer product manufacturers are developing MPEG products that will compete
directly with the RealMagic products in the near future.
The Company believes that the principal competitive factors in the market
for multimedia hardware products include time to market for new product
introductions, product performance, compatibility to industry standards, price,
and marketing and distribution resources. The Company believes that it
competes most favorably with respect to time to market, product performance and
price of RealMagic products. Moreover, the Company believes that the
establishment of RealMagic API as a software development standard could provide
a significant competitive advantage for the Company. However, there can be no
assurance that the Company's lead time in product introduction will be
sustained.
Sales to distributors and sometimes even to OEMs are typically subject to
contractual rights of inventory rotation and price protection. Regardless of
particular contractual rights, the failure of one or more distributors or OEMs
to achieve sustained sell-through of RealMagic products could result in product
returns or collection problems, contributing to significant fluctuations in the
Company's operating results.
LICENSES, PATENTS AND TRADEMARKS
The Company is seeking patent protection for the basic low-cost
architecture of the RealMagic products, as well as certain software and
hardware features used in current and future versions of RealMagic. The
Company currently has eight (8) pending patent applications for its RealMagic
technology. One (1) patent has been issued to the Company and there can be no
assurance that more patents will be issued, or, if issued, will provide
adequate protection for the Company's competitive position. The Company also
attempts to protect its trade secrets and other proprietary information through
agreements with customers, suppliers and employees and other security measures.
Although the Company intends to protect its rights vigorously, there can be no
assurance that these measures will be successful.
MANUFACTURING
To reduce overhead expenses, capital and staffing requirements, the
Company currently uses third-party contract manufacturers to fulfill its
manufacturing needs. The Company's RealMagic playback controller card contains
four chips, all of which are manufactured by outside suppliers or foundries.
Each of these suppliers is a sole source of supply to the Company of the
respective chip produced by such supplier.
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The Company's reliance on independent suppliers involves several risks,
including the absence of adequate capacity, reduced control over delivery
schedules, manufacturing yields and costs. Any delay or interruption on the
supply of any of the components required for the production of the RealMagic
multimedia card could have a material adverse impact on the sales of RealMagic
products by the Company and thus on the Company's business.
BACKLOG
Because the Company's customers typically expect quick deliveries, the
Company seeks to ship products within a few weeks of receipt of a purchase
order. The customer may reschedule delivery of products or cancel the purchase
order entirely without significant penalty. Historically, the Company's
backlog has not been reflective of future sales. The Company also expects that
in the near term its backlog will continue to be not indicative of future
sales.
EMPLOYEES
As of January 31, 1995, the Company had 138 full-time employees,
including 33 in research and development, 50 in marketing, sales and support,
28 in manufacturing and 27 in finance and administration. The Company's future
success will depend, in part, on its ability to continue to attract, retain and
motivate highly-qualified technical, marketing, engineering and management
personnel, who are in great demand. The Company's employees are not
represented by any collective bargaining unit, and the Company has never
experienced a work stoppage. The Company believes that its employee relations
are satisfactory.
FACTORS AFFECTING EARNINGS AND STOCK PERFORMANCE
The Company has incurred losses and had negative cash flow in the last
three years. There can be no assurance that the Company will achieve
profitable operations in the future or that if profitable operations are
achieved, that they will be sustained. The Company's business is critically
dependent on the sell-through of RealMagic products. Delays in market
acceptance of RealMagic products will have material adverse impact on the
Company's earnings and price of the Company's Common Stock.
To date, the Company has not been successful in generating sufficient
demand for its RealMagic products from either the retail channel or OEM
customers to enable the Company to achieve profitable opeations. The Company
will continue to seek to market amd sell its RealMagic products through both
channels, but there can be no assurance that the Company will ever be
successful in achieving a sustained market for its products in either channel.
The cost of marketing and sales related to the introduction of RealMagic has
required the Company to continue to maintain a high level of expenses. The
Company believes that it must continue to invest significant resources in
research and development and sales and marketing if it is ever to achieve
sustained market demand for its RealMagic product line.
Should the Company fail to establish increased demand for its RealMagic
products during 1995 and beyond, the Company will continue to experience
substantial losses. The Company does not expect to experience a significant
improvement in operating results during the first half of fiscal 1996. Moreover,
the Company will require additional financing to enable it to address its
business objectives. There can be no assurance that such financing will be
available on attractive terms.
As a result of the foregoing factors, an investment in the Company's
securities is speculative and involves a high degree of risk. Investors in the
Company's common stock must be willing to bear such risk.
ITEM 2. PROPERTIES
The Company currently leases a 50,000 square foot facility in Fremont,
California that is used as the Company's headquarters. The lease will expire in
August 1998. The Company believes that it has adequate facilities to
accommodate the Company's operations in the near term.
On February 16, 1994, the Company entered into a sublease agreement
with Media Vision Technology, Inc. (Media Vision) whereby Media Vision
subleased the Company's old executive offices located at 47900 Bayside Parkway,
Fremont, California 94538. The difference between the Company's total lease
commitment of that facility and the total lease commitment from Media Vision
has been included in the accrued facilities as of January 31, 1995.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings which it believes
will materially and adversely affect its financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Sigma Designs' common stock has been traded in the over-the-counter
market under the Nasdaq symbol SIGM since the Company's initial public offering
on May 15, 1986. The price per share represents the range of high and low
closing prices in the Nasdaq National Market System, for the quarter indicated.
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
--------------- ---------------
High Low High Low
----------------------------------------
<S> <C> <C> <C> <C>
First quarter ended April 30 14 8 7 1/2 5 1/4
Second quarter ended July 31 9 5/16 6 3/8 5 3/4 3 1/4
Third quarter ended October 31 8 1/2 4 7/8 18 3 1/2
Fourth quarter ended January 31 8 5 3/8 19 1/2 12 7/8
</TABLE>
As of March 16, 1995, the Company had approximately 311 shareholders of
record. The Company has not paid any cash dividends on its common stock and
does not plan to pay cash dividends to its shareholders in the near future.
The Company presently intends to retain its earnings to finance the future
growth of its business.
ITEM 6. SELECTED FINANCIAL DATA
Years ended January 31
(In thousands, except per share amounts and number of employees)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $ 43,700 $ 34,989 $ 27,058 $ 27,567 $ 35,968
Net income (loss) (8,773) (29,546) (7,166) (3,443) 1,788
Net income (loss)
per common
and equivalent share (1.20) (5.15) (1.37) (.67) .32
Working capital 17,446 15,117 33,696 41,515 44,684
Total assets 33,387 26,639 44,267 49,049 51,818
Shareholders' equity 18,721 16,499 37,788 44,755 47,816
Number of employees 138 151 195 197 220
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In the year ended January 31, 1995, the Company recorded net sales of
$43.7 million and a net loss of $8.8 million ($1.20 per share) which resulted
primarily from lower than expected sales, reserves recorded by its subsidiary,
Sigma Designs Imaging Systems, Inc. ("SDIS") and Sigma, increased marketing
expenses to promote and market RealMagic products worldwide and significant R&D
expenses related to the cost of supporting third-party software title
developers in the development of RealMagic compatible titles.
SALES
The following table set forth the Company's net sales in each of its
product groups for the last three years.
<TABLE>
<CAPTION>
(In thousands)
Fiscal 1995 Fiscal 1994 Fiscal 1993
----------- ----------- -----------
<S> <C> <C> <C>
Multimedia products $ 30,345 $ 8,022 $ 681
Display systems 7,887 17,825 16,250
CPU boards 2,050 4,353 6,831
Graphics controller boards -- 494 2,720
Other 3,418 4,295 576
------ ------ ------
Net Sales $ 43,700 $ 34,989 $ 27,058
======== ======== ========
</TABLE>
The multimedia product group includes RealMagic playback controller card,
RealMagic Lite designed for those who already owned a sound card, and RealMagic
Upgrade Kit which consists of the RealMagic card, a double-speed CD-ROM drive,
a pair of speakers, and an array of popular MPEG software titles. The display
systems group includes a variety of color and monochrome high-resolution
monitors designed to be used with special applications such as document imaging
or computer-aided designs. The other product group consists primarily of sales
of surplus and obsolete inventories and sales of components to service centers.
The Company's net sales increased 25% in fiscal 1995 and increased 29% in
fiscal 1994. In fiscal 1995, net sales of multimedia products increased 278%
while net sales of all other categories decreased, which is consistent with the
Company's strategy to emphasize its RealMagic product line and to continue to
invest in MPEG technology for the PC platform.
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The following table sets forth the Company's net sales by domestic
distribution channels and export sales for each of the last three years:
<TABLE>
<CAPTION>
(In thousands)
Fiscal 1995 Fiscal 1994 Fiscal 1993
<S> <C> <C> <C>
Domestic Sales :
Retail sales $ 17,722 $ 17,234 $ 7,456
OEMs and VARs 10,070 6,349 10,745
---------- ---------- ----------
Total domestic sales 27,792 23,583 18,201
---------- ---------- ----------
Export Sales:
Asia 10,222 1,883 505
Europe 5,415 9,163 8,097
Canada 271 360 255
---------- ---------- ----------
Total export sales 15,908 11,406 8,857
---------- ---------- ----------
Net Sales $ 43,700 $ 34,989 $ 27,058
========== ========== ==========
</TABLE>
The percentage of the Company's net sales attributable to domestic retail
sales was 41% in fiscal 1995, 49% in fiscal 1994, and 28% in fiscal 1993. The
percentage of the Company's net sales attributable to domestic OEM and VAR
sales was 23% in fiscal 1995, 18% in fiscal 1994, and 40% in fiscal 1993. The
percentage of the Company's net sales attributable to export sales was 36% in
fiscal 1995, 33% in fiscal 1994, and 33% in fiscal 1993.
In fiscal 1995, domestic sales increased 18% over fiscal 1994 while
export sales increased 39%. Export sales in Asia increased 443% in fiscal 1995
while export sales in both Europe and Canada decreased. The significant
increase in export sales in Asia was due to the wide-acceptance of RealMagic
products for use with Karaoke applications. The decrease in export sales in
Europe occurred because the current progress of the development of the
RealMagic market in Europe has not been sufficient to offset reduced sales of
those products which the Company will not be emphasizing in the future.
GROSS MARGIN
The Company's gross margin as a percentage of net sales was approximately
15%, 21%, and 15% in fiscal 1995, 1994, and 1993, respectively. The decrease in
gross margin in fiscal 1995 was primarily due to fourth quarter increases in
inventory reserves in SDIS and Sigma which increased annual cost of sales by
$3.7 million, and reduced the annual gross margin to 15% from 23% prior to the
impact of these reserves. Such inventory reserves were required in connection
with the Company's decision to withdraw support of certain imaging products,
difficulties in developing a new product design for applications in China that
would have incorporated certain display systems, and changes in computer design
by computer manufacturers that were not anticipated and that created excess
supplies of certain inventories. The increase in gross margin in fiscal 1994
was due to discontinuance of certain products with low margins and increased
sales of multimedia products which had higher margins.
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<PAGE> 11
OPERATING EXPENSES
Sales and marketing expenses decreased $426,000 (5%) in fiscal 1995 over
fiscal 1994. The small reduction reflected the more focused approach to
marketing which concentrates on RealMagic product line. These same expenses
increased $1,972,000 (26%) in fiscal 1994 over fiscal 1993. This increase was
consistent with higher sales and the added expenses needed to launch multimedia
products.
Research and development expenses in fiscal 1995 increased $498,000 (13%)
over fiscal 1994, excluding $8,137,000 of in-process research and development
expenses in fiscal 1994 related to the acquisition of E-Motions, Inc. ("EMI").
This increase reflected the necessary expenses needed to develop the next
generation of RealMagic products and the added costs needed to support
third-party software title developers in the development of RealMagic
compatible titles. These same expenses decreased $1,192,000 (24%) in fiscal
1994 over fiscal 1993, excluding the impact of the acquisition of EMI. This
decrease was due to general cost reduction efforts, the discontinuation of
development efforts in non-multimedia products and related headcount reductions
which occurred in conjunction with a restructuring in the second quarter of
fiscal 1994.
The Company's general and administrative expenses in fiscal 1995
increased $803,000 (30%) over fiscal 1994. This increase reflected added costs,
primarily related to increased headcount, necessitated by the Company's
decision to combine its remaining display systems business with the imaging
products offered by Docupoint subsidiary, into a separate entity, SDIS, in the
first quarter of fiscal 1995, and to support the higher level of sales. These
same expenditures increased $767,000 (39%) in fiscal 1994 over fiscal 1993.
This increase reflected added expenses to manage Docupoint and higher salary
expenses related to the transfer of certain personnel to the general and
administrative function.
In the second quarter of fiscal 1994, the Company recorded a $13.7
million restructuring charge in connection with the Company's decision to focus
attention on its new multimedia products. Related to this decision, the
Company eliminated certain product lines, moved to smaller facilities at the
end of the first quarter of fiscal 1995 and discontinued certain internal
manufacturing and assembly. The restructuring charge primarily consisted of
reserves for inventories ($8.2 million) and accruals of lease commitments for
excess facilities ($4.1 million) as well as other accruals for liabilities
incurred and writedowns of impaired assets. In the third quarter of fiscal
1995, the Company refined its remaining estimate of reserves and accruals
related to the restructuring and, as a result of the finalization of the terms
and circumstances related to the subleasing of the Company's excess facilities,
recorded a $517,000 recovery in that quarter. The remaining facilities accrual
of approximately $1.9 million relates to the excess of the Company's lease
commitment over expected sublease income for the term of the lease.
LOSS PER SHARE
The Company's $1.20 loss per share in fiscal 1995 was due primarily to
lower than expected sales, reserves recorded by its subsidiary, SDIS, and
Sigma, increased marketing expenses in Sigma to promote and market RealMagic
products worldwide and significant R&D expenses related to the cost of
supporting third-party software title developers in the development of
RealMagic compatible titles. The Company's $5.15 and $1.37 loss per share in
fiscal 1994 and 1993 were due primarily to sales levels which were not high
enough to generate sufficient gross profits to offset operating expenses and
the negative impact on margin from competitive pricing pressures. The $5.15
loss per share in fiscal 1994 also included $3.80 for restructuring and
in-process research and development expenses.
-9-
<PAGE> 12
FINANCIAL CONDITION
The Company had cash and marketable securities of $8.2 million at January
31, 1995, as compared with $5.3 million at January 31, 1994. The increase in
cash and marketable securities was due primarily to $13.2 million raised in the
first quarter of fiscal 1995 through the sale of common stock in a public
offering and $1.7 million of cash borrowed under a bank line of credit, offset
by cash used for operations of $7.7 million, a $1.9 million payment to former
shareholders of EMI in settlement of contingencies related to the purchase
price of EMI, and approximately $1.0 million invested in the development of
RealMagic compatible software titles by third parties.
The Company's primary sources of funds to date have been cash generated
from operations prior to 1993, proceeds from public offerings of its common
stock and bank borrowings under lines of credit. The Company believes that its
current reserve of cash and marketable securities and the availability of an
additional $3.1 million under its existing banking arrangements will be
sufficient to satisfy its needs for the next twelve months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements and the report of the independent
auditors appear on pages F-1 through F-15 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-10-
<PAGE> 13
PART III
Certain information required by Part III is omitted from this Report in
that the Registrant filed its definitive proxy statement pursuant to Regulation
14A (the "Proxy Statement") with the Securities and Exchange Commission on
April 25, 1995, and certain information included therein is incorporated herein
by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and certain executive
officers required by this Item is incorporated by reference to the Proxy
Statement under the heading "Election of Directors."
The information concerning certain executive officers required by this
Item is incorporated by reference to the Proxy Statement under the heading
"Other Information."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Information Concerning Solicitation and
Voting--Record Date and Share Ownership" and under the heading "Other
Information--Share Ownership by Principal Shareholders and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation--Compensation
Committee Interlocks and Insider Participation."
-11-
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. The following documents are filed as part of this Report:
1. Financial Statements. The following Consolidated Financial
Statements of Sigma Designs, Inc. are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of January 31, 1995 and F-2
1994
Consolidated Statements of Operations for the Years F-3
Ended January 31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity for F-4
the Years Ended January 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flow for the Years F-5
Ended January 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements F-6
</TABLE>
2. Financial Statement Schedule. The following financial
statement schedule of Sigma Designs, Inc. for the years ended January 31,
1995, 1994 and 1993 are filed as part of this Report and should be read in
conjunction with the Consolidated Financial Statements of Sigma Designs, Inc.:
-12-
<PAGE> 15
<TABLE>
<CAPTION>
Schedule Page
-------- ----
<S> <C>
Independent Auditors' Report on
Financial Statement Schedules . . . . . F-1
II Valuation and Qualifying Accounts . . . F-15
</TABLE>
Schedules not listed above have been omitted because they are
not applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes thereto.
3. Exhibits. The following exhibits are filed as part of, or
incorporated by reference into, this Report:
Exhibit
Number
---------
3.1(1) Restated Articles of Incorporation, as amended.
3.2(2) By-Laws of Registrant, as amended.
4.1(1) Article IV of the Articles of Incorporation of Registrant
(see Exhibit 3.1).
10.1(3) Distribution Agreement dated September 10, 1985 between
Registrant and Softsel Computer Products, Inc. and Amendment
to Distribution Agreement dated September 10, 1985.
10.2(4) Registrant's 1986 Employee Stock Purchase Plan, as amended,
and form of Subscription Agreement.
+10.3(2) Distributor Agreement dated May 24, 1988 between Registrant
and Micro D, Inc.
10.4(5) Lease dated October 31, 1990 between Registrant and Renco
Investment Company.
10.5(6) Contract Manufacturing Agreement dated January 7, 1994 by
and between the Registrant and Digital Equipment
Corporation.
10.6 Industrial Space Lease dated February 16, 1994 by and
between the Registrant and Renco Bayside Investors.
10.7 Sublease dated February 16, 1994 by and between the
Registrant and Media Vision Technology, Inc.
10.8(7) Registrant's 1994 Stock Plan and form of Stock
Option Agreement.
10.9(7) Registrant's 1994 Director Option Plan and form of Director
Stock Option Agreement.
11.1 Statement Regarding Computation of Per Share Earnings.
-13-
<PAGE> 16
Exhibit
Number
---------
21.1 Subsidiaries of Registrant.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney (included on page 17).
27 Financial Data Schedule.
-----------------
(1) Incorporated by reference to exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1988.
(2) Incorporated by reference to exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1989.
(3) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-1 (No. 33-4131)
filed March 19, 1986, Amendment No. 1 thereto filed April 28,
1986 and Amendment No. 2 thereto filed May 15, 1986, which
Registration Statement became effective May 15, 1986.
(4) Incorporated by reference to exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1992.
(5) Incorporated by reference to exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1991.
(6) Incorporated by reference to exhibit filed with Registrant's
Registration Statement on Form S-3 (No. 33-74308) filed on
January 28, 1994, Amendment No. 1 thereto filed February 24,
1994, Amendment No. 2 thereto filed March 3, 1994, Amendment
No. 3 thereto filed March 4, 1994 and Amendment No. 4 thereto
filed March 8, 1994.
(7) Incorporated by reference to exhibit filed with Registrant's
Registration Statement on Form S-8 (No. 33-81914) filed
July 25, 1994.
---------------
+ Pursuant to Rule 406(b) under the Securities Act, confidential
treatment has been granted to portions of this exhibit, which
portions have been deleted and filed separately with the
Securities and Exchange Commission.
B. Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of fiscal 1995.
-14-
<PAGE> 17
C. Exhibits.
See Item 14(a)(3) above.
D. Financial Statement Schedule.
See Item 14(a)(2) above.
-15-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIGMA DESIGNS, INC.
By: /s/ Thinh Q. Tran
-------------------------------------
Thinh Q. Tran,
President and Chief Executive Officer
Dated: April 28, 1995
-16-
<PAGE> 19
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thinh Q. Tran and Q. Binh Trinh, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ------------------------- ------------------------------------- --------------
/s/ Thinh Q. Tran President and Chief Executive Officer April 28, 1995
- ------------------------- (Principal Executive Officer)
(Thinh Q. Tran) and Director
/s/ Q. Binh Trinh Vice President, Finance and Chief April 28, 1995
- ------------------------- Financial Officer (Principal
(Q. Binh Trinh) Financial and Accounting Officer)
and Director
/s/ Julien Nguyen Director April 28, 1995
- -------------------------
(Julien Nguyen)
Director April __, 1995
- -------------------------
(Alexander Au)
Director April __, 1995
- -------------------------
(William P. Almon)
-17-
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Sigma Designs, Inc.:
We have audited the consolidated financial statements of Sigma Designs,Inc.
and subsidiaries as of January 31, 1995 and 1994, and for each of the
three years in the period ended January 31, 1995, and have issued our report
thereon dated March 10, 1995. Our audits also included the financial statement
schedule of Sigma Designs, Inc. listed in Item 14. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on it based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
San Jose, California
March 10, 1995
<PAGE> 21
CONSOLIDATED BALANCE SHEETS
JANUARY 31, (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS:
Current Assets:
Cash and equivalents $ 881 $ 1,808
Short-term investments 7,349 3,514
Accounts receivable (net of allowances: $1,101 and
$885, respectively) 11,958 7,246
Inventories 9,736 10,602
Prepaid expenses and other 1,086 569
--------- ---------
Total current assets 31,010 23,379
Equipment-net 1,343 1,200
Other assets 1,034 1,700
--------- ---------
Total $ 33,387 $ 26,639
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $ 1,710 $ --
Accounts payable 9,333 4,207
Accrued liabilities 1,748 2,313
Accrued facilities 773 2,102
--------- ---------
Total current liabilities 13,564 8,622
--------- ---------
Accrued facilities-long term 1,102 1,518
Commitments (Notes 9 and 10)
Shareholders' equity:
Preferred stock-no par value: 2,000,000 shares
authorized; no shares outstanding -- --
Common stock-no par value: 20,000,000 shares
authorized; shares outstanding: 1995,
7,479,943; 1994, 6,228,060 38,820 27,544
Accumulated deficit (20,036) (11,045)
Unrealized loss on securities available for sale (63) --
--------- ---------
Shareholder's equity 18,721 16,499
--------- ---------
Total $ 33,387 $ 26,639
========= =========
</TABLE>
- -------------------------
See notes to consolidated financial statements.
F-2
<PAGE> 22
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended January 31, (dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 43,700 $ 34,989 $ 27,058
Costs and expenses:
Cost of sales 36,980 27,538 23,045
Research and development 4,349 11,988 5,043
Sales and marketing 9,022 9,448 7,476
General and administrative 3,521 2,718 1,951
Restructuring charges (517) 13,654 --
--------- --------- ---------
Total costs and expenses 53,355 65,346 37,515
--------- --------- ---------
Loss from operations (9,655) (30,357) (10,457)
Interest income-net 336 699 1,207
Minority interest in loss of subsidiary -- 4 21
Gain (loss) from investment 546 (43) (88)
--------- --------- ---------
Loss before income taxes (8,773) (29,697) (9,317)
Credit for income taxes -- 151 2,151
--------- --------- ---------
Net loss $ (8,773) $ (29,546) $ (7,166)
========= ========= =========
Net loss per common share $ (1.20) $ (5.15) $ (1.37)
========= ========= =========
Shares used in computation $ 7,307 $ 5,733 $ 5,234
========= ========= =========
</TABLE>
- -------------------------
See notes to consolidated financial statements.
F-3
<PAGE> 23
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
Loss on
Common Stock Retained Securities
------------ Earnings Available
Shares Amount (Deficit) for Sale Total
------ ------ --------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balances, February 1, 1992 5,210,419 $ 19,088 $ 25,667 $ -- $ 44,755
Common stock issued under stock plans 78,250 312 -- -- 312
Common stock repurchased (22,600) (113) -- -- (113)
Net loss -- -- (7,166) -- (7,166)
--------- ------- -------- ----- --------
Balances, January 31, 1993 5,266,069 19,287 18,501 -- 37,788
Common stock issued under stock plans 101,991 493 -- -- 493
Common stock issued and options
assumed in acquisition of E-Motions, Inc. 860,000 7,764 -- -- 7,764
Net loss -- -- (29,546) -- (29,546)
--------- ------- -------- ----- --------
Balances, January 31, 1994 6,228,060 27,544 (11,045) -- 16,499
Sale of common stock 1,130,000 12,959 -- -- 12,959
Common stock issued under stock plans 121,883 242 -- -- 242
Payment to E-Motions Inc., shareholders -- (1,925) -- -- (1,925)
Buy-back of Docupoint minority interest -- -- (218) -- (218)
Current year change in unrealized loss on
securities available for sale -- -- -- (63) (63)
Net loss -- -- (8,773) -- (8,773)
--------- -------- -------- ------ --------
Balances, January 31, 1995 7,479,943 $ 38,820 $(20,036) $ (63) $(18,721)
========= ======== ======== ====== ========
</TABLE>
- -------------------------
See notes to consolidated financial statements.
F-4
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Years ended January 31,
-----------------------
(in thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (8,773) $ (29,546) $ (7,166)
Adjustment to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 774 1,169 1,566
Deferred income taxes -- -- (496)
Minority interest in loss of subsidiary -- (4) (21)
Loss (gain) from investments (205) 43 88
Provision (credit for restructuring costs) (517) 13,654 --
Write-off of research and development
in progress in connection with the
purchase of E-Motions, Inc. -- 8,137 --
Changes in assets and liabilities:
Accounts receivable (4,712) (775) (3,484)
Inventories 866 (6,512) (2,209)
Prepaid expenses and other 351 (340) 72
Income taxes receivable and payable -- 2,201 846
Accounts payable 5,126 (758) 3,107
Accrued liabilities (1,793) (930) (128)
--------- --------- ---------
Net cash used for operating activities (8,883) (13,661) (7,825)
--------- --------- ---------
Cash flow from investing activities:
Purchases of short-term investments (10,472) (14,535) (25,367)
Maturity of short-term investments 6,574 25,348 30,578
Sales of long-term investment 844 -- --
Equipment additions (721) (612) (801)
Software development costs -- (233) (551)
Title development costs (950) -- --
Other (305) (261) (399)
Cash from purchase of E-Motions, Inc. -- 183 --
--------- --------- ---------
Net cash provided by (used for)
investing activities (5,030) 9,890 3,460
--------- --------- ---------
Cash flows from financing activities
Bank line of credit 1,710 -- --
Common stock sold 13,201 493 312
Common stock repurchased -- -- (113)
Payment to E-Motion shareholders (1,925) -- --
Other -- -- (31)
--------- --------- ---------
Net cash provided by financing
activities 12,986 493 168
--------- --------- ---------
</TABLE>
F-5
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Years ended January 31,
-----------------------
(in thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Decrease in cash and equivalents (927) (3,278) (4,197)
Cash and equivalents:
Beginning of period 1,808 5,086 9,283
------- --------- ---------
End of period $ 881 $ 1,808 $ 5,086
======= ========= =========
Cash paid for interest $ 136 $ -- $ 2
======= ========= =========
Cash (received) paid for income taxes $ -- $ (2,201) $ (2,500)
======= ========= =========
Noncash investing activities:
Purchase of E-Motions, Inc.:
Common stock issued and options assumed $ -- $ 7,764 $ --
Net investment in E-Motions, Inc.
prior to purchase -- 636 --
Fair value of assets acquired -- (295) --
Liabilities assumed -- 32 --
------- --------- ---------
Acquired research and development in progress $ -- $ 8,137 $ --
======= ========= =========
</TABLE>
- -------------------------
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(For years ended January 31, 1995, 1994, and 1993)
1. DESCRIPTION OF BUSINESS
Sigma Designs, Inc. (the Company) develops, manufactures and markets
multimedia products, including graphics boards, display products and other
board-level products for use with IBM, IBM-compatible and Apple Macintosh
personal computers. The Company sells its products to computer manufacturers
and to retail chains, distributors and value-added resellers. Its principal
subsidiary, Sigma Designs Imaging Systems, Inc. (formerly Docupoint, Inc.), is
in the document image system technology business.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation -- The consolidated financial statements
include Sigma Designs, Inc. and subsidiaries. Intercompany balances and
transactions are eliminated.
Cash equivalents -- The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
Short-term investments represent government and corporate obligations
with maturities at the date of acquisition of more than three months.
Effective February 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and
F-6
<PAGE> 26
Equity Securities." Adoption of SFAS 115 had no material impact on the
Company's consolidated financial position or results of operations. At January
31, 1995, short-term investments are carried as available for sale securities,
are reported at fair-market value and are classified as current assets as all
maturities are within one year as follows:
<TABLE>
<CAPTION>
Cost Market Value Unrealized Loss
---- ------------ ---------------
(in thousands)
<S> <C> <C> <C>
Corporate obligations $ 4,461 $ 4,440 $ (21)
U.S. government obligations 2,951 2,909 (42)
(primary U.S. Treasury Notes)
------- ------- ------
$ 7,412 $ 7,349 $ (63)
======= ======= ======
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Title development costs -- Beginning in fiscal 1995, the Company
initiated a program to support the external development of software titles that
are compatible with its multimedia products. The Company capitalizes these
costs ($950,000 in fiscal 1995) and amortizes over the shorter of 12 months
from the introduction of the title or pro-rata over the estimated unit sales of
the title (amortization in fiscal 1995 was not significant). The Company
evaluates the recoverability of these costs based on the on-going viability of
specific titles and the anticipated net realizable value from related product
sales. Amounts determined not to be realizable are expensed in the period of
determination. The net book value of $883,000 at January 31, 1995 is included
in prepaid expenses and other assets.
Investments in less than 20% owned companies are accounted for using the
cost method unless the Company can exercise significant influence or the
investee is economically dependent upon the Company, in which case the equity
method is used. Such investments are included in other assets. See Note 3 for
discussion of E-Motions, Inc.
Equipment is stated at cost. Depreciation and amortization are computed
using the straight-line method based on the useful lives of the assets (three
to five years) or the lease term if shorter.
Revenue recognition -- Sales are recognized upon shipment. Allowances
for sales returns, price protection and warranty costs are recorded at the time
that sales are recognized.
Income tax -- The Company accounts for income taxes under statement of
Financial Accounting Standard No. 109 which uses an asset liability approach to
comprehensive intraperiod tax accounting. Deferred income taxes are provided
for temporary differences between financial statement and income tax reporting.
Accounting period -- For convenience, the financial statements are shown
as ending January 31, although the fiscal years ended on January 29, 1995,
January 28, 1994 and January 29, 1993, respectively. Fiscal 1995, 1994 and 1993
each included 52 weeks.
Net loss per common share is computed using the weighted average number
of common shares outstanding. Because there was a net loss in each year
presented, common stock equivalents were not included in the calculation of net
loss per share as their impact would be anti- dilutive.
F-7
<PAGE> 27
3. PURCHASE OF E-MOTIONS, INC.
On July 29, 1993, the Company acquired all remaining outstanding shares
of E-Motions, Inc. (E-Motions). This acquisition was accounted for using the
purchase method of accounting. E-Motions was a development stage company in
the business of developing products for the multimedia market, and its
technology consisted primarily of in-process development of integrated circuit
designs and related software technology. Prior to this transaction, the
Company owned slightly less than 50% of the outstanding shares of E-Motions on
a fully diluted basis.
As part of this transaction, the Company issued 860,000 shares of common
stock and assumed options to acquire 217,529 shares of its common stock. In
addition, the Company was required to make a cash payment of $1.9 million based
on the average trading price of its common stock in July 1994. The maximum
amount of this contingent payment (approximately $4 million) was included in
the cost of the acquired company and in shareholders' equity. Shareholders'
equity was reduced by $1.9 million at the time of the actual payment.
The cost of the acquired company, which includes the consideration
related to this transaction and the Company's previous investment in E-Motions,
is as follows (in thousands):
<TABLE>
<S> <C>
Cost $ 8,400
Assets acquired (295)
Liabilities 32
--------
Excess of cost over net assets acquired $ 8,137
========
</TABLE>
Based on the stage of E-Motion's development, the nature of its business
and the absence of other identifiable intangible assets, the cost in excess of
net assets acquired is acquired research and development in process and,
accordingly, has been charged to research and development expense in the period
acquired.
The following information for fiscal 1994, the year of the transaction,
and fiscal 1993 is being presented on a pro forma basis, as if the transaction
had taken place on August 21, 1992 (date of E-Motions' inception) (in
thousands, except per share data):
<TABLE>
<CAPTION>
Year ended January 31,
1994 1993
--------- ---------
<S> <C> <C>
Pro forma revenue $ 34,989 $ 27,058
Pro forma net loss $ (21,772) $ (7,295)
Pro forma net loss per share $ (3.30) $ (1.31)
Shares used in computation 6,593 5,592
</TABLE>
For purposes of this pro forma information, the $8.1 million of acquired
research and development has been excluded from the results of operations.
4. RESTRUCTURING
In July 1993, the Company made a decision to discontinue certain
manufacturing operations and product lines and to focus attention on its new
multimedia products. As a result of this decision, the Company recorded
restructuring charges of $13,654,000. As a result of the finalization of the
terms and circumstance related to the subleasing of the Company's excess
facilities, the Company recorded a reversal
F-8
<PAGE> 28
of $517,000 in fiscal 1995. The remaining accrual from this restructuring is a
facilities accrual of approximately $1.9 million related to the excess of the
Company's lease commitment over the expected sublease income for the term of
the lease.
Restructuring charges (reversal) for the years ended January 31, 1995 and
1994 consist of the following:
<TABLE>
<CAPTION>
(In thousands)
1995 1994
---- ----
<S> <C> <C>
Excess and obsolete inventories $ -- $ 8,222
Excess facilities (517) 4,100
Excess property and leasehold improvements -- 465
Severance accruals -- 300
Capitalized software and other assets -- 270
Other costs -- 297
------ --------
Total $ (517) $ 13,654
====== ========
</TABLE>
5. INVENTORIES
Inventories at January 31 consist of:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Finished goods $ 3,787 $ 1,667 $ 1,765
Work in process 4,590 7,486 4,305
Raw materials 6,979 5,919 7,660
Less reserves (5,620) (4,470) (1,455)
-------- -------- --------
Inventory-net $ 9,736 $ 10,602 $ 12,275
======== ======== ========
</TABLE>
Inventory reserves at January 31, 1995 and costs of sales for the year
ended January 31, 1995 include fourth quarter adjustments of $3.7 million
related to the Company's decision to withdraw support of certain imaging
products, difficulties in developing a new product design for application in
China that would have incorporated certain display systems, and changes in
computer design by computer manufacturers that were not anticipated and that
created excess supplies of certain inventories.
6. EQUIPMENT
Equipment at January 31 consists of:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computers and equipment $ 3,767 $ 3,602 $ 3,500
Furniture and fixtures 1,607 1,745 1,585
Other 344 141 143
------- ------- -------
Total 5,718 5,492 5,228
Accumulated depreciation
and amortization (4,375) (4,292) (3,602)
------- ------- -------
Equipment-net $ 1,343 $ 1,200 $ 1,626
======= ======= =======
</TABLE>
F-9
<PAGE> 29
7. ACCRUED LIABILITIES
Accrued liabilities at January 31 consist of:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Accrued salary and benefits $ 712 $ 575 $ 809
Accrued income taxes 166 619 --
Other 870 1,119 737
------- ------- -------
Total $ 1,748 $ 2,313 $ 1,546
======= ======= =======
</TABLE>
8. BANK LINES OF CREDIT
The Company has $941,000 outstanding at January 31, 1995 under a
$6,000,000 bank line of credit that expires in June 1996 and bears interest at
the bank's prime rate (8.5% at January 31, 1995). The Company's wholly owned
subsidiary, SDIS, has $769,000 outstanding at January 31, 1995 under a
$1,000,000 bank line of credit that expires in June 1995 and bears interest at
the bank prime rate (8.5% at January 31, 1995).
9. LEASES
The Company leases its primary facility under a noncancelable lease which
expires in August 1998. Total future minimum lease payments under the Company's
operating leases are $6,208,000 at January 31, 1995, due $1,589,000 in fiscal
1996, $1,614,000 in fiscal 1997, $1,644,000 in fiscal 1998, $1,279,000 in
fiscal 1999 and $82,000 in fiscal 2000. Approximately $1,875,000 of this
commitment has been included in accrued facilities as of January 31, 1995.
Rent expense was $1,475,797, $962,000 and $1,010,000 for fiscal 1995,
1994 and 1993, respectively.
10. COMMITMENTS
The Company pays royalties for the right to sell certain products under
various license agreements. During the years ended January 31, 1995, 1994 and
1993, the Company recorded royalty expense of $508,040, $181,405 and $275,000,
respectively.
The Company sponsors a 401(k) savings plan in which most employees are
eligible to participate. The Company is not obligated to make contributions to
the plan and no contributions have been made by the Company.
11. SHAREHOLDERS' EQUITY
Each share of common stock incorporates a purchase right which entitles
the shareholder to buy, under certain circumstances, one newly issued share of
the Company's common stock at an exercise price per share of $75. The rights
become exercisable if a person or group acquires 20% or more of the Company's
common stock or announces a tender or exchange offer for 30% or more of the
Company's common stock under certain circumstances. In the event of certain
merger or sale transactions, each Right will then entitle the holder to acquire
shares having a value of twice the Right's exercise price. The Company
F-10
<PAGE> 30
may redeem the Rights at $.01 per Right prior to the earlier of the expiration
of the Rights on November 27, 1999 or at the time that 20% or more of the
Company's common stock has been acquired by a person or group. Until the
Rights become exercisable, they have no dilutive effect on the earnings of the
Company.
During fiscal 1991, the Board of Directors of the Company approved a
program to repurchase up to 1,000,000 shares of the Company's common stock in
the open market. In fiscal 1993, 22,600 shares were repurchased for $113,000.
No shares were repurchased in fiscal 1994 or fiscal 1995.
Stock Option Plans -- The Company's Stock Option Plans provide for the
granting of options to purchase up to 3,400,000 shares of common stock at the
fair market value on the date of grant. Generally options granted under the
plan become exercisable over a five year period and expire not more than ten
years from the date of grant.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Outstanding Options
--------------------------------------
Number of Shares Price per share
---------------- ---------------
<S> <C> <C>
Balances, January 31, 1992 707,734 $3.38--$8.50
Granted 481,000 4.25--6.00
Exercised (63,100) 3.38--6.13
Cancelled (418,934) 3.38--8.50
--------- ---------------
Balances, January 31, 1993 706,700 4.25--8.50
Granted 604,500 3.50--13.75
Exercised (92,938) 0.09--8.50
Cancelled (391,060) 3.50--8.50
Assumed in acquisition
of E-Motions (Note 3) 217,529 0.0875--1.75
--------- ---------------
Balances, January 31, 1994 1,044,731 0.0875--13.75
Granted 910,000 4.88--8.00
Exercised (110,451) 0.0875-6.50
Cancelled (200,939) 0.0875--13.75
--------- ---------------
Balances, January 31, 1995 1,643,341 $0.0875--$13.50
========= ===============
</TABLE>
At January 31, 1995 options to purchase 470,514 shares of common stock
were exercisable and 1,003,133 shares were available for future grants under
the Plans.
Employee Stock Purchase Plan -- The Company's 1986 Employee Stock
Purchase Plan provides for the sale of up to 100,000 shares of common stock.
Eligible employees may authorize payroll deductions of up to 10% of their
regular base salaries to purchase common stock at 85% of the fair market value
at the beginning or end of each six-month offering period. During fiscal 1995,
1994 and 1993, 11,432, 9,053 and 15,150 shares were purchased at an average
price of $5.35, $2.98 and $4.42 per share, respectively.
F-11
<PAGE> 31
12. INCOME TAXES
The credit for income taxes at January 31 includes:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Currently receivable:
Federal $ -- $ (151) $ (1,655)
State -- -- --
----- ------ --------
Total currently receivable -- (151) (1,655)
----- ------ --------
Deferred:
Federal -- -- (496)
State -- -- --
----- ------ --------
Total deferred -- -- (496)
----- ------ --------
Total credit $ -- $ (151) $ (2,151)
===== ====== ========
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), effective at the beginning of fiscal
1994. SFAS 109 uses an asset and liability approach to comprehensive
interperiod tax accounting. The impact of implementation of SFAS 109 was not
significant.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating losses and tax credit carryforwards.
The tax effects of significant items comprising the Company's deferred
taxes as of February 1, 1994 and January 31, 1995 are as follows:
<TABLE>
<CAPTION>
(In thousands)
January 31, 1995 February 1, 1994
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Net operating losses and tax credit carryforwards $ 9,967 $ 6,779
Reserves not currently deductible 4,022 4,297
Capitalized R&D expenditures 638 558
Other 175 172
--------- ---------
14,802 11,806
Deferred tax liabilities:
Capitalized software and title development (228) (49)
Valuation allowance (14,574) (11,750)
--------- ---------
Net deferred taxes $ -- $ --
========= =========
</TABLE>
F-12
<PAGE> 32
SFAS 109 requires that the tax benefit of net operating losses, temporary
differences and credit carryforwards be recorded as an asset to the extent that
management assesses that realization is "more likely than not." Realization of
the future tax benefits is dependent on the Company's ability to generate
sufficient taxable income within the carryforward period. Because of the
Company's recent history of operating losses, risks associated with its new
product introduction including the dependence on rapid acceptance of new
technology, the dependence on development of complimentary software by third
parties and other risks, such as technological change in the industry, short
product life cycles and reliance on a limited number of suppliers and
manufacturing contractors, management believes that recognition of the deferred
tax assets arising from the above-mentioned future tax benefits is currently
not appropriate and, accordingly has provided a valuation allowance. The
valuation allowance increased by approximately $2.6 million in fiscal 1995
primarily as a result of an increase in net operating losses available to the
Company.
Net operating losses and tax credit carryforwards as of January 31, 1995
are as follows:
<TABLE>
<CAPTION>
(In thousands) Expiration Years
-------------- ----------------
<S> <C> <C>
Net operating losses, Federal $ 25,800 2006-2010
Net operating losses, State 12,300 1998-1999
Tax credits, Federal 400 2006-2010
Tax credits, State 400 2008-2010
</TABLE>
The Company's effective tax rate differs from the federal statutory rate
as follows:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed at 35% for 1995 $ (3,070) $ (10,047) $ (3,167)
and 1994, and 34% for 1993
Losses and reserves not 3,166 6,952 --
currently deductible
Acquired research and -- 2,856 --
development
Nondeductible losses of subsidiary -- -- 948
and affiliated company
Other (96) 88 68
-------- --------- --------
Total $ -- $ (151) $ (2,151)
======== ========= ========
</TABLE>
F-13
<PAGE> 33
13. CUSTOMER AND GEOGRAPHIC INFORMATION
One domestic customer accounted for 18% and 16% of net sales in fiscal
1995 and 1994, respectively. One international customer accounted for
approximately 13% and one domestic customer accounted for approximately 22% of
net sales in fiscal 1993, respectively. During 1992, no single customer
accounted for more than 10% of net sales. The Company markets its products
internationally through foreign distributors and OEMs. The following table
presents a summary of domestic and export sales by geographic region.
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales:
Domestic $ 27,792 $ 23,582 $ 18,201
Export sales:
Europe 5,415 9,163 8,097
Asia 10,222 1,884 505
Canada 271 360 255
----------- ---------- ----------
Total $ 43,700 $ 34,989 $ 27,058
=========== ========== ==========
</TABLE>
F-14
<PAGE> 34
SCHEDULE II
SIGMA DESIGNS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged in
Beginning Costs and
Description of Period Expenses Deductions(1) End of Period
----------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts, price
protection and sales returns:
Year Ended January 31,
1995 $ 885,000 $ 351,000 $ 135,000 $ 1,101,000
1994 579,000 389,000 83,000 885,000
1993 441,000 168,000 30,000 579,000
Inventory reserves:
Year Ended January 31,
1995 $ 4,470,000 $ 4,425,000 $ 3,275,000 $ 5,620,000
1994 1,455,000 9,022,000 6,007,000 4,470,000
1993 121,000 1,879,000 545,000 1,455,000
</TABLE>
- ------------------------
(1) Amount written off, net of recoveries.
F-15
<PAGE> 35
SIGMA DESIGNS, INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 31, 1994
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<S> <C>
3.1(1) Restated Articles of Incorporation, as amended . . . . .
3.2(2) By-Laws of Registrant, as amended . . . . . . . . . . . .
4.1(1) Article IV of the Articles of Incorporation of Registrant
(see Exhibit 3.1) . . . . . . . . . . . . . . . . . . . .
10.1(3) Distribution Agreement dated September 10, 1985 between
Registrant and Softsel Computer Products, Inc. and
Amendment to Distribution Agreement dated September 10,
1985. . . . . . . . . . . . . . . . . . . . . . . . . . .
10.2(4) Registrant's 1986 Employee Stock Purchase Plan, as
amended, and form of Subscription Agreement. . . . . . .
+10.3(2) Distributor Agreement dated May 24, 1988 between
Registrant and Micro D, Inc . . . . . . . . . . . . . . .
10.4(5) Lease dated October 31, 1990 between Registrant and Renco
Investment Company . . . . . . . . . . . . . . . . . . .
10.5(6) Contract Manufacturing Agreement dated January 7, 1994 by
and between the Registrant and Digital Equipment
Corporation . . . . . . . . . . . . . . . . . . . . . . .
10.6 Industrial Space Lease dated February 16, 1994 by and
between the Registrant and Renco Bayside Investors . . .
10.7 Sublease dated February 16, 1994 by and between the
Registrant and Media Vision Technology Inc. . . . . . . .
10.8(7) Registrant's 1994 Stock Plan and form of Stock Option
Agreement . . . . . . . . . . . . . . . . . . . . . . . .
10.9(7) Registrant's 1994 Director Option Plan and form of
Director Stock Option Agreement. . . . . . . . . . . . .
11.1 Statement Regarding Computation of Per Share Earnings . .
21.1 Subsidiaries of Registrant . . . . . . . . . . . . . . .
23.1 Independent Auditors' Consent . . . . . . . . . . . . . .
24.1 Power of Attorney (included on page 17) . . . . . . . . .
27 Financial Data Schedule . . . . . . . . . . . . . . . . .
</TABLE>
- ------------------
(1) Incorporated by reference to exhibit filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1988.
(2) Incorporated by reference to exhibit filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1989.
E-1
<PAGE> 36
(3) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-1 (No. 33-4131) filed March 19, 1986,
Amendment No. 1 thereto filed April 28, 1986 and Amendment No. 2 thereto
filed May 15, 1986, which Registration Statement became effective May 15,
1986.
(4) Incorporated by reference to exhibit filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1992.
(5) Incorporated by reference to exhibit filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1991.
(6) Incorporated by reference to exhibit filed with Registrant's Registration
Statement on Form S-3 (No. 33-74308) filed on January 28, 1994, Amendment
No. 1 thereto filed February 24, 1994, Amendment No. 2 thereto filed March
3, 1994, Amendment No. 3 thereto filed March 4, 1994 and Amendment No. 4
thereto filed March 8, 1994.
(7) Incorporated by reference to exhibit filed with Registrant's Registration
Statement on Form S-8 (No. 33-81914) filed July 25, 1994.
- ------------
+ Pursuant to Rule 406(b) under the Securities Act, confidential treatment
has been granted to portions of this exhibit, which portions have been
deleted and filed separately with the Securities and Exchange Commission.
E-2
<PAGE> 1
EXHIBIT 10.6
INDUSTRIAL SPACE LEASE
<PAGE> 2
File No.
--------------------------
INDUSTRIAL SPACE LEASE
(SINGLE TENANT NET)
THIS LEASE, dated February 16, 1994 for reference purposes only, is made by
and between Renco Bayside Investors, a California limited partnership
("Landlord"), and SIGMA DESIGNS INC., a California corporation ("Tenant"), to be
effective and binding upon the parties as of the date the last of the designated
signatories to this Lease shall have executed this Lease (the "Effective Date
of this Lease").
ARTICLE 1
REFERENCES
1.1 REFERENCES: All references in this Lease (subject to any further
clarifications contained in this Lease) to the following terms shall have the
following meaning or refer to the respective address, person, date, time period,
amount, percentage, calendar year or fiscal year as below set forth:
A. Tenant's Address for Notices: Sigma Designs, Inc.
---------------------------------------------
46501 Landing Parkway
---------------------------------------------
Fremont, CA 94538
---------------------------------------------
B. Tenant's Representative: Mr. Thinh Tran
--------------------------------------------------
Phone Number: (510) 770-0100
--------------------------------------------------
C. Landlord's Address for Notices: Renco Bayside Investors
-------------------------------------------
1285 Oakmead Parkway
-------------------------------------------
Sunnyvale, CA 94086
-------------------------------------------
D. Landlord's Representative: Mr. William N. Neidig
------------------------------------------------
Phone Number: (408) 730-5500
------------------------------------------------
E. Intended Commencement Date: April 1, 1994
-----------------------------------------------
F. Intended Term: 60 months
------------------------------------------------------------
G. Lease Expiration Date: 60 months following the Lease Commencement Date
----------------------------------------------------
H. Tenant's Punchlist Period: Ten (10) business days
------------------------------------------------
I. First Month's Prepaid Rent: $27,845.00
-----------------------------------------------
J. Last Month's Prepaid Rent: N/A
------------------------------------------------
K. Tenant's Security Deposit: $32,908.00
------------------------------------------------
L. Late Charge Amount: Five (5%) percent of the Delinquent Amount
-------------------------------------------------------
M. Tenant's Required Liability Coverage: $3,000,000 Combined Single Limit
-------------------------------------
N. Brokers: Ms. Linda Costello
------------------------------------------------------------------
Renault & Handley
------------------------------------------------------------------
-1-
<PAGE> 3
O. Property: That certain real property situated in the City
of_____________________, County of______________________, State of California,
as presently improved with one building, which real property is shown on the
Site Plan attached hereto as Exhibit "A" and is commonly known as or otherwise
described as follows:
Rnco 41
46501 Landing Parkway
Fremont, CA 94538
P. Building: That certain Building within the Property in which the Leased
Premises are located, which Building is shown outlined in red on Exhibit "A"
hereto.
Q. Outside Areas: The "Outside Areas" shall mean all areas within the
Property which are located outside the buildings, such as pedestrian walkways,
parking areas, landscaped areas, open areas and enclosed trash disposal areas.
R. Leased Premises: All the interior space within the Building,
consisting of approximately 50,628 square feet and, for purposes of this Lease,
agreed to contain said number of square feet. The Leased Premises are commonly
known as or otherwise described as follows:
That certain building identified as Renco 41, located at
46501 Landing Parkway
Fremont, CA 94538
S. Base Monthly Rent: The term "Base Monthly Rent" shall mean the
following:
Months 1 -12 $27,845 per month
Months 13-60 $32,908 per month
T. Permitted Use: The term "Permitted Use" shall mean the following:
Research and development, manufacture, warehousing and storage of products
and materials owned by Tenant and office and administration and other
lawful uses consistent with the CC&Rs for the Property.
U. Exhibits: The term "Exhibits" shall mean the Exhibits to this Lease
which are described as follows:
Exhibit "A" - Site Plan showing the Property and delineating the Building
in which the Leased Premises are located.
Exhibit "B" - Floor Plan outlining the Leased Premises.
Exhibit "D" - Acceptance Agreement
V. Addenda: The term "Addenda" shall mean the Addendum (or Addenda) to
this Lease which is (or are) described as follows:
First Addendum to Lease
-2-
<PAGE> 4
ARTICLE 2
LEASED PREMISES, TERM AND POSSESSION
2.1 DEMISE OF LEASED PREMISES: Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord for Tenant's own use in the conduct of Tenant's
business and not for purposes of speculating in real estate, for the Lease Term
and upon the terms and subject to the conditions of this Lease, that certain
interior space described in Article 1 as the Leased Premises, reserving and
excepting to Landlord the exclusive right to [INSERT 1] to be derived from any
assignments or sublettings by Tenant during the Lease Term by reason of the
appreciation in the fair market rental value of the Leased Premises. Tenant's
lease of the Leased Premises, together with the appurtenant right to use the
Outside Areas as described in Paragraph 2.2 below, shall be conditioned upon and
be subject to the continuing compliance by Tenant with (i) all the terms and
conditions of this Lease, (ii) all Laws governing the use of the Leased
Premises and the Property [INSERT 2] (iii) all Private Restrictions, easements
and other matters now of public record respecting the use of the Leased Premises
and the Property, and (iv) all reasonable rules and regulations from time to
time established by Landlord.
[See Addendum Section 2.1]
2.2 RIGHT TO USE OUTSIDE AREAS: As an appurtenant right to Tenant's right
to the use and occupancy of the Leased Premises, Tenant shall have the right to
use the Outside Areas in conjunction with its use of the Leased Premises solely
for the purposes for which they were designed and intended and for no other
purposes whatsoever. Tenant's right to so use the Outside Areas shall be
subject to the limitations on such use as set forth in Article 4 and shall
terminate concurrently with any termination of this Lease.
2.3 LEASE COMMENCEMENT DATE AND LEASE TERM: The term of this Lease shall
begin, and the Lease Commencement Date shall be deemed to have occurred, on the
Intended Commencement Date (as set forth in Article 1) unless either (i)
Landlord is unable to deliver possession of the Leased Premises to Tenant on the
Intended Commencement Date, in which case the Lease Commencement Date shall be
as determined pursuant to Paragraph 2.4 below or (ii) Tenant enters into
possession of the Leased Premises prior to the Intended Commencement Date for
the conduct of its business in which case the Lease Commencement Date shall be
as determined pursuant to Paragraph 2.7 below (the "Lease Commencement Date").
The term of this Lease shall end on the Lease Expiration Date (as set forth in
Article 1), irrespective of whatever date the Lease Commencement Date is
determined to be pursuant to the foregoing sentence. The Lease Term shall be
that period of time commencing on the Lease Commencement Date and ending on the
Lease Expiration Date (the "Lease Term").
2.4 DELIVERY OF POSSESSION: Landlord shall deliver to Tenant possession
of the Leased Premises on or before the Intended Commencement Date (as set
forth in Article 1) in their presently existing condition, broom clean, unless
Landlord shall have agreed, as a condition to Tenant's obligation to accept
possession of the Leased Premises pursuant to a written Addenda attached to and
made a part of this Lease, to modify existing interior improvements or to make,
construct and/or install additional specified improvements within the Leased
Premises or to the Outside Areas, in which case Landlord shall deliver to Tenant
possession of the Leased Premises on or before the Intended Commencement Date
is so modified and/or improved [INSERT 3]. If Landlord is unable to so deliver
possession of the Leased Premises to Tenant in the agreed condition on or
before the Intended Commencement Date, for whatever reason [INSERT 4], Landlord
shall not be in default under this Lease, nor shall this Lease be void, voidable
or cancellable by Tenant until the lapse of one hundred twenty days after the
Intended Commencement Date (the "delivery grace period"); however, the Lease
Commencement Date shall not be deemed to have occurred until such date as
Landlord notifies Tenant that the Leased Premises are in the agreed condition
and are Ready for Occupancy. Additionally, the delivery grace period above set
forth shall be extended for such number of days as Landlord may be delayed in
making the agreed improvements and/or delivering possession of the Leased
Premises to Tenant by reason of Force Majeure or the actions of Tenant. If
Landlord is unable to deliver possession of the Leased Premises in the agreed
condition to Tenant within the described delivery grace period (including any
extensions thereof by reason of Force Majeure or the actions of Tenant
[INSERT 5] then Tenant's sole remedy shall be to cancel and terminate this
Lease, and in no event shall Landlord be liable in damages to Tenant for such
delay. Tenant may not cancel this Lease at any time after the date Landlord
notifies Tenant that the Leased Premises have been put into the agreed
condition and are Ready for Occupancy, unless Landlord's notice is not given
in good faith.
[See Addendum Section 2.4]
2.5 ACCEPTANCE OF POSSESSION: Tenant acknowledges that it has inspected
the Leased Premises and is willing to accept them in their existing condition,
broom clean, unless Landlord shall have agreed, as a condition to Tenant's
obligation to accept possession of the Leased Premises pursuant to a written
Addenda attached to and made a part of this Lease, to modify existing interior
improvements or to make, construct and/or install specified improvements within
the Leased Premises, in which case Tenant agrees to accept possession of the
Leased Premises when Landlord has substantially completed such modifications or
improvements and the Leased Premises are Ready for Occupancy. If Landlord shall
have so modified existing improvements or constructed additional improvements
within the Leased Premises for Tenant, Tenant shall, within Tenant's Punchlist
Period (as set forth in Article 1) which shall commence on the date that
Landlord notifies Tenant that the agreed improvements have been completed and
the Leased Premises are Ready for Occupancy, submit to Landlord a punchlist of
all incomplete and/or improper work performed by Landlord. Upon the expiration
of Tenant's Punchlist Period, Tenant shall be conclusively deemed to have
accepted the Leased Premises in their then-existing condition as so delivered by
Landlord to Tenant, except as to those items reasonably set forth in the
punchlist submitted to Landlord prior to the expiration of said period. Landlord
agrees to correct all items reasonably set forth in Tenant's punchlist, provided
that such punchlist was submitted to Landlord within Tenant's Punchlist Period.
Additionally, Landlord agrees to place in good working order all existing
plumbing, lighting, heating, ventilating and air conditioning systems within the
Leased Premises and all man doors and roll-up truck doors serving the Leased
Premises to the extent that such systems and/or items are not in good operating
condition as of the date Tenant accepts possession of the Leased Premises;
provided that, and only if, Tenant notifies Landlord in writing of such failures
or deficiencies within ten business days from the date Tenant so accepts
possession of the Leased Premises.
[See Addendum Section 2.5]
2.6 SURRENDER OF POSSESSION: Immediately prior to the expiration or upon
the sooner termination of this Lease, Tenant shall remove all of Tenant's signs
from the exterior of the Building and shall remove all of Tenant's equipment,
trade fixtures, furniture, supplies, wall decorations and other personal
property from within the Leased Premises, the Building and the Outside Areas,
and shall vacate and surrender the Leased Premises, the Building, the Outside
Areas and the Property to Landlord in the same condition, broom clean, as
existed at the Lease Commencement Date, reasonable wear and tear excepted.
Tenant shall repair all damage to the Leased Premises, the exterior of the
Building and the Outside Areas caused by Tenant's removal of Tenant's property.
Tenant shall patch and refinish, to Landlord's reasonable satisfaction, all
penetrations made by Tenant or its employees to the floor, walls or ceiling of
the Leased Premises, whether such penetrations were made with Landlord's
approval or not. Tenant shall repair or replace all stained or damaged ceiling
tiles, wall coverings and floor coverings to the reasonable satisfaction of
Landlord. Tenant shall repair all damage caused by Tenant to the exterior
surface of the Building and the paved surfaces of the Outside Areas and, where
necessary, replace or resurface same. Additionally, Tenant shall, prior to the
expiration or sooner termination of this Lease, remove any improvements
constructed or installed by Tenant which Landlord requests be so removed by
Tenant and repair all damage caused by such removal. If the Leased Premises,
the Building, the Outside Areas and the Property are not surrendered to Landlord
in the condition required by this Paragraph at the expiration or sooner
termination of this Lease. Landlord may, at Tenant's expense, so remove
Tenant's signs, property and/or improvements not so removed and make such
repairs and replacements not so made or hire, at Tenant's expense, independent
contractors to perform such work. Tenant shall be liable to Landlord for all
costs incurred by Landlord in returning the Leased Premises, the Building and
the Outside Areas to the required condition, together with interest on all costs
so incurred from the date paid by Landlord at the then maximum rate of interest
not prohibited or made usurious by Law until paid. Tenant shall pay to Landlord
the amount of all costs so incurred plus
-3-
<PAGE> 5
interest as above set forth within ten days of Landlord's billing Tenant for
same. Tenant shall indemnify Landlord against loss or liability resulting from
delay by Tenant in so surrendering the Leased Premises, including, without
limitation, any claims made by any succeeding tenant or any losses to Landlord
due to lost opportunities to lease to succeeding tenants.
[See Addendum Section 2.6]
2.7 EARLY OCCUPANCY: If Tenant enters into possession of the Leased
Premises prior to the Intended Commencement Date (or permits its contractors to
enter the Leased Premises prior to the Intended Commencement Date), for the
conduct of Tenant's business, unless otherwise agreed in writing by Landlord,
the Lease Commencement Date shall be deemed to have occurred on such sooner
date, and Tenant shall be obligated to perform all its obligations under this
Lease, including the obligation to pay rent, from that sooner date.
ARTICLE 3:
RENT, LATE CHARGES AND SECURITY DEPOSITS
3.1 BASE MONTHLY RENT: Commencing on the Lease Commencement Date (as
determined pursuant to Paragraph 2.3 above) and continuing throughout the Lease
Term, Tenant shall pay to Landlord, without prior demand therefore, in advance
on the first day of each calendar month, as base monthly rent, the amount set
forth as "Base Monthly Rent" in Article 1 (the "Base Monthly Rent").
3.2 ADDITIONAL RENT: Commencing on the Lease Commencement Date (as
determined pursuant to Paragraph 2.3 above) and continuing throughout the Lease
Term, in addition to the Base Monthly Rent, Tenant shall pay to Landlord as
additional rent (the "Additional Rent") the following amounts:
A. An amount equal to all Property Operating Expenses (as defined in
Article 13) incurred by Landlord. Payment shall be made by whichever of the
following methods (or combination of methods) is (are) from time to time
designated by Landlord:
(1) Landlord may bill to Tenant, on a periodic basis not more
frequently than monthly, the amount of such expenses (or group of expenses) as
paid or incurred by Landlord, and Tenant shall pay to Landlord the amount of
such expenses within ten days after receipt of a written bill therefore from
Landlord; and/or
(2) Landlord may deliver to Tenant Landlord's reasonable estimate
of any given expense (such as Landlord's Insurance Costs or Real Property
Taxes), or group of expenses, which it anticipates will be paid or incurred for
the ensuing calendar or fiscal year, as Landlord may determine, and Tenant shall
pay to Landlord an amount equal to the estimated amount of such expenses for
such year in equal monthly installments during such year with the installments
of Base Monthly Rent provided Tenant receives ten (10) days prior written notice
before inclusion in the first installment of Base Monthly Rent.
(3) Landlord reserves the right to change from time to time the
methods of billing Tenant for any given expense or group of expenses or the
periodic basis on which such expenses are billed.
B. Landlord's share of the consideration received by Tenant upon
certain assignments and sublettings as required by Article 7;
C. Any legal fees and costs that Tenant is obligated to pay or
reimburse to Landlord pursuant to Article 13; and
D. Any other charges or reimbursements due Landlord from Tenant
pursuant to the terms of this Lease other than late charges and interest on
defaulted rent.
[See Addendum Section 3.2]
3.3 YEAR-END ADJUSTMENTS: If Landlord shall have elected to bill Tenant
for the Property Operating Expenses (or any group of such expenses) on an
estimated basis in accordance with the provisions of Paragraph 3.2A(2) above,
Landlord shall furnish to Tenant within three months following the end of the
applicable calendar year or fiscal year, as the case may be, a statement setting
forth (i) the amount of such expenses paid or incurred during the just ended
calendar or fiscal year, as appropriate, and (ii) the amount that Tenant has
paid to Landlord for credit against such expenses for such period. If Tenant
shall have paid more than its obligation for such expenses for the stated
period, Landlord shall, at its election, either (i) credit the amount of such
overpayment toward the next ensuing payment or payments of Additional Rent that
would otherwise be due or (ii) refund in cash to Tenant the amount of such
overpayment. If such year-end statement shall show that Tenant did not pay its
obligation for such expenses in full, then Tenant shall pay to Landlord the
amount of such underpayment within ten days from Landlord's billing of same to
Tenant. The provisions of this Paragraph shall survive the expiration or sooner
termination of this Lease.
[See Addendum Section 3.3]
3.4 LATE CHARGE AND INTEREST ON RENT IN DEFAULT: Tenant acknowledges that
the late payment by Tenant of any monthly installment of Base Monthly Rent or
any Additional Rent will cause Landlord to incur certain costs and expenses not
contemplated under this Lease, the exact amounts of which are extremely
difficult or impractical to fix. Such costs and expenses will include, without
limitation, administration and collection costs and processing and accounting
expenses. Therefore, if any installment of Base Monthly Rent is not received by
Landlord from Tenant within six calendar days after the same becomes due, Tenant
shall immediately pay to Landlord a late charge in an amount equal to the amount
set forth in Article 1 as the "Late Charge Amount", and if any Additional Rent
is not received by Landlord within six calendar days after same becomes due,
Tenant shall immediately pay to Landlord a late charge in an amount equal to
five percent (5%) of the Additional Rent not so paid. Landlord and Tenant agree
that this late charge represents a reasonable estimate of such costs and
expenses and is fair compensation to Landlord for the anticipated loss Landlord
would suffer by reason of Tenant's failure to make timely payment. In no event
shall this provision for a late charge be deemed to grant to Tenant a grace
period or extension of time within to pay any rental installment or prevent
Landlord from exercising any right or remedy available to Landlord upon Tenant's
failure to pay each rental installment due under this Lease when due, including
the right to terminate this Lease. If any rent remains delinquent for a period
in excess of ten calendar days, then, in addition to such late charge, Tenant
shall pay to Landlord interest on any rent that is not so paid from said tenth
(10th) day at the then maximum rate of interest not prohibited or made usurious
by Law until paid.
[See Addendum Section 3.4]
3.5 PAYMENT OF RENT: All rent shall be paid in lawful money of the United
States, without any abatement, reduction or offset for any reason whatsoever,
except as otherwise specifically provided otherwise in this Lease, to Landlord
at such address as Landlord may designate from time to time. Tenant's
obligation to pay Base Monthly Rent and all Additional Rent shall be
appropriately prorated at the commencement and expiration of the Lease Term.
The failure by Tenant to pay any Additional Rent as required pursuant to this
Lease when due shall be treated the same as a failure by Tenant to pay Base
Monthly Rent when due, and Landlord shall have the same rights and remedies
against Tenant as Landlord would have if Tenant failed to pay the Base Monthly
Rent when due.
3.6 PREPAID RENT: Tenant has paid to Landlord the amount set forth in
Article 1 as "First Month's Prepaid Rent" as prepayment of rent for credit
against the first installments of Base Monthly Rent due hereunder.
3.7 SECURITY DEPOSIT: Tenant has deposited with Landlord the amount set
forth in Article 1 as the "Security Deposit" as security for the performance by
Tenant of the terms of this Lease to be performed by Tenant, and not as
prepayment of rent. Landlord may apply such portion or portions of the Security
Deposit as are reasonably necessary for the following purposes: (i) to remedy
any default by
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<PAGE> 6
Tenant in the payment of Base Monthly Rent or Additional Rent or a late charge
or interest on defaulted rent; (ii) to repair damage to the Leased Premises, the
Building or the Outside Areas caused by Tenant; (iii) to clean and repair the
Leased Premises, the Building or the Outside Areas following their surrender to
Landlord if not surrendered in the condition required pursuant to the provisions
of Article 2; and (iv) to remedy any other default of Tenant to the extent
permitted by Law including, without limitation, paying in full on Tenant's
behalf any sums claimed by materialmen or contractors of Tenant to be owing to
them by Tenant for work done or improvements made at Tenant's request to the
Leased Premises. In this regard, Tenant hereby waives any restriction on the
uses to which the Security Deposit may be applied as contained in Section
1950.7(c) of the California Civil Code and/or any successor statute. In the
event the Security Deposit or any portion thereof is so used, Tenant shall pay
to Landlord, promptly upon demand, an amount in cash sufficient to restore the
Security Deposit to the full original sum. Landlord shall not be deemed a
trustee of the Security Deposit. Landlord may use the Security Deposit in
Landlord's ordinary business and shall not be required to segregate it from its
general accounts. Tenant shall not be entitled to any interest on the Security
Deposit. If Landlord transfers the Building or the Property during the Lease
Term, Landlord may pay the Security Deposit to any subsequent owner in
conformity with the provision of Section 1950.7 of the California Civil Code
and/or any successor statue, in which event the transferring landlord shall be
released from all liability for the return of the Security Deposit. Tenant
specifically grants to Landlord (and Tenant hereby waives the provisions of the
California Civil Code Section 1950.7 to the contrary a period of sixty days
following a surrender of the Leased Premises by Tenant to Landlord within which
to restore the Security Deposit (less permitted deductions) to Tenant, it being
agreed between Landlord and Tenant that sixty days is a reasonable period of
time within which to inspect the Leased Premises, make required repairs, receive
and verify workmen's billing therefore, and prepare a final accounting with
respect to such deposit. In no event shall the Security Deposit, or any portion
thereof, be considered prepaid rent.
ARTICLE 4:
USE OF LEASED PREMISES AND OUTSIDE AREA
4.1 PERMITTED USE: Tenant shall be entitled to use the Leased Premises
solely for the "Permitted Use" as set forth in Article 1 and for no other
purpose whatsoever. Tenant shall continuously and without interruption use the
Leased Premises for such purpose for the entire Lease Term. Any discontinuance
of such use for a period of thirty consecutive calendar days shall be, at
Landlord's election, a default by Tenant under the terms of this Lease. Tenant
shall have the right to use the Outside Areas in conjunction with its Permitted
Use of the Leased Premises solely for the purposes for which they were designed
and intended and for no other purposes whatsoever.
[See Addendum Section 4.1]
4.2 GENERAL LIMITATIONS ON USE: Tenant shall not do or permit anything
to be done in or about the Leased Premises, the Building, the Outside Areas or
the Property which does or could (i) jeopardize the structural integrity of the
Building or (ii) cause damage to any part of the Leased Premises, the Building,
the Outside Areas or the Property. Tenant shall not operate any equipment
within the Leased Premises which does or could (i) injure, vibrate or shake the
Leased Premises or the Building, (ii) damage, overload or impair the efficient
operation of any electrical, plumbing, heating, ventilating or air conditioning
systems within or servicing the Leased Premises or the Building or (iii) damage
or impair the efficient operation of the sprinkler system (if any) within or
servicing the Leased Premises or the Building. Tenant shall not install any
equipment or antennas on or make any penetrations of the exterior walls or
roof of the Building. Tenant shall not affix any equipment to or make any
penetrations or cuts in the floor, ceiling or walls of the Leased Premises.
Tenant shall not place any loads upon the floors, walls, ceiling or roof
systems which could endanger the structural integrity of the Building or
damage its floors, foundations or supporting structural components.
Tenant shall not place any explosive, flammable or harmful fluids or other
waste materials in the drainage systems of the Leased Premises, the Building,
the Outside Areas or the Property. Tenant shall not drain or discharge any
fluids in the landscaped areas or across the paved areas of the Property.
Tenant shall not use any of the Outside Areas for the storage of its materials,
supplies, inventory or equipment, and all such materials, supplies, inventory
or equipment shall at all times be stored within the Leased Premises.
Tenant shall not commit nor permit to be committed any waste in or about the
Leased Premises, the Building, the Outside Areas or the Property.
[See Addendum Sections 4.2 and 6.1]
4.3 NOISE AND EMISSIONS: All noise generated by Tenant in its use of the
Leased Premises shall be confined or muffled so that it does not interfere with
the businesses of or annoy the occupants and/or users of adjacent
properties. All dust, fumes, odors and other emissions generated by Tenant's
use of the Leased Premises shall be sufficiently dissipated in accordance with
sound environmental practices and exhausted from the Leased Premises in such a
manner so as not to interfere with the businesses of or annoy the occupants
and/or users of adjacent properties, or cause any damage to the Leased Premises,
the Building, the Outside Areas or the Property or any component part thereof or
the property of adjacent property owners.
4.4 TRASH DISPOSAL: Tenant shall provide trash bins (or other adequate
garbage disposal facilities) within the trash enclosure areas provided or
permitted by Landlord outside the Leased Premises sufficient for the interim
disposal of all of its trash, garbage and waste. All such trash, garbage and
waste temporarily stored in such areas shall be stored in such a manner so that
it is not visible from outside of such areas, and Tenant shall cause such trash,
garbage and waste to be regularly removed from the Property at Tenant's sole
cost. Tenant shall at all times keep the Leased Premises, the Building, the
Outside Areas and the Property in a clean, safe and neat condition free and
clear of all trash, garbage, waste and/or boxes, pallets and containers
containing same at all times.
4.5 PARKING: Tenant shall not, at any time, park or permit to be parked any
recreational vehicles, inoperative vehicles or equipment in the Outside Areas or
on any portion of the Property. Tenant agrees to assume responsibility for
compliance by its employees and invitees with the parking provisions contained
herein. If Tenant or its employees park any vehicle within the Property in
violation of these provisions, then Landlord may, in addition to any other
remedies Landlord may have under this Lease, charge Tenant, as Additional
Rent, and Tenant agrees to pay, as Additional Rent, Ten Dollars per day for each
day or partial day that each such vehicle is so parked within the Property.
4.6 SIGNS: Other than one business identification sign which is first
approved by Landlord in accordance with this Paragraph, Tenant shall not place
or install on or within any portion of the Leased Premises, the exterior of the
Building, the Outside Areas or the Property any sign, advertisement, banner,
placard, or picture which is visible from the exterior of the Leased Premises.
Tenant shall not place or install on or within any portion of the Leased
Premises, the exterior of the Building, The Outside Areas or the Property any
business identification sign which is visible from the exterior of the Leased
Premises until Landlord shall have first approved in writing the location,
size, content, design, method of attachment and material to be used in the
making of such sign. Any sign, once approved by Landlord, shall be installed
only in strict compliance with Landlord's approval, at Tenant's expense, using
a person first approved by Landlord to install same. Landlord may remove any
signs (which have not been first approved in writing by Landlord),
advertisements, banners placards or pictures so placed by Tenant on or within
the Leased Premises, the exterior of the Building, the Outside Areas or the
Property and charge to Tenant the cost of such removal, together with any costs
incurred by Landlord to repair any damage caused thereby, including any cost
incurred to restore the surface upon which such sign was so affixed to its
original condition. Tenant shall remove all of Tenant's signs, repair any
damage caused thereby, and restore the surface upon which the sign was affixed
to its original condition, all to Landlord's reasonable satisfaction, upon the
termination of this Lease.
[See Addendum Section 4.6]
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<PAGE> 7
4.7 COMPLIANCE WITH LAWS AND PRIVATE RESTRICTIONS: Tenant shall abide by
and shall promptly observe and comply with, at its sole cost and expense, all
Laws and Private Restrictions respecting the use and occupancy of the Leased
Premises, the Building, the Outside Areas or the Property including, without
limitation, all Laws governing the use and/or disposal of hazardous materials,
and shall defend with competent counsel, indemnify and hold Landlord harmless,
from any claims, damages or liability resulting from Tenant's failure to do so.
The indemnity provision of this Paragraph shall survive the expiration or sooner
termination of this Lease, with respect to any activities of Tenant occurring
on or about the Property while Tenant was in possession of the Leased Premises.
[See Addendum Section 4.7]
4.8 COMPLIANCE WITH INSURANCE REQUIREMENTS: With respect to any insurance
policies required or permitted to be carried by Landlord in accordance with the
provisions of this Lease, Tenant shall not conduct nor permit any other person
to conduct any activities nor keep, store or use nor allow any other person to
keep, store or use any item or thing within the Leased Premises, the Building,
the Outside Areas of the Property which (i) is prohibited under the terms of
any or such policies, (ii) could result in the termination of the coverage
afforded under any of such policies, (iii) could give to the insurance carrier
the right to cancel any of such policies, or (iv) could cause an increase in
the rates (over standard rates) charged for the coverage afforded under any of
such policies. Tenant shall comply with all requirements to any insurance
company, insurance underwriter, or Board of Fire Underwriters which are
necessary to maintain, at standard rates, the insurance coverage carried by
either Landlord or Tenant pursuant to this Lease.
[See Addendum Section 4.8]
4.9 LANDLORD'S RIGHT TO ENTER: Landlord and its agents shall have the right
to enter the Leased Premises during normal business hours after giving Tenant
reasonable notice and subject to Tenant's reasonable security measures for the
purpose of (i) inspecting the same; (ii) showing the Leased Premises to
prospective purchasers, mortgages or tenants; (iii) making necessary
alterations, additions or repairs; (iv) performing any of Tenant's obligations
when Tenant has failed to do so. Landlord shall have the right to enter the
Leased Premises during normal business hours (or as other wise agreed), subject
to Tenant's reasonable security measures, for purposes of supplying any
maintenance or services agreed to be supplied by Landlord. Landlord shall have
the right to enter the Outside Areas during normal business hours for purposes
of (i) inspecting the exterior of the Building, and the Outside Areas, (ii)
posting notices of non-responsibility, and (iii) supplying any services to be
provided by Landlord. Any entry into the Leased Premises or the Outside Areas
obtained by Landlord in accordance with the Paragraph shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into,
or a detainer of, the Leased Premises, or an eviction, actual or constructive
of Tenant from the Leased Premises or any portion thereof.
[See Addendum Section 4.9]
4.10 USE OF OUTSIDE AREAS: Tenant, in its use of the Outside Areas, shall
at all times keep the Outside Areas in a safe condition free and clear of all
materials, equipment, debris, trash (except within existing enclosed trash
areas), inoperable vehicles, and other items which are not specifically
permitted by Landlord to be stored or located thereon by Tenant. If, in the
opinion of Landlord, unauthorized persons are using any of the Outside Areas by
reason of, or under claim of, the express or implied authority or consent of
Tenant, then Tenant, upon demand of Landlord, shall restrain, to the fullest
extent then allowed by Law, such unauthorized use, and shall initiate such
appropriate proceedings as may be required to so restrain such use.
4.11 RULES AND REGULATIONS: Landlord shall have the right from time to time
to establish reasonable and nondiscriminatory rules and regulations and/or
amendments or additions thereto respecting the use of the Leased Premises and
the Outside Areas for the cure and orderly management of the Property.
[INSERT 6] Upon delivery to Tenant of a copy of such rules and regulations or
any amendments or additions thereto, Tenant shall comply with such rules and
regulations. A violation by Tenant of any of such rules and regulations after
expiration of any applicable cure period shall constitute a default by Tenant
under this Lease. If there is a conflict between the rules and regulations and
any of the provisions of this Lease, the provisions of this Lease shall prevail.
Landlord shall not be responsible or liable to Tenant for the violation of such
rules and regulations by any other tenant of the Property.
4.12 ENVIRONMENTAL PROTECTION: Landlord may voluntarily cooperate in a
reasonable manner with the efforts of all government agencies in reducing actual
or potential environmental damage. Tenant shall not be entitled to terminate
this Lease or to any reduction in or abatement of rent by reason of such
compliance or cooperation. Tenant agrees at all times to cooperate fully with
Landlord and to abide by all rules and regulations and requirements which
Landlord may reasonably prescribe in order to comply with the requirements and
recommendations of governmental agencies regulating, or otherwise involved in,
the protection of the environment.
[See Addendum Section 4.12]
ARTICLE 5
REPAIRS, MAINTENANCE, SERVICES AND UTILITIES
5.1 REPAIR AND MAINTENANCE: Except in the case of damage to or destruction
of the Leased Premises, the Building, the Outside Areas or the Property caused
by an Act of God or other peril, in which case the provisions of Article 10
shall control, the parties shall have the following obligations and
responsibilities with respect to the repair and maintenance of the Leased
Premises, the Building and the Outside Areas.
[See Addendum Section 5.1]
A. Tenant's Obligation: Tenant shall, at all times during the Lease Term
and at its sole cost and expense, regularly clean and continuously keep and
maintain in good order, condition and repair the Leased Premises and every part
thereof including, without limiting the generality of the foregoing. (i) all
interior walls, floors, and ceilings, (ii) all windows, doors and skylights,
(iii) al electrical wiring, conduits, connectors and fixtures, (iv) all
plumbing, pipes, sinks, toilets, faucets and drains, (v) all lighting fixtures,
bulbs and lamps, and all heating, ventilating and air condition equipment, and
(vii) all entrance ways to the Leased Premises. Tenant, if requested to do so
by Landlord, shall hire at Tenant's sole cost and expense, a licensed heating,
ventilating and air conditioning contractor for regularly and periodically (not
less frequently than every three months) inspect and perform required
maintenance on the heating, ventilating and air conditioning equipment and
systems serving the Leased Premises, or alternatively, Landlord may, at its
election, contract in its own name for such regular and periodic inspections of
and maintenance on such heating, ventilating and air conditioning equipment and
systems and charge to Tenant, as Additional Rent, the cost thereof Tenant shall,
at all times during the Lease Term, keep in a clean and safe condition the
Outside Areas. Tenant shall regularly and periodically sweep and clean the
driveways and parking areas [Subject to paragraph 9.3 of this Lease.]. Tenant
shall, at his sole cost and expense, repair all damage to the Leased Premises,
the Building, the Outside Areas or the Property caused by the activities of
Tenant, its employees, invitees or contractors promptly following written
notice from Landlord to so repair such damage. If Tenant shall fail
to perform the required maintenance or fail to make repairs required of its
pursuant to this Paragraph within a reasonable period of time following notice
from Landlord to do so, then Landlord may at its election and without waiving
any other remedy it may otherwise have under this lease or at Law, perform such
maintenance or make such repairs and charge to Tenant, as Additional Rent, the
costs incurred by Landlord for same.
B. Landlord's Obligation: Landlord shall, at all times during the Lease
Term, maintain in good condition and repair; (i) the exterior and structural
parts of the Building (including the foundation, subflooring, load-bearing and
exterior walls, and roof); and (ii) the landscaped areas located outside the
Building. The provisions of this Subparagraph B shall in no way limit the right
of Landlord to charge to Tenant, as Additional Rent pursuant to Article 3 (to
the extent permitted pursuant to Article 3), the costs incurred by Landlord in
performing such maintenance and/or making such repairs [See Addendum 5.1.B]
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<PAGE> 8
5.2 UTILITIES: Tenant shall arrange, at its sole cost and expense and
in its own name, for the supply of gas and electricity to the Leased Premises.
In the event that such services are not separately interested, Tenant shall, at
its sole expense, cause such meters to be installed. Landlord shall maintain
the water meter(s) in its own name: provided, however, that if at any time
during the Lease Term Landlord shall require Tenant to put the water service in
Tenant's name. Tenant shall do so at Tenant's sole cost. Tenant shall be
responsible for determining if the local supplier of water, gas and electricity
can supply the needs of Tenant and whether or not the existing water, gas and
electrical distribution systems within the Building and the Leased Premises are
adequate for Tenant's needs. Tenant shall be responsible for determining if
the existing sanitary and storm sewer systems now servicing the Leased Premises
and the Property are adequate for Tenant's needs. Tenant shall pay all charges
for water, gas, electricity, and storm and sanitary sewer services as so
supplied to the Leased Premises, irrespective of whether or not the services
are maintained in Landlord's or Tenant's name.
5.3 SECURITY: Tenant acknowledges that Landlord has not undertaken any
duty whatsoever to provide security for the Leased Premises, the Building, the
Outside Areas or the Property and, accordingly, Landlord is not responsible for
the security of same or the protection of Tenant's property or Tenant's
employees, invitees or contractors. To the extent Tenant determines that such
security or protection services are advisable or necessary, Tenant shall arrange
for and pay the costs of providing same.
5.4 ENERGY AND RESOURCE CONSUMPTION: Landlord may voluntarily cooperate in
a reasonable manner with the efforts of governmental agencies and/or utility
suppliers in reducing energy or other resource consumption within the Property.
Tenant shall not be entitled to terminate this Lease or to any reduction in or
abatement of rent by reason of such compliance or cooperation. Tenant agrees at
all times to cooperate fully with Landlord and to abide by all reasonable rules
established by Landlord (i) in order to maximize the efficient operation of the
electrical, heating, ventilating and air conditioning systems and all other
energy or other resource consumption systems within the Property and/or (ii) in
order to comply with the requirements and recommendations of utility suppliers
and governmental agencies regulating the consumption of energy and/or other
resources.
[SEE ADDENDUM 15.4]
5.5 LIMITATION OF LANDLORD'S LIABILITY: Landlord shall not be liable
to Tenant for injury to Tenant, its employees, agents, invitees or contractors,
damage to Tenant's property or loss of Tenant's business or profits, nor shall
Tenant be entitled to terminate this Lease or to any reduction in or abatement
of rent by reason of (i) Landlord's failure to provide security services or
systems within the Property for the protection of the Leased Premises, the
Building or the Outside Areas, or the Property until Tenant shall have first
notified Landlord, in writing, of the need for such maintenance or repairs, and
then only after Landlord shall have had a reasonable period of time following
its receipt of such notice within which to perform such maintenance or repairs,
or (iii) any failure, interruption, rationing or other curtailment in the
supply of water, electric current, gas or other utility service to the Leased
Premises, the Building, the Outside Areas or the Property from whatever cause
(other than Landlord's sole active negligence or willful misconduct), or (iv)
the unauthorized intrusion or entry into the Leased Premises by third parties
(other than Landlord).
[SEE ADDENDUM 15.5]
ARTICLE 6:
ALTERATIONS AND IMPROVEMENTS
6.1 BY TENANT: Tenant shall not make any alterations to or modifications
of the Leased Premises or construct any improvements within the Leased Premises
until Landlord shall have first approved, in writing, the plans and
specifications therefore, which approval shall not be unreasonably withheld. All
such modifications, alterations or improvements, once so approved, shall be
made, constructed or installed by Tenant at Tenant's expense (including all
permit fees and governmental charges related thereto), using a licensed
contractor first approved by Landlord, in substantial compliance with the
Landlord-approved plans and specifications therefore. All work undertaken by
Tenant shall be done in accordance with all Laws and in a good and workmanlike
manner using new materials of good quality. Tenant shall not commence the
making of any such modifications or alterations or the construction of any such
improvements until (i) all required governmental approvals and permits shall
have been obtained, (ii) all requirements regarding insurance imposed by the
Lease have been satisfied, (iii) Tenant shall have given Landlord at least five
business days prior written notice of its intention to commence such work so
that Landlord may post and file notices of non-responsibility, and (iv) if
requested by Landlord, Tenant shall have obtained contingent liability and broad
form builder's risk insurance in an amount satisfactory to Landlord to cover any
perils relating to the proposed work not covered by insurance carried by Tenant
pursuant to Article 9. In no event shall Tenant make any modifications,
alterations or improvements whatsoever to the Outside Areas or the exterior or
structural components of the Building including, without limitation, any cuts or
penetrations in the floor, roof or exterior walls of the Leased Premises. As
used in this Article, the term "modifications, alterations and/or improvements"
shall include, without limitation, the installation of additional electrical
outlets, overhead lighting fixtures, drains, sinks, partitions, doorways, or
the like.
[SEE ADDENDUM 16.1]
6.2 OWNERSHIP OF IMPROVEMENTS: [INSERT B] All modifications, alterations
and improvements made or added to the Leased Premises by Tenant (other than
Tenant's inventory, equipment, movable furniture, wall decorations and trade
fixtures) shall be deemed real property and a part of the Leased Premises, but
shall remain the property of Tenant during the Lease Term. Any such
modifications, alterations or improvements, once completed, shall not be altered
or removed from the Leased Premises during the Lease Term without Landlord's
written approval first obtained in accordance with the provisions of Paragraph
6.1 above. At the expiration or sooner termination of this Lease, all such
modifications, alterations and improvements other than Tenant's inventory,
equipment, movable furniture, wall decorations and trade fixtures) if not
removed by Tenant shall automatically become the property) Landlord and shall
be surrendered to Landlord as a part of the Leased Premises as required pursuant
to Article 2, unless Landlord shall require Tenant to remove any of such
modifications, alterations or improvements in accordance with the provisions of
Article 2, in which case Tenant shall so remove same. Landlord shall have no
obligations to reimburse to Tenant all or any portion of the cost or value of
any such modifications, alterations or improvements so surrendered to Landlord.
All modifications, alterations or improvements which are installed or
constructed on or attached to the Leased Premises by Landlord at Landlord's
expense shall be deemed real property and a part of the Leased Premises and
shall be the property of Landlord. All lighting, plumbing, electrical, heating,
ventilating and air conditioning fixtures, partitioning, window coverings, wall
coverings and floor coverings installed by Tenant shall be deemed improvements
to the Leased Premises and not trade fixtures of Tenant.
[SEE ADDENDUM PARAGRAPHS 2.6 AND 6.2]
6.3 ALTERATIONS REQUIRED BY LAW: Tenant shall make all modifications,
alterations and improvements to the Leased Premises, at its sole cost, that are
required by any Law because of (i) Tenant's particular use or occupancy of the
Leased Premises, the Building, the Outside Areas of the Property, (ii) Tenant's
application for any permit or governmental approval, or (iii) Tenant's making
of any modifications, alterations or improvements to or within the Leased
Premises. If Landlord shall, at any time during the Lease Term, be required by
any governmental authority to make any modifications, alterations or
improvements to the Building or the Property, to cost incurred by Landlord in
making such modifications, alterations or improvements, including [INSERT 9]
per annum shall be amortized by Landlord over the useful life of such
modifications, alterations or improvements, as determined in accordance with
generally accepted accounting standards, and the monthly amortized cost of such
modifications, alterations and improvements as so amortized shall be considered
a Property Maintenance Cost. [INSERT 10]
[SEE ADDENDUM 14.7]
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6.4 LIENS: Tenant shall keep the Property and every part thereof free
from any liens (INSERT 11) and shall pay when due all bills ensuing out of any
work performed, materials furnished, or obligations incurred by Tenant, its
agents, employees or contractors relating to the Property. If any such claim or
lien is recorded against Tenant's interest in this Lease, the Property or any
part thereof. Tenant shall loan against, discharge or otherwise cause such
lien to be Tenant released within ten days after receipt of written notice
from Landlord that the same has been so recorded. Tenant's failure to do so
shall be conslusively deemed a material default under the terms of this Lease.
ARTICLE 7
ASSIGNMENT AND SUBLETTING BY TENANT
7.1 BY TENANT: Tenant shall not sublet the Leased Premises for any
portion thereon or assign or encumber its interest in this Lease, whether
voluntarily or by operation of Law, without Landlord's prior written consent
first obtained in accordance with the provisions of this Article 7 (INSERT 12).
Any attempted subletting, assignment or encumbrance without Landlord's prior
written consent, at Landlord's election, shall constitute a default by Tenant
under the terms of this Lease. The acceptance of rent by Landlord from any
person or entity other than Tenant, or the acceptance of rent by Landlord from
Tenant with knowledge of a violation of the provisions of this Paragraph, shall
not be deemed to be a waiver by Landlord of any provision of this Article or
this Lease or to be a consent to any subletting by Tenant or any assignment or
encumbrance of Tenant's interest in this Lease. (See Addendum 17.1)
7.2 MERGER OR REORGANIZATION: If Tenant is a corporation, any
dissolution, merger, consolidation or other reorganization of Tenant, or the
sale or other transfer in the aggregate over the Lease Term of a controlling
percentage of the capital stock of Tenant, shall be deemed a voluntary
assignment of Tenant's interest in this Lease. The phrase "controlling
percentage" means the ownership of and the right to vote stock possessing more
than fifty percent of the total combined voting power of all classes of
Tenant's capital stock issued, outstanding and entitled to vote for the election
of directors. If Tenant is a partnership, a withdrawal or change, voluntary,
involuntary or by operation of Law, of any general partner, or the dissolution
of the partnership, shall be deemed a voluntary assignment of Tenant's interest
in this Lease. (See Addendum 17.2)
7.3 LANDLORD'S ELECTION: If Tenant shall desire to assign its interest
under this Lease or to sublet the Leased Premises, Tenant must first notify
Landlord, in writing, of its intent to so assign or sublet, at least fifteen
(15) days in advance of the date it intends to so assign its interest in this
Lease or sublet the Leased Premises but not sooner than one hundred eighty days
in advance of such date, specifying in detail the terms of such proposed
assignment or subletting, including the name of the proposed assignee or
sublessee, the proposed assignee's or sublessee's intended use of the Leased
Premises, a current financial statement of such proposed assignee or sublessee,
the form of documents to be used in effectuating such assignment or subletting
and such other information as Landlord may reasonably request. Landlord shall
have a period of fifteen days following receipt of such notice and the required
information within which to do one of the following: (i) consent to such
requested assignment or subletting subject to Tenant's compliance with the
conditions set forth in Paragraph 7.4 below or (ii) refuse to so consent to
such requested assignemt or subletting, provided that such consent shall not
be unreasonably refused. During said fifteen day period, Tenant covenants and
agrees to supply to Landlord, upon request, all necessary or relevant
information which Landlord may reasonably request respecting such proposed
assignment of subletting and/or the proposed assignee or sublessee.
7.4 CONDITIONS TO LANDLORD'S CONSENT: If Landlord elects to consent, or
shall have been ordered to so consent by a court of competent jurisdiction, to
such requested assignment, subletting or encumbrance, such consent shall be
expressly conditioned upon the occurrence of each of the conditions below set
forth, and any purported assignment, subletting or encumbrance made or ordered
prior to the full and complete satisfaction of each of the following conditions
shall be void and, at the election of Landlord, which election may be
exercised at any time following such a purported assignment, subletting or
encumbrance but prior to the satisfaction of each of the stated conditions,
shall constitute a material default by Tenant under this Lease until cured by
satisfying in full each such condition by the assignee, sublessee or
encumbrancer. The conditions are as follows: (See Addendum 17.4)
A. Landlord having approved in form and substance the assignment or
sublease agreement for the encumbrance agreements, which approval shall not be
unreasonably withheld by Landlord if the requirements of this Article 7 are
otherwise complied with.
B. Each such assignee having agreed, in writing satisfactory to
Landlord and its counsel and for the benefit of Landlord, to assume, to be
bound by, and to perform the obligations of this Lease to be performed by
Tenant for, in the case of an encumbrance, each such encumbrancer having
similarly agreed to assume, be bound by and to perform Tenant's obligations
upon a foreclosure or transfer in lieu thereof. (INSERT 13)
C. Tenant having reimbursed to Landlord all reasonable costs and
reasonable attorneys' fees incurred by Landlord in conjunction with the
processing and documentation of any such requested subletting, assignment or
encumbrance.
D. Tenant having delivered to Landlord a complete and fully-executed
duplicate original of such sublease agreement, assignment agreement or
encumbrance (as applicable) and all related agreements.
E. Tenant having paid, or having agreed in writing to pay as to
future payments, to Landlord 50 percent of all assignment consideration or
excess rentals to be paid to Tenant or to any other on Tenant's behalf or for
Tenant's benefit for such assignment or subletting as follows:
(1) If Tenant assigns its interest under this Lease and if all
or a portion of the consideration for such assignment is to be paid by the
assignee at the time of the assignment, that Tenant shall have paid to Landlord
and Landlord shall have received an amount equal to fifty percent of the
assignment consideration so paid or to be paid (whichever is the greater at the
time of the assignment by the assignee; or
(2) If Tenant assigns its interest under this Lease and if
Tenant is to receive all or a portion of the consideration for such assignment
in future installments, that Tenant and Tenant's assignee shall have entered
into a written agreement with and for the benefit of Landlord satisfactory to
Landlord and its counsel whereby Tenant and Tenant's assignee jointly agree to
pay to Landlord an amount equal to 50 percent of all such future assignment
consideration installments to be paid by such assignee as and when such
assignment consideration is so paid.
(3) If Tenant subleases the Leased Premises, that Tenant and
Tenant's sublessee shall have entered into a written agreement with and for the
benefit of Landlord satisfactory to Landlord and its counsel whereby Tenant and
Tenant's sublessee jointly agree to pay to Landlord 50 percent of all excess
rentals to be paid by such sublessee as and when such excess rentals are so
paid.
7.5 ASSIGNMENT CONSIDERATION AND EXCESS RENTALS DEFINED: For purposes of
this Article, the term "assignment consideration" shall mean all consideration
to be paid by the assignee to Tenant or to any other on Tenant's behalf or for
Tenant's benefit as consideration for such assignment, less any commission paid
by Tenant to a licensed real estate broker for arranging such assignment.
<PAGE> 10
(not to exceed then standard rates), and the term "excess rentals" shall mean
all consideration to be paid by the sublessee to Tenant or to any other on
Tenant's behalf or for Tenant's benefit for the sublease of the Leased
Premises in excess of the rent due to landlord under the terms of this Lease
for the same period, less any commissions paid by Tenant to a licensed real
estate broker for arranging such sublease (not to exceed then standard rates).
Tenant agrees that the portion of any assignment consideration and/or excess
rentals arising from any assignment or subletting by Tenant which is to be
paid to landlord pursuant to this Article now is and shall then be the
property of Landlord and not the property of Tenant.
See Addendum Paragraphs 7.2 and 7.5
7.6 PAYMENTS: All payments required by this Article to be made to
Landlord shall be made in cash in full as and when they become due. At the time
Tenant, Tenant's assignee or sublessee makes each such payment to Landlord,
Tenant or Tenant's assignees or sublessee, as the case may be, shall deliver
to Landlord an itemized statement in reasonable detail showing the method by
which the amount due Landlord was calculated and certified by the party making
such payment as true and correct.
7.7 GOOD FAITH: The rights granted to Tenant by this Article are
granted in consideration of Tenant's express convenant that all pertinent
allocations which are made by Tenant between the rental value of the Leased
Premises and the value of any of Tenant's personal property which may be
conveyed or leased generally concurrently with and which may reasonably be
considered a part of the same transaction as the permitted assignment or
subletting shall be made fairly, honestly and in good faith. If Tenant shall
breach this Covenant of Good Faith, Landlord may immediately declare Tenant
to be in default under the terms of this Lease and terminate this Lease and/or
exercise any other rights and remedies Landlord would have under the terms of
this Lease in the case of a material default by Tenant under this Lease.
See Addendum Paragraph 7.7
7.8 EFFECT OF LANDLORD'S CONSENT: No subletting, assignment or
encumbrance, even with the consent of Landlord, shall relieve Tenant of its
personal and primary obligation to pay rent and to perform all of the other
obligations to be performed by Tenant hereunder. Consent by landlord to one or
more assignments or encumbrances of Tenant's interest in this Lease or to one
or more sublettings of the Leased Premises shall not be deemed to be a consent
to any subsequent assigment, encumbrance or subletting. If Landlord shall have
been ordered by a court of competent jurisdiction to consent to a requested
assignment or subletting, or such an assignment or subletting shall have been
ordered over the objection of Landlord, such assignment or subletting shall not
be binding between the assignee (or sublesee) and Landlord until such time as
all conditions set forth in Paragraph 7.4 above have been fully satisfied (to
the extent not then satisfied by the assignee or sublesee, including, without
limitation, the payment to Landlord of all agreed assignment considerations
and/or excess rentals then due Landlord.
ARTICLE 8:
LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY
8.1 LIMITATION ON LANDLORD'S LIABILITY AND RELEASE: Landlord shall not
be liable to Tenant for, and Tenant hereby releases Landlord and its partners,
principals, officers, agents and employees from, any and all liability, whether
in contract, tort or on any other basis, for any injury to or any damage
sustained by Tenant, Tenant's agents, employees, contractors or invitees: any
damage in Tenant's property; or any loss to Tenant's business, loss of Tenant's
profits or other financial loss of Tenant resulting from or attributable to the
condition of, the management of, the repair or maintenance of, the protection
of, the supply of services or utilities to, the damage to or destruction of the
Leased Premises, the Building, the Project or the Common Areas, including
without limitation (i) the failure, interruption, rationing or other
curtailment or cessation in the supply of electricity, water, gas or other
utility serivce to the Project, the Building or the Leased Premises; (ii) the
vandalism or forcible entry into the Building or the Leased Premises; (iii) the
penetration of water into or onto any portion of the Leased Premises through
roof leaks or otherwise; (iv) the failure to provide security and/or adequate
lighting in or about the Project, the Building or the Leased Premises; (v) the
existence of any design or construction defects within the Project, the
Building or the Leased Premises; (vi) the failure of any mechanical systems to
function properly such as the HVAC systems; (vii) in the blockage of access
to any portion of the Project, the Building or the Leased Premises, except
that Tenant does not so release Landlord from such liability to the extent
such damage was proximately caused by Landlord's active negligence, willful
misconduct, or Landlord's failure to perform an obligation expressly
undertaken pursuant to this Lease after a reasonable period of a time shall
have lapsed following receipt of written notice from Tenant to so perform such
obligation. In this regard, Tenant acknowledges that it is fully apprised of
the provisions of Law relating to releases, and particularly to those provision
contained in Section 15-12 of the California Civil Code which reads as follows:
A general release does not extend to claims which
the creditor does not know or suspect to exist in
his favor at the time of executing the release,
which if known by him must have materially affected
his settlement with the debtor.
Notwithstanding such statutory provision, and for the purpose of implementing a
full and complete release and discharge, Tenant hereby (i) waives the benefit
of such statutory provision and (ii) acknowledges that, subject to the
exceptions specifically set forth herein, the release and discharge set forth
in this Paragraph is a full and complete settlement and release and discharge
of all claims and is intended to include in its effect, without limitation, all
claims which Tenant, as of the date hereof, does not know of or suspect to
exist in its favor.
See Addendum Paragraph 8.1
8.2 TENANTS INDEMNIFICATION OF LANDLORD: Tenant shall defend with
competent counsel satisfactory to landlord any claims made or legal actions
filed or threatened against Landlord with respect to the violation of any law,
or the death, bodily injury, personal injury, property damage, or intereference
with contractual or property rights suffered by any third party including
other tenants within the Project occurring within the Leased Premises or
resulting from Tenant's use or occupancy of the Leased Premises, the Building
or the Outside Areas, or resulting from Tenant's activities in or about the
Leased Premises, the Building, the Outside Areas or the Property, and Tenant
shall indemnify and hold Landlord, Landlord's principals, employees, agents and
contractors harmless from any loss, liability, penalties, or expense whatsoever
including any loss attributable to vacant space which otherwise would have been
leased, but for such activities resulting therefrom, except to the extent
proximately caused by the active negligence or willful misconduct of Landlord.
This indemnity agreement shall survive until the latter to occur of (i) the
date of the expiration, or sooner termination, of this Lease, or (ii) the date
Tenant actually vacates the Leased Premises.
See Addendum Paragraph 8.2
ARTICLE 9:
9.1 TENANT'S INSURANCE: Tenant shall maintain insurance complying with
all of the following:
A. Tenant shall procure, pay for and keep in full force and effect, at
all times during the Lease Term, the following:
(1) Commercial general liability insurance insuring Tenant against
liability for personal injury, bodily injury, death and damage to property
occurring within the Leased Premises, or resulting from Tenant's use or
occupancy of the Leased Premises, the Building, the Outside Areas or the
Property, or resulting from Tenant's activities in or about the Leased Premises
or the Property with
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<PAGE> 11
combined single limit coverage of not less than the amount of Tenant's Required
Liability Coverage (as set forth in Article I), which insurance shall contain a
"broad from liability" endorsement insuring Tenant's performance of tenant's
obligation to indemnify Landlord as contained in Article 8.2 -- (or an
equivalent endorsement having the same effect).
(2) Fire and property damage insurance in so-called "fire and extended
coverage" form insuring Tenant against loss from physical damage to Tenant's
personal property, inventory, trade fixtures and improvements within the
Leased Premises with coverage that Tenant deems reasonably necessary for its
protection
(4) Pressure vessel insurance, if applicable:
(6) Workers' compensation insurance and any other employee benefit
insurance sufficient to comply with all Laws; and
(7) With respect to making of alterations or the construction
of improvements or the like undertaken by Tenant, contingent liability and
builder's risk insurance, in an amount and with coverage reasonably
satisfactory to Landlord.
B. Each policy of liability insurance required to be carried by Tenant
pursuant to this Paragraph or actually carried by Tenant with respect to the
Leased Premises or the Property (i) shall, with respect to insurance required
by Subparagraph (1) above, name Landlord, and such others as are designated by
Landlord, as additional insureds; (ii) shall be primary insurance providing that
the insurer shall be liable for the full amount of the loss, up to and
including the total amount of liability set forth in the declaration of
coverage, without the right of contribution from or prior payment by any other
insurance coverage of Landlord; (iii) shall be in a form reasonably
satisfactory to Landlord; (iv) shall be carried with companies reasonably
acceptable to Landlord; (v) shall provide that such policy shall not be subject
to cancellation, lapse or material change except after at least thirty days
prior written notice to Landlord; and (vi) shall contain a so-called
"severability" or "cross liability" endorsement. Each policy of property
insurance maintained by Tenant with respect to the Leased Premises or the
Property or any property therein (i) shall provide that such policy shall not
be subject to cancellation, lapse or reduction in coverage except after at
least thirty days prior written notice to Landlord and (ii) shall contain a
waiver and/or a permission to waive by the insurer of any right of subrogation
against Landlord, its principals, officers, employees, agents and contractors,
which might arise by reason of any payment under such policy or by reason of
any act or omission of Landlord, its principals, officers, employees, agents or
contractors.
C. Prior to the time Tenant or any of its contractors enters the Leased
Premises, Tenant shall deliver to Landlord, with respect to each policy of
insurance required to be carried by Tenant pursuant to this Article, a copy of
such policy (appropriately authenticated by the insurer as having been issued,
premium paid or a certificate of the insurer certifying in form reasonably
satisfactory to Landlord that a policy has been issued, premium paid, providing
the coverage required by this Paragraph and containing the provisions specified
herein. With respect to each renewal or replacement of any such insurance, the
requirements of this Paragraph must be complied with not less than thirty days
prior to the expiration or cancellation of the policy being renewed or
replaced. Landlord may, at any time and from time to time, inspect and/or copy
any and all insurace policies required to be carried by Tenant pursuant to this
Article. If Landlord's Lender, insurance broker or advisor or counsel
reasonably determines at any time that the amount of coverage set forth in
Paragraph 9.1A for any policy of insurance Tenant is required to carry pursuant
to this Article is not adequate, then Tenant shall increase the amount of
coverage for such insurance to such greater amount as Landlord's Lender,
insurance broker or advisor or counsel reasanably deems adequate: provided,
however, such increased level of coverage may not exceed the level of coverage
for such insurance commonly carried by comparable business similarly situated
and operating under similar circumstances.
9.2 LANDLORD'S INSURANCE: With respect to insurance maintained by
Landlord:
A. Landlord shall maintain, as the minimum coverage required of it by this
Lease, fire and property damage insurance in so-called "fire and extended
coverage" from insuring Landlord (and such others as Landlord may designate)
against loss from physical damage to the Building with coverage of not less
than ninety percent of the full actual replacement cost thereof and against loss
of rents for a period of not less than six months. Such fire and property
damage insurance, at Landlord's election but without any requirements on
Landlord's behalf to do so, (i) may be written in so-called "all risk" form,
excluding only those perils commonly excluded from such coverage by Landlord's
then property damage insurer; (ii) may provide coverage for physical damage to
the improvements so insured for up to the entire full actual replacement cost
thereof; (iii) may be endorsed to cover loss or damage caused by any additional
periods against which Landlord may elect to insure, including earthquake and/or
flood; (iv) may provide coverage for loss of rents for a period of up to twelve
months; and/or (v) may contain "deductibles" not less than Two Thousand Five
Hundred Dollars ($2,500) and not exceeding Twenty Thousand Dollars ($20,000)
per occurrence (or up to ten percent of the Building's replacement value in the
case of earthquake and/or flood insurance). Landlord shall not be required to
cause such insurance to cover any of Tenant's personal property, inventory and
trade fixtures, or any modifications, alterations or improvements made or
constructed by Tenant to or within the Leased Premises.
B. Landlord shall maintain comprehensive general liability insurance
insuring Landlord (and such others as are designated by Landlord) against
liability for personal injury, bodily injury, death, and damage to property
occurring in, on or about, or resulting from the use or occupancy of the
Property, or any portion thereof, with combined single limit coverage of at
least Two Million Dollars. Landlord may carry such greater coverage as Landlord
or Landlord's Lender, insurance broker or advisor or counsel may from time to
time determine is reasonably necessary for the adequate protection of Landlord
and the Property, provided that such insurance is reasonable in light of what
is customarily carried by similar landlords of similar property.
C. Landlord may maintain any other insurance which in the opinion of its
insurance broker or advisor or legal counsel is prudent in carry under the
given circumstances. [INSERT 14]
[See Addendum Section 9.2]
9.3 MUTUAL WAIVER OF SUBROGATION: Notwithstanding anything to the contrary
in this Lease, Landlord hereby releases Tenant, and Tenant hereby releases
Landlord and its respective principals, officers, agents, employees and
servants, from any and all liability for loss, damage or injury to the property
of the other in or about the Leased Premises or the Property which is caused by
or results from a peril or event or happening which would be covered by
insurance required to be carried by the party sustaining such loss under the
terms of this Lease, or is covered by insurance actually carried and in force
at the time of the loss, or which [INSERT 15] [INSERT 16].
ARTICLE 10:
DAMAGE TO LEASED PREMISES
10.1 LANDLORD'S DUTY TO RESTORE: If the Leased Premises, the Building or
the Outside Areas are damaged by any peril after the Effective Date of this
Lease, Landlord shall restore the same, as and when required by this Paragraph,
unless this Lease is terminated by Landlord pursuant to Paragraph 10.3 or by
Tenant pursuant to Paragraph 10.4. If this Lease is not so terminated, then
upon the issuance of all necessary governmental permits, Landlord shall
commence and diligently prosecute to completion the restoration of the Leased
Premises, the Building or the Outside
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<PAGE> 12
Areas, as the case may be, to the extent then allowed by Law, to substantially
the same condition in which it existed as of the Lease Commencement Date.
Landlord's obligation to restore shall be limited to the improvements
constructed by Landlord. Landlord shall have no obligation to restore any
improvements made by Tenant to the Leased Premises of any of Tenant's personal
property, inventory or trade fixtures. Upon completion of the restoration by
Landlord, Tenant shall forthwith replace or fully repair all of Tenant's
personal property, inventory, trade fixtures and other improvements constructed
by Tenant to like or similar condition as existed at the time of such damage or
destruction.
10.2 INSURANCE PROCEEDS: All insurance proceeds available from the life
and property damage insurance carried by Landlord shall be paid to and become
the property of Landlord. If this Lease is terminated pursuant to either
Paragraph 10.3 or 10.4 all insurance proceeds available from insurance carried
by Tenant which cover loss of property that is Landlord's property or would
become Landlord's property on termination of this Lease shall be paid to and
become the property of Landlord, and the remainder of such proceeds shall be
paid to and become the property of Tenant. If this Lease is not terminated
pursuant to either Paragraph 10.3 or 10.4 all insurance proceeds available from
insurance carried by Tenant which cover loss to property that is Landlord's
property shall be paid to and become the property of Landlord, and all proceeds
available from such insurance which cover loss to property which would only
become the property of Landlord upon the termination of this Lease shall be
paid to and remain the property of Tenant. [INSERT 17]
10.3 LANDLORD'S RIGHT TO TERMINATE: Landlord shall have the option to
terminate this Lease in the event any of the following occurs, which option may
be exercised only by delivery to Tenant of a written notice of election to
terminate within thirty days after the date of such damage or destruction:
A. The Building is damaged by any peril covered by valid and collectible
insurance actually carried by Landlord and in force at the time of such damage
or destruction (an "insured peril") to such an extent that the estimated cost
to restore the Building exceeds the lesser of (i) the insurance proceeds
available from insurance actually carried by Landlord, or (ii) seventy-five
percent of the then actual replacement cost thereof;
B. The Building is damaged by an uninsured peril, which peril Landlord
was required to insure against pursuant to the provisions of Article 9 of this
Lease, to such an extent that the estimated cost to restore the Building
exceeds the lesser of (i) the insurance proceeds which would have been
available had Landlord carried such required insurance, or (ii) seventy-five
percent of the then actual replacement cost thereof;
C. The Building is damaged by an uninsured peril, which peril Landlord was
not required to insure against pursuant to the provisions of Article 9 of this
Lease, to any extent.
D. The Building is damaged by any peril and, because of the Laws then in
force, the Building (i) can not be restored at reasonable cost or (ii) if
restored, can not be used for the same use being made thereof before such
damage.
[See Addendum Paragraph 10.3]
10.4 TENANT'S RIGHT TO TERMINATE: If the Leased Premises, the Building or
the Outside Areas are damaged by any peril and Landlord does not elect to
terminate this Lease or is not entitled to terminate this Lease pursuant in
this Article, then within thirty (30) days after the date of the damage,
Landlord shall furnish Tenant with the written opinion of Landlord's architect
or construction consultant as to when the restoration work required of Landlord
may be complete. Tenant shall have the option to terminate this Lease in the
event any of the following occurs, which option may be exercised in the case of
A or B below only by delivery to Landlord of a written notice of election to
terminate within seven days Tenant receives from Landlord the estimate of the
time needed to complete such restoration:
A. If the time estimated to substantially complete the restoration
exceeds nine months from and after the date of such damage; or
B. If the damage occurred within nine months of the last day of the
Lease Term and the time estimated to substanially complete the restoration
exceeds ninety days from and after the date such restoration is commenced; or
C. Landlord does not complete the restoration within nine months from
the date of the damage, provided that such nine month period of time shall be
extended for such number of days as Landlord may be delayed by reason of Force
Majeure and provided further that Tenant shall have the right to terminate this
Lease if the Leased Premises are not substantially completed for any reason on
or before that date that is eighteen (18) months after the date of the damage.
10.5 TENANT'S WAIVER: Landlord and Tenant agree that the provisions of
Paragraph 10.4 above, captioned ""Tenant's Right to Terminate'', are intended
to supersede and replace the provisions contained in California Civil Code,
Section 1932, Subdivision 2, and California Civil Code, Section 1934, and
accordingly, Tenant hereby waives the provisions of said Civil Code Sections
and the provisions of any successor Code Sections or similar laws hereinafter
enacted.
ARTICLE II:
CONDEMNATION
11.1 TENANT'S RIGHT TO TERMINATE: Except as otherwise provided in Paragraph
11.4 below regarding temporary takings. Tenant shall have the option to
terminate this Lease if, as a result of any taking, to all of the Leased
Premises is taken on twenty (20%) percent or more or the Leased Premises
is taken and the part of the Leased Premises that remains cannot, within a
reasonable period of time, be made reasonably suitable for the continued
operation of Tenant's business, or (iii) there is a taking of a portion of the
Outside Areas and, as a result of such taking, Landlord cannot provide parking
spaces within the Property (or within a reasonable distance therefrom) equal in
number to at least eighty-five (85%) percent of the number of parking spaces
existing within the Outside Areas immediately prior to such taking, whether by
rearrangement of the remaining parking areas on the Outside Areas including, if
Landlord elects, construction of multi-deck parking structures or restriping
for compact cars where permitted by Laws. Tenant must exercise such option
within a reasonable period of time, to be effective on the later to occur of
(i) the date that possession of that portion of the Leased Premises or the
Outside Areas that is condemned is taken by the condemnor or (ii) the date
Tenant vacated the Leased Premises.
11.2 LANDLORD'S RIGHT TO TERMINATE: Except as otherwise provided in
Paragraph 11.4 below regarding temorary takings. Landlord shall have the option
to terminate this Lease if, as a result of any takings, for all or
substantially all of the Leased Premises is taken, (ii) more than thirty-three
and one-third percent of the Outside Areas is taken, or (iii) becuase of the
Laws then in force, the Leased Premises may not be used for the same use being
made thereof before such taking, whether or not restored as required by
Paragraph 11.3 below. Any such option to terminate by Landlord must be
exercisable within a reasonable period of time, to be effective as of the date
possession is taken by the condemnor.
11.3 RESTORATION: If any part of the Leased Premises, the Building or the
Outside Areas is taken and this Lease is not terminated, then Landlord shall
repair any damage occasioned thereby to the remainder thereof to a condition
reasonably suitable for Tenant continued operations and otherwise, to the
extent the practicable, in the manner and to the extent provided in Paragraph
10.1.
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<PAGE> 13
11.4 TEMPORARY TAKING: If any portion of the Leased Premises is taken,
this Lease shall remain in effect. If any portion of the Leased Premises is
temporarily taken for a period which either exceeds one year or which extends
beyond the Lease Expiration Date, then Tenant shall have the option to
terminate this Lease, effective on the date possession is taken by the
condemnor.
11.5 DIVISION OF CONDEMNATION AWARD: Any award made for any taking of
the Property, the Building, the Outside Areas or the Leased Premises, or any
portion thereof, shall belong to and be paid to Landlord, and Tenant hereby
assigns to Landlord all of its right, title and interest in any such award:
provided, however, that Tenant shall be entitled to receive any portion of the
award that is made specifically (i) for the taking of personal property,
inventory or trade fixtures belong to Tenant, (ii) for the interruption of
Tenant's business or its moving costs, (iii) for loss of Tenant's goodwill,
and (iv) for any temporary taking where this Lease is not terminated as a
result of such taking (Insert 18). The rights of Landlord and Tenant regarding
any condemnation shall be determined as provided in this Article, and each
party hereby waives the provisions of Section 1265.130 of the California Code
of Civil Procedure, and the provisions of any similar law hereinafter enacted,
allowing either party to petition the Superior Court to terminate this Lease
and/or otherwise allocate condemnation awards between Landlord and Tenant in
the event of a taking of the Leased Premises.
11.6 ABATEMENT OF RENT: In the event of a taking of the Leased Premises
which does not result in a termination of this Lease (other than a temporary
taking), then, as of the date possession is taken by the condemning authority,
the Base Monthly Rent shall be reduced in the same proportion that the area of
that part of the Leased Premises so taken (less any addition to the area of the
Leased Premises by reason of any reconstruction) bears to the area of the
Leased Premises immediately prior to such taking. See Addendum Paragraph 11.6
11.7 TAKING DEFINED: The term "taking" or "taken" as used in this
Article 11 shall mean any transfer or conveyance of all or any portion of the
Property to a public or quasi-public agency or other entity having the power of
eminent domain pursuant to or as a result of the exercise of such power by
such an agency, including any inverse condemnation and/or any sale or tansfer
by Landlord of all or any portion of the Porperty to such an agency under
threat of condemnation or the exercise of such power.
ARTICLE 12:
DEFAULT AND REMEDIES
12.1 EVENTS OF TENANT'S DEFAULT: Tenant shall be in default of its
obligations under this Lease if any of the following events occur:
A. Tenant shall have failed to pay Base Monthly Rent or any Additional
Rent within five (5) days after receiving written notice from Landlord; or
B. Tenant shall have done or permitted to have done any act, use or
thing in its use, occupancy or possession of the Leased Premises or the
Building or the Outside Areas which is prohibited by the terms of this Lease;
or
C. Tenant shall have failed to perform any term, covenant or condition
of this Lease, except those requiring the payment of Base Monthly Rent or
Additional Rent, within thirty (30) days after written notice from Landlord to
Tenant specifying the nature of such failure and requesting Tenant to perform
same. See Addendum Paragraph 12.1
D. Tenant shall have sublet the Leased Premises or assigned or
encumbered its interest in this Lease in violation of the provisions contained
in Article 7, whether voluntarily or by operation of Law; or
E. Tenant shall have abandoned the Leased Premises; or
F. Tenant or any Guarantor of this Lease shall have permitted or
suffered the sequestration or attachment of, or execution on, or the
appointment of a custodian or receiver with respect to, all or any substantial
part of the property or assets of Tenant for such Guarantors or any property or
asset essential to the conduct of Tenant's (or such Guarantors) business, and
Tenant (or such Guarantor) shall have failed to obtain a return or release of
the same within thirty days thereafter, or prior to sale pursuant to such
sequestration, attachment or levy, whichever is earlier; or
G. Tenant or any Guarantor of this Lease shall have made a general
assignment of all or a substantial part of its assets for the benefit of its
creditors; or
H. Tenant or any Guarantor of this Lease shall have allowed [or sought]
to have entered against it a decree or order which: (i) grants or constitutes
an order for relief, appointment of a trustee, or confirmation or a
reorganization plan under the bankruptcy laws of the United States; (ii)
approves as properly filed a petition seeking liquidation or reorganization
under said bankruptcy laws or any other debtor's relief law or similar statute
of the United States or any state thereof; or (iii) otherwise directs the
winding up or liquidation of Tenant; provided, however, if any decree or order
was entered without Tenant's consent or over Tenant's objection. Landlord may
not terminate this Lease pursuant to this Subparagraph if such decree or order
is rescinded or reversed within thirty days after its original entry.
I. Tenant or any Guarantor of this Lease shall have availed itself of
the protection of any debtor's relief law, moratorium law or other similar Law
which does not require the prior entry of a decree or order.
12.2 LANDLORD'S REMEDIES: In the event of any default by Tenant, and
without limiting Landlord's right to indemnification as provided in Article
8.2, Landlord shall have the following remedies, in addition to all other
rights and remedies provided by Law or otherwise provided in this Lease, to
which Landlord may resort cumulatively, or in the alternative:
A. Landlord may, at Landlord's election, keep this Lease in effect and
enforce, by an action at law or in equity, all of its rights and remedies under
this Lease including, without limitation, (i) the right to recover the rent and
other sums as they become due by appropriate legal action, (ii) the right to
make payments required by Tenant, or perform Tenant's obligations and be
reimbursed by Tenant for the cost thereof with interest at the then maximum
rate of interest not prohibited by Law from the date the sum is paid by
Landlord until Landlord is reimbursed by Tenant, and (iii) the remedies of
injunctive relief and specific performance to prevent Tenant from violating the
terms of this Lease and/or to compel Tenant to perform its obligations under
this Lease, as the case may be.
B. Landlord may, at Landlord's election, terminate this Lease by giving
Tenant written notice of termination, in which event this Lease shall terminate
on the date set forth for termination in such notice. Any termination under
this Subparagraph shall not relieve Tenant from its obligation to pay to
Landlord all Base Monthly Rent and Additional Rent then or thereafter due, or
any other sums due or thereafter accruing to Landlord, or from any claim
against Tenant for damages previously accrued or then or thereafter accruing.
In no event shall any one or more of the following actions by Landlord, in the
absence of a written election by Landlord to terminate this Lease, consitute a
termination of this Lease:
(1) Appointment of a receiver or keeper in order to protect Landlord's
interest hereunder:
(2) Consent to any subletting of the Leased Premises or assignment of
this Lease by Tenant, whether pursuant to the provisions hereof or otherwise;
or
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<PAGE> 14
(3) Any other action by Landlord or Landlord's agents intended to
mitigate the adverse effects of any breach of this Lease by Tenant, including,
without limitation, any action taken to maintain and preserve the Leased
Premises or any action taken to relet the Leased Premises, or any portion
thereof, for the account of Tenant and in the name of Tenant.
C. In the event Tenant breaches this Lease and abandons the Leased
Premises, Landlord may terminate this Lease, but this Lease shall not terminate
unless Landlord gives Tenant written notice of termination. If landlord does
not terminate this Lease by giving written notice of termination, Landlord may
enforce all its rights and remedies under this Lease, including the right to
recover rent as it becomes due under this Lease as provided in California Civil
Code Section 1951.4, as in effect on the Effective Date of this Lease.
D. In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to damages in an amount as set forth in
California Civil Code Section 1951.2, as in effect on the Effective Date of this
Lease. For purposes of computing damages pursuant to Section 1951.2, an
interest rate equal to the maximum rate of interest then not prohibited by Law
shall be used where permitted. Such damages shall include, without limitation:
(1) The worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that Tenant proves could be reasonably avoided, computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco, at the time of award plus one percent; and
(2) Any other amount necessary to compensate Landlord for all detriment
proximately caused by Tenant's failure to perform Tenant's obligations under
this Lease, or which in the ordinary course of things would be likely to result
therefrom, including without limitation, the following: (i) expenses for
cleaning, repairing or restoring the Leased Premises; (ii) expenses for
altering, remodeling or otherwise improving the Leased Premises for the purpose
of reletting, including removal of existing leasehold improvements but
excluding installation of additional leasehold improvements (regardless of how
the same is funded, including reduction of rent, a direct payment or allowance
to a new tenant, or otherwise; (iii) broker's fees allocable in the remainder
of the term of the Lease, advertising costs and other expenses of reletting the
Leased Premises; (iv) costs of carrying and maintaining the Leased Premises,
such as taxes, insurance premiums, utility charges and security precautions;
(v) expenses incurred in removing, disposing of, and/or storing any of Tenant's
personal property, inventory or trade fixtures remaining therein; (vi)
attorneys' fees, expert witness fees, court costs and other reasonable expenses
incurred by Landlord (but not limited to taxable costs) in retaking possession
of the Leased Premises, establishing damages hereunder, and re-leasing the
Leased Premises; and (vii) any other expenses, costs or damages otherwise
incurred or suffered as a result of Tenant's default.
12.3 LANDLORD'S DEFAULT AND TENANT'S REMEDIES: In the event Landlord fails
to perform any of its obligations under this Lease, Landlord shall nevertheless
not be in default under the terms of this Lease until such time as Tenant shall
have first given Landlord written notice specifying the nature of such failure
to perform its obligations, and then only after Landlord shall have had a
reasonable period of time following its receipt of such notice within which to
perform such obligations. In the event of Landlord's default as above set
forth, then, and only then, Tenant shall have the following remedies only:
A. Tenant may then proceed in equity or at law to compel Landlord to
perform its obligations and/or to recover damages proximately caused by such
failure to perform (except as and to the extent Tenant has waived its right to
damages as provided in this Lease).
B. Tenant, at its option, may then cure any default of Landlord at
Landlord's cost. If, pursuant to this Subparagraph, Tenant reasonably pays any
sum to any third party or does any act that requires the payment of any sum to
any third party at any time by reason of Landlord's default, the sum paid by
Tenant shall be immediately due from Landlord to Tenant at the time Tenant
supplies Landlord with an invoice therefore (provided such invoice sets forth
and is accompanied by a written statement of Tenant setting forth in reasonable
detail the amount paid, the party to whom it was paid, the date it was paid,
and the reasons giving rise to such payments together with interest at Prime
Plus Two per annum from the date of such invoice until Tenant is reimbursed by
Landlord. Tenant may not offset such sums against any installment of rent due
Landlord under the terms of this Lease.
[INSERT 19]
12.4 LIMITATION ON TENANT'S RECOURSE: If Landlord is a corporation, trust,
partnership, joint venture, unincorporated association, or other form of
business entity, Tenant agrees that (i) the obligations of Landlord under this
Lease shall not constitute personal obligations of the officers, directors,
trustees, partners, joint venturers, members, owners, stockholders, or other
principals of such business entity; and (ii) Tenant shall have recourse only to
the assets of such business entity for the satisfaction of such obligations and
not against the assets of such officers, directors, trustees, partners, joint
venturers, members, owners, stockholders or principals (other than to the extent
of their interest in the assets owned by such business entity). Additionally, if
Landlord is a partnership, then Tenant covenants and agrees:
A. No partner of Landlord shall be sued or named as a party in any suit
or action brought by Tenant with respect to any alleged breach of this Lease
(except to the extent necessary to secure jurisdiction over the partnership and
then only for that sole purpose);
B. No service of process shall be made against any partner of Landlord
except for the sole purpose of securing jurisdiction over the partnership; and
C. No writ of execution will ever be levied against the assets of any
partner of Landlord other than to the extent of his interest in the assets of
the partnership.
Tenant further agrees that each of the foregoing covenants and agreements shall
be enforceable by Landlord and by any partner of Landlord and shall be
applicable to any actual or alleged misrepresentation or nondisclosure made
respecting this Lease or the Leased Premises or any factual or alleged failure,
default or breach of any covenant or agreement either expressly or implicitly
contained in this Lease or imposed by statute or at common law.
12.5 TENANT'S WAIVER: Landlord and Tenant agree that the provisions of
Paragraph 12.3 above are intended to supersede and replace the provisions of
California Civil Code Sections 1932(1), 1941 and 1942, and accordingly, Tenant
hereby waives the provisions of California Civil Code Sections 1932(1), 1941
and 1942 and/or any similar or successor Law regarding Tenant's right to
terminate this Lease or to make repairs and deduct the expenses of such repairs
from the rent due under this Lease.
ARTICLE 13
GENERAL PROVISIONS
13.1 TAXES ON TENANT'S PROPERTY: Tenant shall pay before delinquency any and
all taxes, assessments, license fees, use fees, permit fees and public charges
of whatever nature or description levied, assessed or imposed against Tenant or
Landlord by a governmental agency arising out of, caused by reason of or based
upon Tenant's estate in this Lease. Tenant's ownership of property,
improvements made by Tenant to the Leased Premises or the Outside Areas,
improvements made by Landlord for Tenant's use within the Leased Premises or
the Outside Areas. Tenant's use for estimated uses of public facilities or
services or Tenant's consumption for estaimated consumption of public
utilities, energy, water or other resources. Upon demand by Landlord, Tenant
shall furnish Landlord with satisfactory evidence of these payments. If any
such taxes, assessments, fees or public charges are levied against Landlord,
Landlord's property, the Building or the Property, or if the assessed value of
the Building or the Property is increased by the inclusion therein of a value
placed
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<PAGE> 15
upon same, then Landlord, after giving written notice to tenant shall have the
rent, regardless of the reason thereof, to pay such taxes, assessment, fee or
public charge and bill Tenant, as Additional Rent, the amount of such taxes,
assessment, fee or public charge so paid on Tenant's behalf. Tenant shall,
within ten days from the date it receives an invoice from Landlord setting
forth the amount of such taxes, assessment, fee or public charge so levied, pay
to Landlord, as Additional Rent, the amount set forth in said invoice. Failure
by Tenant to pay the amount so invoiced within said ten day period shall be
conclusively deemed a default by Tenant under this Lease. Tenant shall have the
right, and the Landlord's full cooperation if Tenant is not then in default
under the terms of this Lease, to bring suit in any court of competent
jurisdiction to recover from the taxing authority the amount of any such taxes,
assessment, fee or public charge so paid.
12.2 HOLDING OVER: This Lease shall terminate without further notice on
the Lease Expiration Date as set forth in Article II. Any holding over by
Tenant after expiration of the Lease Term shall neither constitute a renewal
nor extension of this Lease nor give Tenant any rights in or to the Leased
Premises except as expressly provided in this Paragraph. Any such holding over
shall be deemed an unlawful detainer on the Leased premises unless Landlord has
consented to same. Any such holding over to which Landlord has consented shall
be construed to be a tenancy from month to month, on the same terms and
conditions herein specified insofar as applicable, except that the Base Monthly
Rent shall be increased to an amount equal to one hundred fifty percent of the
Base Monthly Rent payable during the last full month immediately preceding such
holding over.
13.3 SUBORDINATION TO MORTGAGES: This Lease is subject to and
subordinate to all underlying ground leases, mortgages and deeds of trust which
affect the Building or the Property and which are of public record as of the
Effective Date of this Lease, and to all renewals, modifications,
consolidations, replacements and extensions thereof. However, if the lessor
under any such ground lease or any lender holding any such mortgage or deed of
trust shall advise Landlord that it desires or requires this Lease to be made
prior and superior thereto, then, upon written request of Landlord to Tenant,
Tenant shall promptly execute, acknowledge and deliver any and all documents or
instruments which Landlord and such lessor or lender deem necessary or
desirable to make this Lease prior thereto. Tenant hereby consents to
Landlord's ground leasing the land underlying the Building or the Property
and/or encumbering the Building or the Property as security for future loans on
such terms as Landlord shall desire, all of which future ground leases,
mortgages or deeds of trust shall be subject to and subordinate to this Lease.
However, if any lessor under any such future ground lease or any lender holding
such future mortgage or deed of trust shall desire or require that this Lease
be made subject to and subordinate to such future ground lease, mortgage or
deed of trust, then Tenant agrees, within ten days after Landlord's written
request therefore, to execute, acknowledge and deliver to Landlord any and all
documents or instruments requested by Landlord or by such lessor or lender as
may be necessary or proper to assure the subordination of this Lease to such
future ground lease, mortgage or deed of trust, but only if such lessor or
lender agrees in writing to recognize Tenant's rights under this Lease and
agrees not to distrub Tenant's quiet possession of the Leased Premises so long
as Tenant is not in default under this Lease. See Addemdum Paragraph 13.3.
13.4 TENANT'S ATTORNMENT UPON FORECLOSURE: Tenant shall, upon request,
attorn (i) to any purchaser of the Building or the Property at any foreclosure
sale or private sale conducted pursuant to any security instrument encumbering
the Building or the Property, (ii) to any grantee or transferee designated in
any deed given in lieu of foreclosure of any security interest encumbering the
Building or the Property, or (iii) to the lessor under any underlying ground
lease of the land underlying the Building or the Property, should such ground
lease be terminated; provided that such purchaser, grantee or lessor recognizes
Tenant's rights under this Lease.
13.5 MORTGAGEE PROTECTION: In the event of any default on the part of
Landlord, Tenant will give notice by registered mail to any Lender or lessor
under any underlying ground lease who shall have requested, in writing, to
Tenant that it be provided with such notice, and Tenant shall offer such Lender
or lessor a reasonable opportunity to cure the default, including time to
obtain possession of the Leased Premises by power of sale or judicial
foreclosure or other appropriate legal proceedings if reasonably necessary to
effect a cure.
13.8 ESTOPPEL CERTIFICATES: Tenant will, following any request by
Landlord, promptly execute and deliver to Landlord an estoppel certificate (i)
certifying that this Lease is unmodified and in full force and effect, or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect, (ii) stating the date to
which the rent and other charges are paid in advance, if any, (iii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults
on the part of Landlord hereunder, or specifying such defaults if any are
claimed, and (iv) certifying such other information about this Lease as may be
reasonably requested by Landlord, its Lender or prospective lenders, investor
or purchaser of the Building or the Property. Tenant's failure to execute and
deliver such estoppel certificate within ten days after Landlord's request
therefore shall be a material default by Tenant under this Lease, and Landlord
shall have all of the rights and remedies available to Landlord as Landlord
would otherwise have in the case of any other material default by Tenant,
including the right to terminate this Lease and sue for damages proximately
caused thereby, it being agreed and understood by Tenant that Tenant's failure
to so deliver such estoppel certificate in a timely manner could result in
Landlord being unable to perform committed obligations to other third parties
which were made by Landlord in reliance upon this covenant of Tenant. Landlord
and Tenant intend that any statement delivered pursuant to this Paragraph may
be relied upon by any Lender or purchaser or prospective Lender or purchaser of
the Building, the Property, or any interest herein. See Addendum Paragraph
13.6.
13.7 TENANT'S FINANCIAL INFORMATION: Tenant shall, within ten business
days after Landlord's request therefore, deliver to Landlord a copy of a
current financial statement and any such other information reasonably requested
by Landlord regarding Tenant's financial condition. Landlord shall be entitled
to disclose such financial statements or other information to its Lender, to
any present or prospective principal of or investor in Landlord, or to any
prospective Lender or purchaser of the Building, the Property or any portion
thereof or interest therein. Any such financial statement or other information
shall be confidential and shall not be disclosed by Landlord to any third
party except as specifically provided in this Paragraph, unless the same
becomes a part of the public domain without the fault of Landlord.
13.8 TRANSFER BY LANDLORD: Landlord and its successors in interest
shall have the right to transfer their interest in the Building, the Property,
or any portion thereof at any time and to any person or entity. In the event of
any such transfer, the Landlord originally named herein and in the case of any
subsequent transfer, the transferor, from the date of such transfer, (i) shall
be automatically relieved, without any further act by any person or entity, of
all liability for the performance of the obligations of the Landlord hereunder
which may accrue after the date of such transfer and (ii) shall be relieved of
all liability for the performance of the obligations of the Landlord hereunder
which have accrued before the date of transfer if its transferee agrees to
assume and perform all such prior obligations of the Landlord hereunder. Tenant
shall attorn to any such transferee. After the date of any such transfer, the
term "Landlord" as used herein shall mean the transferee of such interest in
the Building or the Property.
13.9 FORCE MAJEURE: The obligations of each of the parties under this
Lease (other than the obligations to pay money) shall be temporarily excused if
such party is prevented or delayed in performing such obligation by reason of
any strikes, lockouts or labor disputes; inability to obtain labor, materials,
fuels or reasonable substitutes therefore; governmental restrictions,
regulations, controls, action or inaction; civil commotion; inclement weather,
fire or other acts of God; or other causes (except financial inability) beyond
the reasonable control of the party obligated to perform (including acts or
omissions of the other party) for a period equal to the priod of any such
prevention, delay or stoppage.
13.10 NOTICES: Any notice required or desired to be given by a party
regarding this Lease shall be in writing and shall be personally served, or in
lieu of personal service may be given by depositing such notice in the United
States mail, registered or certified, postage prepaid, addressed to the other
party as follows:
<PAGE> 16
A. If addressed to Landlord, to Landlord at its Address for Notices (as
set forth in Article 1).
B. If addressed to Tenant, to Tenant at its Address for Notices (as set
forth in Article 1) and after the Lease Commencement Date to Tenant at the
Leased Premises.
Any notice given by registered mail shall be deemed to have been given on the
third business day after its deposit in the United States mail. Any notice
given by certified mail shall be deemed given on the date receipt was
acknowledged to the postal authorities. Any notice given by mail other than
registered or certified mail shall be deemed given only if received by the
other party, and then on the date of receipt. Each party may, by written notice
to the other in the manner aforesaid, change the address to which notices
addressed to it shall thereafter be mailed.
13.11 ATTORNEY'S FEES: In the event any party shall bring any action,
arbitration proceeding or legal proceeding alleging a breach of any provision
of this Lease, to recover rent, to terminate this Lease, or to enforce,
protect, determine or establish any term or covenant of this Lease or rights or
duties hereunder of either party, the prevailing party shall be entitled to
recover from the non-prevailing party as a part of such action or proceeding,
or in a separate action for that purpose brought within one year from the
determination of such proceeding, reasonable attorney's fees, expert witness
fees, court costs and other reasonable expenses incurred by the prevailing
party. In the event that Landlord shall be required to retain counsel to
enforce any provision of this Lease, and if Tenant shall thereafter cure (or
desire to cure) such default, Landlord shall be conclusively deemed the
prevailing party and Tenant shall pay to Landlord all attorneys' fees, expert
witness fees, court costs and other reasonable expenses so incurred by Landlord
promptly upon demand provided that Landlord has first notified Tenant in
writing that Landlord was retaining counsel in connection which are recoverable
by Landlord from Tenant pursuant to this Lease. Landlord may enforce this
provision by either (i) requiring Tenant to pay such fees and costs as a
condition to curing its default or (ii) bringing a separate action to enforce
such payment, it being agreed by and between Landlord and Tenant that Tenant's
failure to pay such fees and costs upon demand shall constitute a breach of
this Lease in the same manner as a failure by Tenant to pay the Base Monthly
Rent, giving Landlord the same rights and remedies as if Tenant failed to pay
the Base Monthly Rent.
13.12 DEFINITIONS: Any term that is given a special meaning by any
provision in this Lease shall, unless otherwise specifically stated, have such
meaning whenever used in this Lease or in any Addenda or amendment hereto. In
addition to the terms defined in Article 1, the following terms shall have the
following meanings: See Addendum Paragraph 13.12
A. REAL PROPERTY TAXES: The term "Real Property Tax" or "Real Property
Taxes" shall each mean (i) all taxes, assessments, levies and other charges of
any kind or nature whatsoever, general and special, foreseen and unforeseen
(including all installments of principal and interest required to pay any
general or special assessments for public improvements and any increases
resulting from reassessments caused by any change in ownership or new
construction), now or hereafter imposed by any governmental or
quasi-governmental authority or special district having the direct or indirect
power or tax or levy assessments, which are levied or assessed for whatever
reason against the Project or any portion thereof, or Landlord's interest
herein, or the fixtures, equipment and other property of Landlord that is an
integral part of the Project and located thereon, or Landlord's business of
owning, leasing or managing the Project or the gross receipts, income or
rentals from the Project; (ii) all charges, levies or fees imposed by any
governmental authority against Landlord by reason of or based upon the use of
or number of parking spaces within the Project, the amount of public services
or public utilities used or consumed (e.g. water, gas, electricity, sewage or
surface water disposal) at the Project, the number of persons employed by
tenants of the Project, the size (whether measured in area, volume, number of
tenants or whatever) or the value of the Project, or the type of use or uses
conducted within the Project; and (iii) all costs and fees (including
attorneys' fees) incurred by Landlord in contesting any Real Property Tax and
in negotiating with public authorities as to any Real Property Tax provided
Tenant approves in advance in writing the cost of such contest. If, at any time
during the Lease Term, the taxation or assessment of the Project prevailing as
of the Effective Date of this Lease shall be altered so that in lieu of or in
addition to any Real Property Tax described above there shall be levied,
assessed or imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate,
substitute, or additional tax or charge (i) on the value, size, use or
occupancy of the Project or Landlord's interest therein or (ii) on or measured
by the gross receipts, income or rentals from the Project, or on Landlord's
business of owning, leasing or managing the Project or (iii) computed in any
manner with respect to the operation of the Project, then any such tax or
charge, however designated, shall be included within the meaning of the terms
"Real Property Tax" or "Real Property Taxes" for purposes of this Lease. If any
Real Property Tax is partly based upon property or rents unrelated to the
Project, then only that part of such Real Property Tax that is fairly
allocable to the Project shall be included within the meaning of the terms
"Real Property Tax" or "Real Property Taxes." Notwithstanding the foregoing,
the terms "Real Property Tax" or "Real Property Taxes" shall not include
estate, inheritance, transfer, gift or franchise taxes of Landlord or the
federal or state income tax imposed on Landlord's income from all sources.
See Addendum Paragraph 13.12A
B. LANDLORD'S INSURANCE COSTS: The term "Landlord's Insurance Costs"
shall mean the costs to Landlord to carry and maintain the policies of fire and
property damage insurance for the Building and the Property and general
liability insurance required, or permitted, to be carried by Landlord pursuant
to Article 9, together with any deductible amounts paid by Landlord upon the
occurrence of any insured casualty or loss, which are recoverable by Landlord
from Tenant pursuant to this Lease.
See Addendum Paragraph 13.12B
C. PROPERTY MAINTENANCE COSTS: The term "Property Maintenance Costs"
shall mean all costs and expenses (except Landlord's Insurance Costs and Real
Property Taxes) paid or incurred by Landlord in protecting, operating,
maintaining, repairing and preserving the Property and all parts thereof,
including without limitation, (i) professional management fees equal to three
percent of the Base Monthly Rent payable by Tenant hereunder, (ii) the
amortizing portion of any costs incurred by Landlord in the making of any
modifications, alterations or improvements required by any governmental
authority as set forth in Article 6, which are so amortized during the Lease
Term, and (iii) such other costs as may be paid or incurred with respect to
operating, maintaining and preserving the Property, such as repairing and
resurfacing the exterior surfaces of the buildings (including roofs), repairing
and resurfacing paved areas, repairing structural parts of the buildings, and
replacing, when necessary, electrical, plumbing, heating, ventilating and air
conditioning systems serving the buildings.
See Addendum Paragraph 13.12C
D. READY FOR OCCUPANCY: The term "Ready for Occupancy" shall mean the
date upon which (i) the Leased Premises are available for Tenant's occupancy in
a broom clean condition and (ii) the improvements, if any, to be made to the
Leased Premises by Landlord as a condition to Tenant's obligation to accept
possession of the Leased Premises have been substantially completed and the
appropriate governmental building department (i.e. the City building
department, if the Property is located within a City, or otherwise the County
building department) shall have approved the construction of the improvements
as complete or is willing to so approve the construction of the improvements as
complete subject only to compliance with specified conditions which are the
responsibility of Tenant to satisfy or is willing to allow Tenant to occupy
subject to its receiving assurances that specified work will be completed.
E. PROPERTY OPERATING EXPENSES: The term "Property Operating Expenses"
shall mean and include the all Real Property Taxes, plus all Landlord's
Insurance Costs, plus the all Property Maintenance Costs.
F. LAW: The term "Law" shall mean any judicial decision and any
statute, constitution, ordinance, resolution, regulation, rule, administrative
order, or other requirement of any municipal, county, state, federal, or other
governmental agency or authority having jurisdiction over the parties to this
Lease, the Leased Premises, the Building or the Property, or any of them in
effect either at the Effective Date of this Lease or at any time during the
Lease Term, including, without limitation, any regulation, order, or policy of
any quasi-official entity or body (e.g. a board of fire examiners or a public
utility or special district).
G. LENDER: The term "Lender" shall mean the holder of any Note or other
evidence of indebtedness secured by the Property or any portion thereof.
-15-
<PAGE> 17
II. PRIVATE RESTRICTIONS: The term "Private Restrictions" shall mean all
recorded convenants, conditions and restrictions, private agreements,
easements, and any other recorded instruments affecting the use of the
Property, as they may exist from time to time.
I. RENT: The term "rent" shall mean collectively Base Monthly Rent and
all Additional Rent.
13.13 GENERAL WAIVERS: One party's consent to or approval of any act by the
other party requiring the first party's consent or approval shall not be deemed
to waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. No waiver of any provision hereof or
any breach of any provision hereof shall be effective unless in writing and
signed by the waiving party. The receipt by Landlord of any rent or payment with
or without knowledge of the breach of any other provision hereof shall not be
deemed a waiver of any such breach. No waiver of any provision of this Lease
shall be deemed a continuing waiver unless such waiver ??????????? states so in
writing and is signed by both Landlord and Tenant. No delay or omission in the
exercise of any rent or remedy accruing to either party upon any breach by the
other party under this Lease shall impair such right or remedy or be
construed as a waiver or any such breach theretofore or thereafter occurring.
The waiver by either party of any breach of any provision of this Lease shall
not be deemed to be a waiver of any subsequent breach of the same or any other
provisions herein contained.
13.14 MISCELLANEOUS: Should any provision of this Lease prove to be invalid or
illegal, such invalidity or illegality shall in no way affect, impair or
invalidate any other provision thereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor. Any copy of this Lease which is executed by the parties shall be
deemed an original for all purposes. This Lease shall, subject to the
provisions regarding assignment, apply to and bind the respective heirs,
successors, executors, adminstrators and assigns of Landlord and Tenant. The
term "party" shall mean Landlord or Tenant as the context implies. If Tenant
consists of more than one person or entity, then all members of Tenant shall be
jointly and severally liable hereunder. This Lease shall be construed and
enforced in accordance with the Laws of the State in which the Leased Premises
are located. The language in all parts of this Lease shall in all cases be
constructed as a whole according to its fair meaning, and not strictly for or
against either Landlord or Tenant. The captions used in this Lease are for
convenience only and shall not be considered in the construction or
interpretation of any provision hereof. When the contenxt of this Lease
requires, the neuter gender includes the masculine, the feminine, a
partnership or corporation or joint venture, and the singular incudes the
plural. The terms "must", "shall", "will", and "agree" are mandatory. The term
"may" is permissive. When a party is required to do something by this Lease, it
shall do so at its sole cost and expense without right of reimbursement from
the other party unless specific provision is made therefore. Where Tenant is
obligated not to perform any act or is not permitted to perform any act. Tenant
is also obligated to restrain any others reasonably within its control,
including agents, invites, contractors, subcontractors and employees, from
performing said act. Landlord shall not become or be deemed a partner or a
joint venturer with Tenant by reason of any of the provisions of this Lease.
ARTICLE 14
CORPORATE AUTHORITY.
BROKERS AND ENTIRE AGREEMENT
14.1 CORPORATE AUTHORITY: If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
Tenant is validly formed and duly authorized and existing, that Tenant is
qualified to do business in the State in which the Leased Premises are located,
that Tenant has the full right and legal authority to enter into this Lease,
that he is duly authorized to execute and deliver this Lease on behalf of
Tenant in accordance with the bylaws and/or a board of directors' resolution of
Tenant, and that this Lease is binding upon Tenant in accordance with its
terms. Tenant shall, within thirty days after execution of this Lease, deliver
to Landlord a certified copy of the resolution of its board of directors
authorizing or ratifying the execution of this Lease, and if Tenant fails to do
so, Landlord at its sole election may elect to (i) extend the Intended
Commencement Date by such number of days that Tenant shall have delayed in so
delivering such corporate resolution to Landlord or (ii) terminate this Lease.
14.2 BROKERAGE COMMISSIONS: Tenant warrants that it has not had any
dealings with any real estate broker(s), leasing agent(s), finder(s) or
salesmen, other than the Brokers (as named in Article 1) with respect to the
lease by it of the Leased Premises pursuant to this Lease, and that it will
indemnify, defend with competent counsel, and hold Landlord harmless from any
liability for the payment of any real estate brokerage commissions, leasing
commissions or finder's fees claimed by any other real estate broker(s),
leasing agent(s), finder(s), or salesmen to be earned or due and payable by
reason of Tenant's agreement or promise (implied or otherwise) to pay (or to
have Landlord pay) such a commission or finder's fee by reason of its leasing
the Leased Premises pursuant to this Lease.
14.3 ENTIRE AGREEMENT: This Lease, the Exhibits (as described in
Article 1) and the Addenda (as described in Article 1), which Exhibits and
Addenda are by this reference incorporated herein, constitute the entire
agreement between the parties, and there are no other agreements,
understandings or representations between the parties relating to the lease by
Landlord of the Leased Premises to Tenant, except as expressed herein. No
subsequent changes, modifications or additions to this Lease shall be binding
upon the parties unless in writing and signed by both Landlord and Tenant.
14.4 LANDLORD'S REPRESENTATION: Tenant acknowledges that neither Landlord nor
any of its agents made any representations or warranties respecting the
Project, the Building or the Leased Premises, upon which Tenant relied in
entering into this Lease, which are not expressly set forth in this Lease.
Tenant further acknowledges that neither Landlord nor any of its agents made
any representations as to (i) whether the Leased Premises may be used for
Tenant's intended use under existing Law, or (ii) the suitability of the Leased
Premises for the conduct of Tenant's business, or (iii) the exact square
footage of the Leased Premises, and that Tenant relied soley upon its own
investigations respecting said matters. Tenant expressly waives any and all
claims for damage by reason of any statement, representation, warranty, promise
or other agreement of Landlord or Landlord's agent(s), if any, not contained in
this Lease or in any Addenda hereto.
<PAGE> 18
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the respective dates below set forth with the intent to be legally bound
thereby as of the Effective Date of this Lease first above set forth.
AS LANDLORD: Renco Bayside Investors
Dated: 2/17/94 A California Limited Partnership
By Renco Properties IX
Its General Partner
By Renco Properties, Inc.
A California Corporation
General Partner
By: /s/
______________________
Title: ___________________
By: /s/
______________________
Title: ___________________
By: __________________________
General Partner
Dated: 2/16/94 AS TENANT:
Sigma Designs, Inc.
A California Corporation
By: /s/
______________________
Title: ___________________
By: ______________________
Title: ___________________
If Tenant is a CORPORATION, the authorized officers must sign on behalf
of the corporation and indicate the capacity in which they are signing. This
Lease must be executed by the chairman of the board, president or
vice-president, and the secretary, assistant secretary, the chief financial
officer or assistant treasurer, unless the bylaws or a resolution of the board
of directors shall otherwise provide, in which event a certified copy of the
bylaws or a certified copy of the resolution, as the case may be, must be
attached to this Lease.
-17-
<PAGE> 19
FIRST ADDENDUM TO LEASE
THIS FIRST ADDENDUM TO LEASE ("Addendum") dated for reference purposes as of
February 16, 1994, is made to that Industrial Space Lease dated as of February
16, 1994, (the "Lease") by and between Sigma Designs, Inc., a California
Corporation as ("Tenant"), and Renco Bayside Investors, a California limited
partnership as ("Landlord"), for the lease of approximately 50,628 square feet
of space located at 46501 Landing Parkway in Fremont, California (the "Leased
Premises"). The parties hereto agree that the Lease is amended, changed and
modified by the following provisions, which are hereby added to the Lease:
Unless otherwise expressly provided herein, all terms which are given a special
definition by the Lease that are used herein are intended to be used with the
definition given to them by the Lease. The provisions of the Lease shall remain
in full force and effect except as specifically amended hereby. In the event of
any inconsistency between the Lease and this Addendum, the terms of this
Addendum shall prevail.
1) Additional Documents: Attached hereto and incorporated herein by this
reference are two documents titled i) "Inserts To Lease, Between Sigma
Designs and Renco" and ii) "Lease Addendum, Building". These two documents
constitute a part of this Addendum.
2.4 Delivery of Possession: Landlord shall tender possession of the Premises
to Tenant no later than April 20, 1994. In the event that Landlord fails
to tender possession by April 20, 1994, this Lease shall be voidable at the
election of Tenant by Tenant's providing Landlord with written notice of
such election by May 31, 1994. In the event Landlord tenders possession of
the Premises to Tenant prior to the date Tenant delivers notice of
cancellation to Landlord, or should Tenant not deliver notice of
cancellation to Landlord by May 31, 1994, Tenant may not exercise its right
to void the Lease.
2.5 Acceptance of Possession: Notwithstanding anything to the contrary in the
Lease form, Landlord shall deliver the Premises to Tenant, broom clean,
free of prior occupants and the personal property of prior occupants, with
the walls clean and any pre existing damage or holes patched and painted,
with the electrical, plumbing and mechanical systems in good working order,
but otherwise in the Premises' condition "AS IS" as of February 1, 1994.
Landlord shall pay the cost of construction of interior improvements and/or
remodeling or renovation costs in an amount not to exceed One Hundred One
Thousand Two Hundred Fifty Six Dollars ($101,256.00) ("the Allowance"). The
work of construction and/or remodeling shall be performed by Tenant and its
contractors under the supervision and responsibility of Tenant. Prior to
the start of construction and as a condition for payment of any amounts to
Tenant, Landlord shall receive copies of Tenant's plans for the work. Plans
for the work shall be prepared by the architectural firm of L.R.S.
Associates. No work shall commence unless and until Landlord approves the
work, said approval not to be unreasonably withheld. Landlord shall also
have the right to reasonably approve all contractors performing work in the
Premises and all materials used or installed in the Premises. Landlord
shall advance funds only for work approved by Landlord which work Landlord
has inspected and finds of acceptable quality in its reasonable opinion.
Prior to commencing any work Tenant shall provide Landlord with the names
of all contractors and subcontractors, evidence of proper liability and
workers compensation insurance, and copies of required governmental
approvals.
Landlord requires that Tenant pay the cost of the work and provide Landlord
with verification of payment prior to obtaining reimbursement from
Landlord. As a condition to final payment for all work to be paid for by
Landlord, Tenant shall provide Landlord with evidence that all work has
been installed in a good and workmanlike manner with a quality no less than
improvements existing in the Premises as of February 1, 1994, and that
Tenant has obtained all required governmental approvals and inspections for
the work. Tenant shall also provide to Landlord a reproducible copy of
plans for the work, and verification that all work done on the premises
whether paid for by Landlord or by others
<PAGE> 20
has been completed and paid for and that there are no claims by third
parties for payment of any work performed in or about the Premises.
2.7 Early Occupancy: Tenant may enter the portion of the premises
identified as containing 18,990 square feet on Exhibit B at any time
following March 1, 1994 for the purpose of installing its improvements,
fixtures and/or personal property. From the date of Tenant's entry through
March 31, 1994, Tenant shall not be obligated to pay Base Monthly Rent of
Additional Rent.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Addendum To
Lease with the intent to be legally bound thereby, to be effective as of the
date the second party signs this First Addendum To Lease.
<TABLE>
<S> <C>
AS LANDLORD: AS TENANT:
Renco Bayside Investors Sigma Designs, Inc.
A California limited partnership a California corporation
By: Renco Properties IX
a California general partnership
its general partner
By: Renco Properties, Inc.
a California Corporation
a general partner
By: /S/ By: /S/
---------------------------- ----------------------------
Title: Title: CFO
------------------------- -------------------------
By: /S/ By: /S/
---------------------------- ----------------------------
Title: Executive Vice President Title:
------------------------- -------------------------
By: /S/
----------------------------
Title: General Partner
Dated: February 12, 1994 Dated: February 16, 1994
-- --
</TABLE>
<PAGE> 21
CROSS DEFAULT AGREEMENT
THIS CROSS DEFAULT AGREEMENT ("Agreement") dated for reference purposes as of
February 16, 1994, is entered into by and between Sigma Designs, Inc., a
California Corporation ("Tenant"), Renco Bayside Investors, a California limited
partnership ("Renco Bayside"), and Renco Equities IV, a California general
partnership ("Renco Equities IV"). Renco Investment Company, a California
general partnership as predecessor of Renco Equities IV and Tenant entered into
a lease dated as of October 31, 1990 for the lease of approximately 122,092
square feet of space located at 47901 Bayside Parkway in Fremont, California
(the "Renco 22 Lease"). Renco Bayside Investors and Tenant entered into a lease
dated as of the date of this Agreement for the lease of approximately 50,628
square feet of space located at 46501 Landing Parkway in Fremont, California
(the "Renco 41 Lease"). Tenant has subleased the Renco 22 Premises to Media
Vision Technologies, Inc.
Renco Bayside, Renco Equities IV, and Tenant, hereby agree that a default by
Tenant as defined in Article 12 titled "Defaults and Remedies" under either of
such leases shall be considered to be a default by Tenant under both leases. In
the event of a default by Tenant under either lease, Renco Bayside and/or Renco
Equities IV may each independently or jointly pursue the remedies permitted by
law or pursuant to the terms of either lease or both leases as if Tenant had
defaulted under either or both of such leases. The provisions of this Agreement
are for the Benefit of Renco Bayside and Renco Equities IV and either Renco
Bayside or Renco Equities IV may elect in its sole discretion to apply the terms
of this Agreement in any manor permitted.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Cross Default
Agreement with the intent to be legally bound thereby, to be effective as of the
date the second party signs this Cross Default Agreement.
<TABLE>
<S> <C>
AS RENCO BAYSIDE: AS TENANT:
Renco Bayside Investors Sigma Designs, Inc.
a California limited partnership a California corporation
By: Renco Properties IX
a California general partnership By: /s/
its general partner -----------------------------------
By: Renco Properties, Inc. Title: CFO
a California Corporation --------------------------------
a general partner By:
-----------------------------------
By: /s/ Title:
------------------------------- --------------------------------
Title: Dated: February 16, 1994
---------------------------- --
By: /s/ AS RENCO EQUITIES IV
------------------------------- Renco Equities IV
Title: Executive Vice President a California general partnership
----------------------------
By: /s/ By:
------------------------------- -----------------------------------
Title: General Partner Title: General Partner
By: /s/
-----------------------------------
Title: General Partner
Dated: February 17, 1994 Dated: February 17, 1994
-- --
</TABLE>
<PAGE> 22
INSERTS TO LEASE
BETWEEN SIGMA DESIGNS INC. AND RENCO
INSERT 1: fifty percent (50%) of all excess rentals and assignment
consideration ( as defined in Section 7.5)
INSERT 2: , excluding the obligation to make alterations or improvements not
related to Tenant's particular use of the Leased Premises, but subject to
Tenant's obligation to reimburse Landlord for the amortized cost of improvements
required to comply with laws not in effect on the Lease Commencement Date as a
Property Operation Cost with interest at Prime Plus Two in the manner set forth
in paragraph 6.3 of the Lease.
INSERT 3: Tenant shall have no obligation to accept possession of the Premises
prior to the Intended Commencement Date.
INSERT 4: , other than Landlord's failure to commence construction or
diligently pursue it to completion to the extent it is within Landlord's
control,
INSERT 5: other than as a result of Landlord's failure to commence construction
or diligently pursue it to completion to the extent it is within the Landlord's
control,
INSERT 6: , provided the same shall not unreasonably interfere with Tenant's
use of the Leased Premises or Property.
INSERT 7: [INTENTIONALLY DELETED]
INSERT 8: Tenant may remove its trade fixtures, alterations and leasehold
improvements constructed by Tenant at its expense.
INSERT 9: interest at a rate equal to that rate quoted by Wells Fargo Bank,
N.T. & S.A. from time to time as its prime rate plus two percent (2%) (Prime
Plus Two")
INSERT 10: Notwithstanding anything in this Lease to the contrary, Tenant shall
not be responsible for correcting any violations of laws or Private Restrictions
existing as of the Lease Commencement Date.
INSERT 11: arising out of any work performed, materials furnished, or
obligations incurred by Tenant, its agents, employees or contractors
INSERT 12: , which consent by Landlord shall not be unreasonably withheld or
delayed.
INSERT 13: or in the case of a sublease, to agree to comply with the terms of
the Lease to the extent applicable to the space being sublet.
INSERT 14: provided that such insurance is commonly carried by owners of
property similarly situated and operating under similar circumstances, and the
cost thereof is customarily paid by tenants pursuant to "triple net" leases.
INSERT 15: would typically be covered by a standard form of full replacement
value "all risk" policy of casualty insurance
INSERT 16: The parties shall obtain an appropriate endorsement or agreement
from their respective insurers to evidence such waiver of subrogation. If such
insurance policy cannot be obtained with such waiver of subrogation, or if such
waiver of subrogation is only available at additional cost and the party for
whose benefit the waiver is not obtained does not agree to pay such additional
cost, then the party obtaining such insurance shall immediately notify
<PAGE> 23
the other party of that fact. Subject to the foregoing advance notice
requirement, the party obtaining the insurance shall thereafter be relieved of
the responsibility to obtain the foregoing waiver of subrogation for the benefit
of the other party.
INSERT 17: The determination of Landlord's property and Tenant's property shall
be made pursuant to paragraph 6.2.
INSERT 18: or (v) for the value of any leasehold improvements installed by
Tenant at its cost that Tenant could remove pursuant to paragraph 6.2.
INSERT 19: C. The remedies afforded to Tenant in this Section 12.3 are in
addition to any and all remedies afforded Tenant at law or in equity.
-2-
<PAGE> 24
LEASE ADDENDUM
BUILDING
2.1 Demise of Leased Premises: Notwithstanding anything to the contrary in
the Lease Form:
A. Tenant's compliance with Laws concerning Hazardous Materials, whether
governing the use of the Leased Premises or the Property or not, shall be
governing solely and exclusively by paragraph 16 of this Addendum.
B. Tenant shall have no obligation to comply with any modifications to,
or new Private Restrictions or rules and regulations established by Landlord if
compliance with the same would unreasonably interfere with Tenant's use of the
Leased Premises or the Property or increase Tenant's costs. Notwithstanding
the foregoing, Landlord shall have the right to reasonably amend the Adjoining
Landowner's Agreement (Landscape) and Adjoining Landowner's Agreement (Drainage)
so as to equitably allocate the costs of maintenance of common landscape and
drainage improvements amongst all of the owners (and tenants) of the property
subject to said Agreements, even if such amendment increases Tenant's costs
hereunder provided: (i) such amendments are reasonably and nondiscriminatorily
applied and based upon square footage or other equitable allocation; and (ii)
any costs payable by Tenant shall be subject to the terms and conditions of this
Lease.
2.4 Delivery of Possession: Notwithstanding anything to the contrary in the
Lease Form, in addition to Tenant's rights and remedies contained in paragraph
2.4, if Landlord has not delivered possession of the Leased Premises to Tenant
in the agreed to condition and Ready for Occupancy on or before that date that
is eighteen (18) months after the Intended Commencement Date for any reason
(including Force Majeure delays), Tenant shall have the right to terminate this
Lease by delivery of a written notice to Landlord.
<PAGE> 25
Lease Addendum
Building 22
Page 2
2.6 Surrender of Possession: Notwithstanding anything to the contrary in the
Lease Form:
A. Tenant shall have the right to remove all trade fixtures and any
leasehold improvements installed at Tenant's expense (together the "Tenant's
Property"), so long as Tenant repairs all damage caused by the installation
thereof and returns the Leased Premises to substantially the condition existing
prior to the installation of such Tenant's Property. At the expiration or
sooner termination of the Lease Term, all Tenant's Property which Tenant does
not elect to remove shall be surrendered to Landlord as a part of the Leased
Premises and shall then become Landlord's Property, and Landlord shall have no
obligation to reimburse Tenant for all or any portion of the value or cost
thereof. If Landlord so requires, at the expiration or earlier termination of
the Lease Term, Tenant shall remove any Tenant's Property designated for removal
by Landlord and shall restore the Leased Premises to the condition existing
prior to the installation of such Tenant's Property, ordinary wear and tear
excepted.
B. Tenant's obligation to surrender the Leased Premises shall be
fulfilled if Tenant surrenders possession of the Leased Premises in the
condition existing at the Lease Commencement Date, ordinary wear and tear, acts
of God, casualties, condemnation, Hazardous Materials (other than those made the
responsibility of Tenant under paragraph 16 hereof), and leasehold improvements
which Landlord states may be surrendered at the termination of the Lease,
excepted.
3.2 Additional Rent: Notwithstanding to the contrary in the Lease Form:
A. Tenant shall pay Real Property Taxes (as defined in Article 13 of
the Lease Form) no later than ten (10) days before Real Property Taxes become
delinquent, and Tenant shall not be required to pay Real Property Taxes prior
to such date. However, if Tenant is in default of its obligations to pay Base
Monthly Rent for two months in any twelve (12) month period, Landlord reserves
the right thereafter, for a period of one year, to require Tenant to pay such
Real Property Taxes on a monthly basis in accordance with paragraph 3.2 of the
Lease Form.
B. Tenant shall pay Landlord's Insurance Costs (as defined in Article 13
of the Lease Form) on that date that is the later of (i) ten (10) days before
such costs are payable by Landlord; or (ii) ten (10) days after written demand
therefor by Landlord. However, if Tenant is in default of its obligations to
pay Base Monthly Rent for two months in any twelve (12) month period, Landlord
reserves the right thereafter, for a period of one year, to require Tenant to
pay such Landlord's insurance Costs on a monthly basis in accordance with
paragraph 3.2 of the Lease Form.
3.3 Year End Adjustments: Notwithstanding anything to the contrary in the
Lease Form:
A. Tenant shall have the right, at its expense exercisable upon
reasonable prior written notice to Landlord, to audit
<PAGE> 26
Lease Addendum
Building 22
Page 3
Landlord's books and records for Property Operating Expenses provided such audit
is conducted during normal business hours and within nine (9) months following
the Lease year subject to audit.
B. Landlord shall pay the reasonable cost of such audit if it is
determined that Tenant has been overcharged for Property Operating Expenses by
more than five percent (5%) and shall promptly refund the amount of such
overpayment to Tenant.
3.4 Late Charge and Interest on Rent in Default: Notwithstanding anything to
the contrary in the Lease Form:
A. No late charge shall become due and payable until Tenant has
received written notice that a payment of Base Monthly Rent or Additional Rent
is delinquent and Tenant fails to pay such delinquent amount within six (6) days
after receipt of Landlord's written notice, provided that, after Landlord
provides Tenant with one (1) such delinquency notice in any one calendar year,
for the remainder of such calendar year, late charges shall be due and payable
after the applicable six (6)-day grace period described in Section 3.4 of the
Lease Form without the requirement that Landlord first deliver a delinquency
notice to Tenant.
B. Interest on delinquent rent payments shall not commence until ten
(10) days after Tenant's receipt of Landlord's written notice that rent has not
been paid.
4.1 Permitted Use: Notwithstanding anything to the contrary in the Lease
Form, Tenant shall not be required to continuously and without interruption
occupy or use the Leased Premises, and Tenant may vacate the Leased Premises so
long as it provides notice to Landlord and safeguards the Leased Premises in a
manner reasonably satisfactory to Landlord and Landlord's insurance carrier.
4.2 General Limitations on Use: The provisions of Section 4.2 of the Lease
Form shall not prohibit Tenant's installation of equipment within the Leased
Premises.
4.6 Signs: Notwithstanding anything to the contrary in the Lease Form,
Tenant shall be entitled to install signage at the Property desired by Tenant,
provided that such signage complies with all laws (as defined in paragraph 2.5
of this Addendum) and Private Restrictions (including the covenants, conditions
and restrictions affecting the Property). Landlord's approval of Tenant's
business name signage shall not be unreasonably withheld.
4.7 Compliance with Laws and Private Restrictions: Notwithstanding anything
to the contrary in the Lease Form:
A. Landlord, at its sole cost and expense, shall remain liable for the
correction of any violations of Laws (as defined in paragraph 2.5 of this
Addendum) or Private Restrictions which existed as of the Leased Commencement
Date.
B. Tenant's compliance with Laws governing the use and disposal of
Hazardous Materials and Tenant's obligation to defend Landlord with competent
counsel, indemnify and hold Landlord harmless from any claims, damages or
liabilities resulting from Tenant's failure to do so shall be governed solely
and exclusively by paragraph 16 of this Addendum.
C. Tenant shall have no obligation to comply with any modifications
to, or new Private Restrictions or rules and regulations established by Landlord
if compliance with the same would unreasonably interfere with Tenant's use of
the Leased Premises or
<PAGE> 27
Lease Addendum
Building 22
Page 4
the Property or increase Tenant's costs. Notwithstanding the foregoing,
Landlord shall have the right to reasonably amend the Adjoining Landowner's
Agreement (Landscape) and Adjoining Landowner's Agreement (Drainage) so as to
equitably allocate the costs of maintenance of common landscape and drainage
improvements amongst all of the owners (and tenants) of the property subject to
said Agreements, even if such amendment increases Tenant's costs hereunder
provided: (i) such amendments are reasonably and nondiscriminatorily applied
and based upon square footage or other equitable allocation; and (ii) any costs
payable by Tenant shall be subject to the terms and conditions of this Lease.
D. Tenant shall not be required to construct modifications,
alterations, or improvements required to comply with Laws, Private Restrictions
or insurance underwriters' requirements not necessitated by Tenant's particular
use of the Property, and Landlord shall perform and construct such improvements
and such costs shall be amortized in accordance with paragraph 6.3 of the Lease
Form. Tenant shall pay the amortized cost of modifications, alterations or
improvements not necessitated by Tenant's particular use that are required to be
constructed by Landlord by any governmental authority plus interest at Prime
Plus Two as a Property Maintenance Cost, provided (i) such costs are amortized
over the useful life of the item in accordance with paragraph 6.3 of the Lease
Form; and (ii) that any such requirement is not necessitated by the failure of
the Leased Premises or the Property to comply with Laws as of the Lease
Commencement Date.
4.8 Compliance with Insurance Requirements: Notwithstanding anything to the
contrary in the Lease Form, Tenant shall be permitted to conduct any activities
or keep, store or use any item or thing within the Leased Premises, the
Building, the Outside Areas or the Property which is reasonably necessary to
Tenant's business even if it causes an increase in the rates charged for
coverage afforded under any insurance policies required or permitted to be
carried by Landlord, so long as Tenant is willing to pay any increase in
insurance rates so caused and such activities do not constitute an unreasonable
danger to the Leased Premises or any part thereof or otherwise materially
interfere with Landlord's ability to obtain insurance for the Leased Premises
and Landlord's other buildings, and Tenant furnishes reasonable evidence thereof
to Landlord. Landlord shall have the right to disapprove any activity that
increases the rates charged for coverage afforded under any insurance policies
required or permitted to be carried by Landlord if such activities constitute an
unreasonable danger to the Leased Premises or the Property, to be determined in
Landlord's reasonable discretion. If Tenant's activities cause an increase in
insurance rates for Landlord's other buildings, Tenant shall pay the entire
amount of such increase to the extent caused solely by Tenant's activities.
4.9 Landlord's Right to Enter: Notwithstanding anything to the contrary in
the Lease Form, Landlord shall enter the Leased Premises only in a manner which
will not unreasonably interfere with Tenant's use of the Leased Premises.
4.12 Environmental Protection: Notwithstanding anything to the contrary in
the Lease Form, Landlord may voluntarily cooperate in reducing actual or
potential environmental damage so long as such cooperation does not
unreasonably interfere with Tenant's use of the Leased Premises or increase
Tenant's costs.
5.1 Repair and Maintenance: Notwithstanding anything to the contrary in the
Lease Form:
<PAGE> 28
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A. Tenant shall not be required to perform or to reimburse Landlord for
any costs or expenses associated with the following repairs, maintenance or
replacements:
1. Repairs, maintenance or replacements which are necessitated by
the acts or omissions of Landlord, its agents or employees;
2. Repairs, maintenance or replacements which are required as a
consequence of any violation of Law (as defined in paragraph 2.5 of this
Addendum) or Private Restrictions or, subject to paragraph 2.5 of this Addendum,
any construction defect in the Property existing as of the Lease Commencement
Date;
3. Repairs, maintenance or replacements occasioned by any casualty
or Act of God, excepting only deductibles under Landlord's "all risk" policy
provided such deductibles do not exceed Twenty Thousand Dollars ($20,000.00) per
occurrence and provided further that the casualty or damage was not caused by
the acts or omissions of Landlord or Landlord's employees, agents or
contractors. Further, Tenant's obligation to pay deductibles under Landlord's
"all risk" policy shall not include any obligation to pay flood or earthquake
insurance deductibles, which deductible amounts are addressed in paragraph
9.2.B of this Addendum; or
4. Repairs, maintenance or replacements when (i) the cost of any
single item exceeds $25,000, (ii) has a useful life of not less than five (5)
years, and (iii) would be defined as a capital expenditure under generally
accepted accounting principles, except as provided in this paragraph 5.1.A(4).
Landlord shall pay the initial cost of such repair, maintenance or replacement
and Tenant shall reimburse to Landlord in equal monthly installments a portion
of such cost determined by dividing the cost of such improvement by the number
of months in the useful life of such improvement. Tenant shall pay such
amortization on a monthly basis together with interest at Prime Plus Two. Such
payments shall continue until the earlier of the date Tenant ceases to occupy
the Leased Premises or the end of the useful life of such improvement. If the
cost of any repair, maintenance or replacement which would otherwise be subject
to amortization pursuant to this paragraph 5.1.A(4) is required because of a
default by Tenant in its obligations under Article 5 of this Lease, or because
of abuse by Tenant of the item which requires repair, maintenance or
replacement, then to the extent incurred as a result of such default or abuse,
the cost of the item in question shall be reimbursed by Tenant to Landlord
promptly upon request.
B. Capital repairs or any replacements of the structure of the Building
(including the foundation, subflooring, load-bearing and exterior walls and
structural roof) or the correction of defects in the design or construction of
the structural components of the Building.
C. With respect to all repairs or maintenance undertaken by Landlord,
the cost of which is a Property Operating Expense which is to be charged back to
Tenant, Landlord shall use reasonable efforts to obtain services and materials
at fair market value.
D. Subject to reimbursement by Tenant in accordance with paragraph
13.12.C of the Lease form, Landlord shall maintain in good condition and repair
the parking area of the Property.
5.4 Energy and Resource Consumption: Notwithstanding anything to the
contrary in the Lease Form, Landlord shall not reduce energy
<PAGE> 29
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Building 22
Page 6
or other resource consumption in a manner which unreasonably interferes with
Tenant's use of the Leased Premises or the Property, and Tenant shall not be
required to cooperate in any reduction of energy which unreasonably interferes
with Tenant's use of the Leased Premises or the Property or increases Tenant's
costs unless such cooperation by Landlord is required by Law.
5.5 Limitation of Landlord's Liability: Notwithstanding anything to the
contrary in the Lease Form, Tenant does not release Landlord from, and Landlord
shall be liable for, any loss or liability incurred by Tenant as a result of:
(i) the negligence or misconduct of Landlord, its agents, employees, or
contractors; or (ii) a breach of Landlord's obligations or representations under
the Lease.
6.1 By Tenant: Notwithstanding anything to the contrary in of the Lease
Form:
A. Tenant shall have the right to make interior alterations which cost,
in the aggregate, less than $10,000 per Lease year without Landlord's prior
consent provided that such alterations do not affect the structural parts of the
Building. Tenant shall, however, be required to comply with all then applicable
Laws with respect to such improvements and shall deliver to Landlord a copy of
plans and specifications for any leasehold improvement made by Tenant to the
Leased Premises.
B. Tenant shall have the right to make modifications, alterations or
improvements to the Outside Areas, the exterior of the Building and structural
components of the Building only with Landlord's prior written consent, which
shall not be unreasonably withheld.
6.2 Ownership of Improvements: Notwithstanding anything to the contrary in
the Lease Form, with respect to Tenant's Property (as defined in paragraph 2.6
above), Landlord shall, upon Tenant's request, execute a lien waiver in a form
reasonably acceptable to Tenant's lender or equipment lessor, so long as such
waiver does not alter the terms of the Lease.
7.1 By Tenant: Notwithstanding anything to the contrary in the Lease Form,
Landlord shall not unreasonably withhold or delay its consent to any assignment
or sublease.
7.2 Merger or Reorganization: Notwithstanding anything to the contrary in
the Lease Form:
A. Landlord's consent shall not be required for any assignment or
sublease: (i) made in connection with a merger, consolidation, or other
reorganization of Tenant (provided that in the case where this Lease is assigned
to a corporation with whom Tenant is merged or consolidated, the corporation
will have a net worth not less than the net worth of Tenant as of the date both
parties sign this Lease), (ii) made in connection with a sale of substantially
all of the assets of Tenant (provided that in the case where this Lease is
assigned to a corporation which purchases all or substantially all of
Tenant's assets, the corporation to which this Lease is assigned shall have a
net worth not less than the net worth of Tenant as of the date both parties
sign this Lease), or (iii) involving any corporation which controls, is
controlled by, or is under common control with Tenant. For the purpose of the
Lease, if Tenant is a corporation, sale or other transfer of Tenant's capital
stock shall not be deemed an assignment, subletting, or any other transfer of
the Lease or the Leased Premises. Notwithstanding any provision to the
contrary in
<PAGE> 30
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Page 7
Article 7 of the Lease Form, in the case of any transfers made in connection
with a merger, consolidation, reorganization, sale of tenant's assets, or
involving a corporation which controls, is controlled by, or is under common
control with Tenant, Tenant shall not be obligated to pay any assignment
consideration or excess rentals to Landlord.
B. If Tenant or Landlord assigns the Lease as security for a loan,
Landlord and Tenant agree to execute such documents as are reasonably requested
by the lender and to provide reasonable provisions in the Lease protecting such
lender's security interest which are customarily required by institutional
lenders making loans secured by a deed of trust or a leasehold mortgage, so long
as such provisions do not alter the benefits of Landlord or Tenant or the
obligations of Tenant or Landlord under the Lease.
7.4 Conditions to Landlord's Consent: Notwithstanding anything to the
contrary in Section 7.4 of the Lease Form, if Tenant is in the process of curing
a default under the Lease, the sublease or assignment may become effective
following the completion of the cure of such default.
7.5 Assignment Consideration and Excess Rentals Defined: Notwithstanding
anything to the contrary in the Lease Form, the following costs shall be
deducted from (a) all consideration received by Tenant with respect to an
assignment and (b) all consideration in excess of rent due to Landlord under the
Lease for the same period with respect to subletting, to determine the meaning
of the terms "assignment consideration" or "excess rentals": (i) any
commissions paid by Tenant to a licensed real estate broker for arranging such
sublease or assignment (not to exceed then standard rates); (ii) reasonable
attorneys fees paid by Tenant in connection with the assignment or sublease; and
(iii) the amortized costs of any alterations or restoration necessary for a
subtenant or assignee (such costs to be amortized over seven (7) years).
7.7 Good Faith: Notwithstanding the provisions of the Lease Form, if Tenant
misallocates consideration that would be the property of Landlord under Article
VII of the Lease Form, Landlord shall be entitled to recover that portion of the
consideration that would be the property of Landlord together with interest at
the rate of Prime Plus Two from the date such misallocated consideration would
have been payable by Tenant to Landlord, and Landlord shall not have the right
to terminate this Lease if Tenant pays any sums owing to Landlord hereunder
within ten (10) days after written demand by Landlord.
8.1 Limitation on Landlord's Liability and Release: Notwithstanding anything
to the contrary in the Lease Form, Tenant shall not release Landlord, and
Landlord shall remain liable to Tenant for the following: (i) Landlord's
liability to repair violations of Law (as defined in paragraph 2.5 of this
Addendum) or Private Restrictions in Landlord's work existing as of the Lease
Commencement Date; (ii) the negligence or willful misconduct of Landlord or
Landlord's employees, agents or contractors or a breach of Landlord's
obligations or representations under this Lease; or (iii) liability for
Hazardous Materials made the responsibility of Landlord under paragraph 16 of
the Lease Form.
8.2 Tenant's Indemnification of Landlord: Notwithstanding anything to the
contrary in the Lease Form:
A. Negligence or Misconduct. Tenant shall not be required to indemnify
Landlord with respect to: (i) the negligence or
<PAGE> 31
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willful misconduct of Landlord, or its agents, employees, or contractors; (ii) a
breach of Landlord's obligations or representations under this Lease; or (iii)
the matters set forth in paragraph 8.1 of this Addendum.
B. Landlord's Indemnification. Landlord shall indemnify, defend,
protect and hold harmless Tenant from all damages, liabilities, claims,
judgments, actions, attorneys' fees, consultants' fees, costs and expenses
arising from the negligence or willful misconduct of Landlord or its employees,
agents, or contractors, or a breach of Landlord's obligations or representations
under this Lease.
9.2 Landlord's Insurance:
A. Earthquake and Flood Insurance Premium: Tenant's obligation to pay
for the cost of earthquake and flood insurance premiums in any lease year is
limited, individually and in the aggregate, to the obligation to pay an amount
which is equal to or less than five (5) times the cost of fire insurance
premiums for the Leased Premises for that same lease year.
B. Uninsured Losses and Earthquake and Flood Insurance Deductibles:
Uninsured losses and earthquake and/or flood insurance deductibles shall be
handled in the following matter:
(i) Tenant shall be obligated to pay, on account of uninsured loss
or earthquake and/or flood insurance deductible, no more than One Dollar ($1.00)
per square foot of Rentable Area in years one through five inclusive of the
Lease Term and no more than Fifty Cents ($.50) per square foot of Rentable Area
in the sixth and seventh years of the Lease Term.
(ii) If Tenant's contribution pursuant to 9.2.B(i) above is not
sufficient to cover an uninsured loss or earthquake and/or flood insurance
deductible, Landlord shall pay the balance, if any, up to an amount equal to ten
percent (10%) of the replacement cost of the Building. In an uninsured loss or
earthquake and/or flood insurance deductible exceeds ten percent (10%) of the
Building replacement cost, Landlord may terminate the Lease unless Tenant agrees
to pay the entire amount which is in excess of ten percent (10%) of the Building
replacement cost.
(iii) If Landlord contributes to payment for an uninsured loss or
earthquake and/or flood insurance deductible, such amount shall be repaid and
amortized by Tenant over the remaining term of the Lease together with interest
at Prime Plus Two, and Tenant shall pay same as Additional Rent. However,
Tenant shall in no event be required to pay in any month (i) an amount in excess
of the product of Six and One-Half Cents ($0.065) times the Rentable Area of the
Building in years one through five inclusive of the Lease Term of (ii) in excess
of the product of Seven and 7/10 Cents ($.077) and the Rentable Area of the
Building in the sixth and seventh years of the Lease Term (the "Ceiling
Amount"). All amortization will terminate on the expiration of Tenant's
occupancy of the Building.
(iv) If the Ceiling Amount is not adequate to amortize Landlord's
contribution to an uninsured loss or earthquake and/or flood insurance
deductible over the initial Lease Term, and Tenant exercises an option to renew
the Lease or otherwise remains in possession of the Premises, Tenant's payment
shall continue at the Ceiling Amount during any period of Tenant's occupancy of
the Premises until Landlord's contribution is amortized with interest as
provided above.
<PAGE> 32
Lease Addendum
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C. Plate Glass Insurance: Landlord shall, as part of its obligation
to obtain "all risk" insurance for the Building, insure damage to the plate
glass at the Building. Tenant shall reimburse Landlord for such property
insurance in accordance with the terms of the Lease and shall reimburse
Landlord for insurance deductibles incurred by Landlord in connection with
plate glass damage subject to the limitations set forth in paragraph 5.1.A.3 of
this Addendum.
10.3 Landlord's Right to Terminate: Notwithstanding anything to the contrary
in the Lease Form:
A. Subject to subparagraph 9.2.B governing uninsured loss and deductible
for loss due to flood and earthquake damage, if more than three (3) years remain
of the Lease Term then in effect, Landlord will rebuild the Leased Premises
provided that the casualty was caused by either a loss or peril which Landlord
was required to insure against under the Lease or a loss or peril which Landlord
actually insured against, even if such insurance was not required (an "Insured
Loss").
B. If fewer than three (3) years remain of the Lease term then in
effect, Landlord's obligation to rebuild after an Insured Loss shall be governed
by the following: (i) if 36-24 months remain of such Lease term, Landlord will
rebuild provided that the cost of rebuilding does not exceed an amount equal to
50% of the replacement cost of the Building; (ii) if 23-7 months remain of such
Lease term, Landlord will rebuild provided that the cost of rebuilding does not
exceed an amount equal to 30% of the replacement cost of the Building; and (iii)
if fewer than six (6) months remain of such Lease term, Landlord will rebuild
provided that the cost of rebuilding does not exceed an amount equal to 10% of
the replacement cost of the Building.
C. Notwithstanding the above, in the event of an Insured Loss at a time
when fewer than three (3) years remain of the Lease term then in effect,
Landlord must rebuild following an Insured Loss if Tenant exercises an Option to
renew within fifteen (15) days after the date of damage.
D. In cases of Insured Loss other than as set forth in paragraphs
10.3.A, 10.3.B, or 10.3.C and in subparagraph 9.2.B where Landlord shall be
obligated to rebuild, in the event of an Insured Loss, Landlord may elect to
terminate this Lease by giving written notice to Tenant of such election on or
before that date that is thirty (30) days after the date of the casualty.
11.6 Abatement of Rent: Notwithstanding anything to the contrary in the Lease
Form, in the event of a taking of any parking area of, or any driveway access
to, the Leased Premises which has a material adverse effect on Tenant's access
or parking rights, Landlord or Tenant shall have the right, at either's option,
to require Landlord at the sole cost and expense of the party who elects to do
so, to convert Outside Area which is located on the property then being used for
recreational facilities or landscaped areas to parking area use to the extent
necessary to sure the material adverse effect on Tenant's access or parking
rights.
12.1 Events of Tenant's Default: Notwithstanding anything to the contrary in
the Lease Form, Tenant shall not be in default for any of the reasons specified
in Sections (B) and (C) of Section 12.1 unless Tenant has failed to cure a
default within (30) days after written notice from Landlord (or such longer
period of time if reasonably necessary to cure the default so long as Tenant
<PAGE> 33
Lease Addendum
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Page 10
begins the cure within such thirty (30) day period and prosecutes it with due
diligence.)
13.3 Subordination to Mortgages: Notwithstanding anything to the contrary in
the Lease Form, Landlord shall furnish to Tenant within fifteen (15) days after
this Lease is executed a recognition and nondisturbance agreement in form
reasonably satisfactory to Tenant from all lenders holding a security interest
in the Property. This Lease shall not be subject to or subordinate to any
ground or underlying lease or to any lien, mortgage, deed of trust, or security
interest now or hereafter affecting the Premises, nor shall Tenant be required
to execute any documents subordinating this Lease, unless the ground lessor,
lender, or other holder of the interest to which the Lease shall be subordinated
contemporaneously executes a recognition and nondisturbance agreement which (i)
provides that this Lease shall not be terminated so long as Tenant is not in
default under this Lease and (ii) recognizes all of Tenant's rights hereunder.
13.6 Estoppel Certificates: Notwithstanding anything to the contrary in the
Lease Form, Landlord shall, upon the same terms and conditions applicable to
Tenant, give an estoppel certificate to Tenant for the benefit of any lender
taking a security interest in the Lease or for the benefit of a purchaser of
Tenant's assets.
13.12 Definitions: Notwithstanding anything to the contrary in the Lease Form:
A. The term "Property Maintenance Costs" shall not include any of the
following:
(i) The cost to correct violations of Laws or Private Restrictions
in work constructed by Landlord as of the Lease Commencement Date;
(ii) Either (i) the cost of any capital repairs or of any
replacements of the structure of the Building, including the foundation,
subflooring, load-bearing walls and structural roof; or (ii) the cost to correct
defects in design or construction of the structural components of the Building;
(iii) The cost to correct defects in design or construction of
nonstructural components of the Building or structural and nonstructural
components of other improvements located on the Property, if such defect is (i)
discovered within one (1) year of the Lease Commencement Date or (ii)
discovered more than one (1) year after the Lease Commencement Date if such
defect is material and could not reasonably have been discovered by Tenant
within one (1) year of the Lease Commencement Date:
(iv) The cost of repairs necessitated by the active negligence or
misconduct of Landlord, its agents, employees or contractors;
(v) The cost of repairs, maintenance or replacements which would
be covered by a standard form of full replacement value "all risk" policy of
casualty insurance;
(vi) Any cost or expense related to or incurred in connection with
Hazardous Materials unless Landlord incurs such cost or expense as a result of
Tenant's failure to comply with its obligations under paragraph 16 of this
Addendum and except for the reasonable cost of periodic questionnaires and
audits concerning Hazardous Materials at the property in an amount not to exceed
One Thousand Dollars ($1,000) in any Lease year (the costs of which
<PAGE> 34
Lease Addendum
Building 22
Page 11
questionnaires and audits up to the One Thousand Dollars ($1,000) per Lease year
will be considered Property Maintenance Costs); and
(vii) Any deductible paid by Landlord under its comprehensive general
liability policy.
B. Any single item of Property Maintenance Cost under subparagraph (C)
which exceeds $25,000, is incurred with respect to an item with a useful life
not less than five (5) years and would be defined as a capital expenditure
under generally accepted accounting principles shall be amortized in accordance
with subparagraph 5.1.A.4 of this Addendum.
C. Real Property Taxes under paragraph 13.12.A of the Lease Form shall
be prorated to reflect the beginning and end of the Lease Term. Further, if any
assessments levied against the Property are payable in installments, Tenant
shall only be required to pay such assessment in installments, even if Landlord
elects to pay the assessment in full.
16. Hazardous Materials: Notwithstanding anything to the contrary in the
Lease, Landlord and Tenant agree as follows with respect to the existence or use
of "Hazardous Materials" (as defined below) on the Leased Premises:
A. Tenant shall be entitled to cause such inspections, soils and
groundwater tests, and other evaluations to be made of the Leased Premises as
Tenant deems necessary regarding the presence and use of Hazardous Materials in
or about the Leased Premises.
B. Landlord represents that, to the best of its knowledge, any handling,
transportation, storage, treatment or use of Hazardous Materials (as defined
below) that has occurred on the property prior to the date of the Lease has not
caused any contamination of the Leased Premises and that the property is, to the
best of the Landlord's knowledge, presently in compliance with all Laws which
relate to Hazardous Materials.
C. Any handling, transportation, storage, treatment, disposal or use of
Hazardous Materials by Tenant in or about the Leased Premises shall strictly
comply with all applicable Hazardous Materials Laws.
D. Tenant shall indemnify, defend upon demand with counsel reasonably
acceptable to Landlord, and hold harmless Landlord from and against any and all
liabilities, judgments, interest, penalties, fines, monetary sanctions,
attorneys' fees, experts' fees and court costs resulting from any claim, demand,
order or requirement of any governmental agency with jurisdiction (including any
such claim, demand, order or requirement, the satisfaction of which is a
pre-condition to the obtaining or maintaining of any building permit) or any
claim and any demand brought or threatened by any party other than the parties
to this Lease, and reasonably incurred remediation costs, investigation costs
and other related expenses (including restoration of the Property resulting from
such remediation or investigation) which result from or arise in any manner
whatsoever out of the following:
(i) The use, storage, transportation, treatment, release or disposal
of Hazardous Materials on or about the Leased Premises by Tenant, its agents,
employees, invitees, or contractors; and
<PAGE> 35
Lease Addendum
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(ii) The release of Hazardous Materials by a third party other than
Landlord or the agents, employees, or contractors of Landlord onto the surface
of the Leased Premises after the Lease Commencement Date.
E. If the use, storage, disposal, or release of Hazardous Materials on
the Leased Premises caused by Tenant, its agents, employees, invitees, or
contractors or a third party other than Landlord or the agents, employees, or
contractors of Landlord onto the surface of the Leased Premises results in
contamination or deterioration of water or soil resulting in a level of
contamination greater than he levels established as acceptable and requiring
remediation by any governmental agency having jurisdiction over such
contamination, then Tenant shall promptly take any and all action necessary to
remediate such contamination in accordance with and to the extent required by
any Law or governmental agency, and upon completion of such remediation, shall
demonstrate to Landlord's reasonable satisfaction that such remediation has been
completed in accordance with the foregoing.
F. Tenant shall have no responsibility to Landlord, and Landlord hereby
releases and discharges Tenant from any claims or obligations arising from (i)
the presence of any Hazardous Materials existing as of the Lease Commencement
Date on or about the Leased Premises; (ii) any Hazardous Material migrating
from an adjacent or neighboring site onto the Leased Premises; and (iii) any
Hazardous Material not made the responsibility of Tenant under subparagraph
16.D or 16.E above. Landlord shall be responsible at its sole cost and expense
for complying with any claim, demand, judgment, legal requirement, law, or
orders with respect to Hazardous Materials described in this subparagraph 16.F.
G. As used herein, the term "Hazardous Material means any substance,
material or waste which is or becomes regulated by any local governmental
authority, the State of California, or the United States Government. The term
"Hazardous Materials" includes, without limitation, any material or substance
which is (i) defined as a "hazardous waste", "extremely hazardous waste", or
"restricted hazardous waste" under Sections 25115, 25117 or 15122.7, or listed
pursuant to Section 25140 of the California Health and Safety Code, Division 20,
Chapter 6.5 (Hazardous Waste Control Law); (ii) defined as "hazardous
substance" under Section 25316 of the California Health and Safety Code,
Division 20, chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substances
Account Act); (iii) defined as a "hazardous material", "hazardous substance",
or "hazardous waste" under Section 25501 of the California Health and Safety
Code, Division 20, Chapter 6.95 (Hazardous Materials Release, Response, Plans
and Inventory); (iv) defined as a "hazardous substance" under Section 25281 of
the California Health and Safety Code, Division 20, Chapter 6.7 (Underground
Storage of Hazardous Substances); (v) petroleum; (vi) asbestos; (vii) listed
under Article 9 or defined as "hazardous" or "extremely hazardous" pursuant to
Article II of Title 22 of the California Administrative Code, Division 4,
Chapter 20; (viii) designated as a "hazardous substance" pursuant to Section
311 of the Federal Water Pollution Control Act, 33 U.S.C. 1251 et seq. or
listed pursuant to Section 307 of the Federal Water Pollution Control Act
(33 U.S.C. 1317); (ix) defined as a "hazardous waste" pursuant to Section
1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901
et seq.; (x) defined as a "hazardous substance" pursuant to Section 101 of
the Comprehensive Environmental Response, Compensations, and Liability Act,
42 U.S.C. 9601 et seq.; or (xi) regulated under the Toxic Substances Control
Act, 15 U.S.C. 2601 et seq. The Term "Hazardous Materials Laws" shall mean
(i) all the foregoing laws, as amended from time to
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time; and (ii) any other federal, state or local law, ordinance, regulation or
order regulating Hazardous Materials.
H. Landlord and Tenant shall each give written notice to the other as
soon as reasonably practicable of (i) any communication received from any
governmental authority concerning Hazardous Material which relates to the Leased
Premises; and (ii) any contamination of the Leased Premises by Hazardous
Materials which constitutes a violation of any Hazardous Material Law.
I. The obligations of Landlord and Tenant under this Section 16 shall
survive the expiration or earlier termination of this Lease.
J. Promptly following written request of Landlord, Tenant shall furnish
to Landlord a list identifying all Hazardous Materials, and the respective
quantity of each such Hazardous Material, stored in or about the Leased
Premises by Tenant.
K. The rights and obligations of Landlord and Tenant with respect to
issues relating to Hazardous Materials are exclusively established by this
Section 16. In the event of any inconsistency between any other part of this
Lease and this Section 16, the terms of this Section 16 shall control.
17. [INTENTIONALLY OMITTED.]
19. Interpretation: In the event of any inconsistency between this First
Addendum and the Lease Form, the terms of this First Addendum shall prevail.
As used herein, the term "Lease" shall mean the Lease Form, this Addendum and
all riders, exhibits, rules, regulations, covenants, conditions and
restrictions referred to in the Lease Form or this Addendum.
<PAGE> 37
RENCO 41
BAYSIDE TECHNOLOGY PARK 46501 Landing Parkway, Fremont
Floor Plan
[GRAPH]
Site Plan
[GRAPH]
EXHIBIT "A" SITE PLAN FOR BUILDING AND PREMISES
<PAGE> 38
EXHIBIT "D"
ACCEPTANCE AGREEMENT
This Acceptance Agreement is made as of ____________, 1991, by and
between the parties hereto with regard to that Lease dated October 31, 1990, by
and between Renco Investment Company, a California partnership, as Landlord
("Landlord"), and Sigma Designs Inc., a California corporation, as Tenant
("Tenant"), affecting those premises commonly known as Renco 22, located at
___________________________ in the City of Fremont, State of California (the
"Premises"). The parties agree as follows:
1. All improvements required to be constructed by Landlord by the Lease
have been completed in accordance with the terms of the Lease and are hereby
accepted by Tenant, subject to the completion of punchlist items identified on
Exhibit "A" attached hereto.
2. Possession of the Premises has been delivered to Tenant and Tenant
has accepted and taken possession of the Premises.
3. The Lease Commencement Date is ____________, 1991.
4. The Lease Term shall expire on ____________, 19__, unless sooner
terminated according to the terms of the Lease or by mutual agreement.
5. The Base Monthly Rent due pursuant to the Lease is as follows:
_____________________ thru _____________________ _____________________
_____________________ thru _____________________ _____________________
_____________________ thru _____________________ _____________________
6. Landlord has received a Security Deposit in the amount of
________________________________________ Dollars ($ ).
7. Landlord has received Prepaid Rent in the amount of _________________
________________________________ Dollars ($ ), which shall be applied
to the first installment(s) of Base Monthly Rent.
8. The Lease is in full force and effect, neither party is in default of
its obligations under the Lease, and Tenant has no setoffs, claims, or defenses
to the enforcement of the Lease.
AS LANDLORD: AS TENANT:
Renco Investment Company Sigma Designs, Inc.
a California partnership a California corporation
By: _________________________ By: _________________________
Title: ______________________ Title: ______________________
By: _________________________ By: _________________________
Title: ______________________ Title: ______________________
Dated: ______________________ Dated: ______________________
<PAGE> 1
EXHIBIT 10.7
SUBLEASE
<PAGE> 2
SUBLEASE
THIS SUBLEASE (this "Sublease") is entered into this 16th day of February,
---- --------
1994 by and between Sigma Designs, Inc., A California corporation ("Sublessor"),
and Media Vision Technology Inc., a Delaware corporation ("Sublessee").
RECITALS:
A. On October 31, 1990, Renco Investment Company, a California general
partnership ("Renco"), as landlord, and Sublessor, as tenant, entered into that
Industrial Space Lease ("Original Lease"), respecting certain premises (the
"Leased Premises") including approximately 122,092 square feet within Building
22 (the "Building") and the surrounding outside areas located at 47900 Bayside
Parkway in Fremont, California and as more particularly described in the
Original Lease (the "Property").
B. The Original Lease was amended by Renco and Sublessor by that Lease
Addendum (the "Addendum" dated November 29, 1990 and that First Amendment to
Lease (the "Amendment") dated November 7, 1991. Collectively, the Original
Lease as amended by the Addendum and the Amendment shall be referred to herein
as the "Original Renco 22 Lease".
C. Renco assigned its interest as landlord in the Original Renco 22
Lease to Renco Equities IV, a California partnership ("Master Lessor").
D. Effective as of the date hereof, Master Lessor, as landlord, and
Sublessor, as tenant, have entered into that certain Amended and Restated
Industrial Space Lease (the "Master Lease") respecting the Leased Premises and
replacing the Original Renco 22 Lease, which Master Lease is attached hereto as
Exhibit "A".
E. Sublessor desires to sublease the Leased Premises to Sublessee, and
Sublessee desires to sublease the Leased Premises from Sublessor, upon the terms
and conditions set forth in this Sublease.
NOW, THEREFORE, for good and valuable consideration, including the mutual
covenants herein set forth, the parties agree as follows:
AGREEMENT:
1. Sublease. Sublessor hereby subleases to Sublessee, and Sublessee
hereby subleases from Sublessor, the Leased Premises on the terms and conditions
hereinafter set forth.
1
<PAGE> 3
2. Term.
(a) The term of this Sublease (the "Sublease Term") shall commence
April 20, 1994 (subject to Paragraph 2(b) below) and shall expire October 17,
1998, unless sooner terminated pursuant to the provisions of the Sublease (the
"Sublease Expiration Date").
(b) In the event Sublessor is unable to deliver possession of the
Premises to Sublessee on or before April 20, 1994, Sublessor shall not be liable
for any damage caused thereby and subject to the remaining provisions of this
Paragraph 2(b), the Sublease Term shall commence on the date in which Sublessor
tenders possession of the Premises to Sublessee. If Sublessor fails to tender
possession of the Sublease Premises prior to May 15, 1994, this Sublease shall
be voidable at the election of the Sublessee by providing Sublessor with written
notice of such election by May 31, 1994. Notwithstanding any delay in
Sublessor's tender of possession of the Premises to Sublessee, however, the
Sublease Expiration Date shall not be extended beyond October 17, 1998.
3. Rent. Commencing on the date the Sublease Term commences (the
"Sublease Commencement Date") and continuing throughout the Sublease Term,
Sublessee shall pay to Master Lessor, without prior demand therefor, in advance
on the first day of each calendar month, as base monthly rent ("Base Monthly
Rent"), the amount sets forth below:
<TABLE>
<S> <C>
Sublease Commencement Date through the end $ -0- per month
of the sixth (6th) week following the Sublease
Commencement Date
The beginning of the seventh (7th) week following $36,628.00 per month
the Sublease Commencement Date through the end
of the fifty-second (52nd) week following the
Sublease Commencement Date
The beginning of the fifty-third (53rd) week $72,833.51 per month
following the Sublease Commencement Date
through the Sublease Expiration Date
</TABLE>
4. Incorporation of Master Lease Terms.
(a) Except as expressly set forth below in Paragraph 4(b), the
Master Lease is incorporated herein in its entirety by this reference. For the
purpose of this Sublease, all references in the Master Lease to "Landlord" shall
be deemed to mean Sublessor, all references to "Tenant" shall be deemed to mean
Sublessee and all references to "Lease" shall mean this Sublease.
2
<PAGE> 4
(b) The Master Lease shall be deemed modified by Sublessor and
Sublessee for purposes of this Sublease as follows:
(i) The following provisions of the Master Lease are specifically
excluded from incorporation into this Sublease: the preamble, paragraphs 1.1E
through 1.1J, 1.1S, 2.3, 2.4, 2.5, 2.7, 3.1, 3.2, 3.3, 3.6, and 13.12B through
13.12E.
(ii) Paragraph 1.1A shall be modified by inserting "47240 Bayside
Parkway, Fremont, California 94538" for Tenant's address for notices.
(iii) Paragraph 1.1B shall be modified by inserting "Mr. Russ
Faust" for Tenant's representative and "(510) 770-8600" for the phone number.
(iv) Paragraph 1.1C shall be modified by inserting "Sigma Designs,
Inc., 56501 Landing Parkway, Fremont, California 94538" for Landlord's address
for notices.
(v) Paragraph 1.1D shall be modified by inserting "Mr. Thinh
Tranh" for Landlord's representative and "(510) 770-0100" for the phone number.
(vi) Paragraph 1.1K shall be modified by replacing "$82,374.00"
with "$72,833.51".
(vii) Paragraph 1.1N shall be modified by inserting "CB Commercial
Real Estate Group and Renault & Handley."
(viii) Paragraph 3.7 shall be modified by deleting the partial
sentence beginning at the fourteenth line thereof which reads: "If Tenant fails
to promptly restore the Security Deposit. . ."
(ix) Paragraph 4.8 shall be modified by deleting the marginal note
which reads: "Landlord acknowledges that Tenant's use as described to Landlord
by Tenant complies with Landlord's insurance requirements. Landlord shall
advise Tenant of its insurance requirements."
(x) Paragraph 4.11 shall be modified by substituting the word
"respecting" for the work "resulting" in the second line thereof.
(xi) Paragraph 5.5 shall be modified by deleting the text in the
seventh through ninth lines thereof, beginning "until Tenant shall have first
notified Landlord" and ending with "such maintenance or repairs"; although
nothing herein shall be construed to excuse Sublessor from its obligation to
notify Master Lessor of the need for maintenance or repairs promptly following
receipt of notice thereof from Sublessee.
(xii) Paragraph 6.1 shall be modified by (a) replacing the words
"first approved, in writing, the plans and specifications therefore, which
approval shall not
3
<PAGE> 5
be unreasonably withheld" in the first sentence of this paragraph with "obtained
Master Lessor's approval, in writing, of the plans and specifications therefor
and Master Lessor's agreement that such alterations may remain in the Leased
Premises at the expiration of the Master Lease Term", and (b) substituting the
word "without" for the word "withhold" in the marginal annotation in line
seventeen thereof.
(xiii) Paragraph 7.4D shall be modified by replacing both
occurrences of the word "Landlord" in this paragraph with the words "Master
Lessor." Paragraph 7.4D shall be further modified by inserting the following
sentence at the end of this paragraph: "Sublessee shall not be required to
reimburse Sublessor for any costs or attorneys' fees incurred by Sublessor in
conjunction with the processing and documentation of any such requested
subletting, assignment or encumbrance."
(xiv) Paragraph 9.3 shall be modified by replacing the words
"Landlord hereby releases Tenant, and Tenant hereby releases Landlord" in the
first sentence of this paragraph with the phrase "Landlord hereby releases
Tenant and Master Lessor, Tenant hereby releases Landlord and Master Lessor, and
Master Lessor hereby releases Landlord and Tenant."
(xv) Paragraph 10.2 shall be modified as follows: (a) inserting the
words ", if any," after the first reference to Landlord in the first sentence
thereof, and (b) each reference in lines four and seven to "Landlord's property"
shall mean Sublessor's Property and Master Lessor's property.
(xvi) Paragraph 10.3 shall be modified by replacing each reference
to "Landlord" with "Master Lessor" and each reference to "Lease" with "Master
Lease".
(xvii) Paragraph 10.4 shall be modified so that each reference in
lines two and four of the initial paragraph, line one of paragraph 10.4A and
line two of paragraph 10.4B to "Landlord" shall mean Master Lessor, and each
reference to the "Lease" in lines two and three shall mean the Master Lease.
(xviii) The following provisions of the First Addendum to Master
Lease (the "Master Lease Addendum") are specifically excluded from incorporation
into this Sublease: the preamble (consisting of three paragraphs), paragraphs
13.12B.
(xix) Paragraph 4.7 of the Master Lease Addendum shall be modified
as follows: (a) replacing the words "Section 2.5 above" in the first sentence of
this paragraph with the words "Paragraphs 5 and 9 of the Sublease and Master
Lessor's obligations under the Master Lease"; (b) deleting the words ", and all
such obligations shall remain with Landlord" in second sentence of this
paragraph; (c) replacing the word "initial" in the sixth line of this paragraph
with "any"; and (d) inserting the words "or Master Lessor" after the word
"Landlord" in the last line of this paragraph.
4
<PAGE> 6
(xx) Paragraph 13.12C of the Master Lease Addendum shall be
modified by deleting the reference to "Sections 5.1.B. or 13.12.C." in first
sentence of this paragraph, and substituting "Sections 5.1.A. or 5.1.B."
(c) Notwithstanding the foregoing incorporation of the terms and
conditions of the Master Lease, Sublessor shall not be responsible for the
performance of any obligations to be performed by Master Lessor under the Master
Lease, including, but not limited to those obligations set forth in paragraphs
5.1B, 9.2, 10.1 and 11.3 of the Master Lease and paragraph 9.2 of the Master
Lease Addendum, and Sublessee agrees to look solely to Master Lessor for the
performance of such obligations. Subject to Paragraph 10 of this Sublease,
Sublessor shall not be liable to Sublessee for any failure by Master Lessor to
perform its obligations under the Master Lease, not shall such failure by Master
Lessor excuse performance by Sublessee of its obligations hereunder. At
Sublessee's request, Sublessor covenants to use its good faith and all
reasonable efforts, including, but not limited to filing suit or commencing
judicial or administrative actions or proceedings against Master Lessor, to
enforce against the Master Lessor all provisions of the Master Lease benefitting
Tenant for the benefit of Sublessee. Sublessor shall conduct its efforts to
enforce the provisions of the Master Lease against the Master Lessor for the
benefit of Sublessee at the initial cost of sublessor, and Sublessee shall
reimburse to Sublessee promptly upon receipt of invoice therefor one-half (1/2)
of the reasonable cost of such efforts.
(d) Sublessor agrees that Sublessor shall remain responsible for any
obligation to restore the Leased Premises at the end of the term hereof that
might be required in connection with alterations or improvements to the Leased
Premises that were not made by or for Sublessee.
5. Delivery of Possession. Sublessor shall deliver to Sublessee
possession of the Leased Premises on or before the Sublease Commencement Date in
their presently existing condition, except Sublessor represents and agrees as
follows:
(a) The Building systems, including, but not limited to the heating,
ventilating and air conditioning system ("HVAC"), roof, plumbing, and electrical
systems shall be in good working condition. At no cost to sublessee, Sublessor
shall promptly repair, or shall require Master Lessor to repair, any of the
foregoing that is not in good working condition.
(b) Sublessor shall repair any broken windows at the Leased Premises.
(c) All floors shall be professionally cleaned, carpets shampooed and
any holes in walls patched.
(d) All personal property of Sublessor shall be removed and the Leased
Premises shall be free of debris.
5
<PAGE> 7
(e) Sublessor shall deliver to Sublessee all information reasonably
available to Sublessor, including maintenance contracts, regarding the condition
of the HVAC and roof.
6. Acceptance of Possession. By accepting possession of the Leased
Premises upon the Sublease Commencement Date, Sublessee agrees that the
condition thereof is acceptable, subject to Sublessor's repair obligations
pursuant to Paragraph 5 hereof and the truth and accuracy of Sublessor
representations in Paragraph 9 hereof.
7. Additional Rent. Sublessee shall pay to Sublessor all items of
Additional Rent paid by Sublessor pursuant to (a) paragraph 3.2A of the Master
Lease, (b) paragraph 3.2B of the Master Lease to the extent attributable to an
assignment or sublet by Sublessee, and (c) paragraph 3.2C of the Master Lease to
the extent attributable to a breach or default by Sublessee under this Sublease,
as and when due under the Master Lease. If Sublessor receives either a credit or
cash refund from Master Lessor pursuant to paragraph 3.3 of the Master Lease,
Sublessor shall provide Sublessee with such credit or cash refund of monies paid
by Sublessee. Sublessor shall promptly provide to Sublessee any and all
statements provided by Master Lessor to Sublessor promptly following receipt
thereof.
8. Brokerage Commission. Sublessor shall pay to the broker representing
Sublessee, CB Commercial Real Estate Group, Inc., a brokerage fee in the amount
of One Hundred Eighty Nine Thousand One Hundred Fifty Eight Dollars Fifty Cents
($189,158.50), and to the broker representing Sublessor, Renault & Handley, a
brokerage fee in the amount of Ninety Four Thousand Five Hundred Seventy Nine
Thousand Dollars Twenty Five Cents ($94,579.25). Sublessor shall pay one-half of
the commission due hereunder within thirty (30) days of the execution and
delivery of this Sublease by both parties hereto, and receipt of the written
consent of Master Lessor to this Sublease, and shall pay the remaining
one-half of the commission promptly following the Sublease Commencement Date,
without protest or claim of any kind.
9. Sublessor's Representations. Sublessee shall accept the Leased
Premises in its as is condition upon the Sublease Commencement Date, except for
the obligations of Sublessor set forth in Paragraph 5 of this Sublease and that
Sublessor hereby represents and warrants to Sublessee that:
(a) Sublessor has no knowledge of any violations of Law (as defined
in paragraph 13.12E of the Master Lease) applicable to the Leased Premises as
of the Sublease Commencement Date.
(b) Sublessor has no knowledge of any deferred maintenance relating to
the physical improvements located at the Leased Premises.
(c) Sublessor has no knowledge of the presence of Hazardous Materials
(as defined in paragraph 4.14F of the Master Lease) in, on or about the
Property.
6
<PAGE> 8
(d) The number of legal parking spaces available to the Leased
Premises is approximately 388.
Except as expressly set forth in this Sublease, Sublessor makes no
representation or warranty regarding the Leased Premises, the Building or the
Project, including but not limited to the physical condition of the improvements
thereon or the suitability of the Leased Premises for the use contemplated by
Sublessee.
10. Indemnification and Waiver. Sublessor hereby agrees to indemnify,
defend and hold harmless Sublessee from and against any and all cost, expense,
liability, obligation, claim or damage, including attorneys' fees, incurred as a
result of Sublessor's failure to perform any of its obligations as provided in
the Master Lease (a) arising prior to the Sublease Commencement Date, or (b)
arising after the Sublease Commencement Date to the extent such obligations are
not assumed by Sublessee under this Sublease. Sublessor and Sublessee shall
indemnify, defend and hold harmless the other party from and against any and all
cost, expense, liability, obligation, claim or damage, including attorneys'
fees, incurred as a result of such party's failure to perform any of its
obligations under this Sublease.
11. Entire Agreement. This Sublease contains all of the terms, covenants
and conditions agreed to by Sublessor and Sublessee and may not be modified
orally or in any manner other than by an agreement in writing signed by all the
parties to this Sublease or their respective successors in interest.
12. Exhibits. All exhibits attached hereto are incorporated in this
Sublease, except as expressly excluded herein.
13. Counterparts. This Sublease may be executed in any number of
counterparts, each of which shall be deemed an original, and when taken together
they shall constitute one and the same sublease.
14. Effectiveness. This Sublease shall not become effective until (i)
Master Lessor has signed the consent attached to this Sublease, and (ii)
Sublessee and Master Lessor have entered into a lease for the Leased Premises
that commences upon the expiration of this Sublease.
15. Master Lease. This Sublease is and all times shall be subject and
subordinate to the Master Lease. Sublessee shall neither commit nor allow any
act or omission in violation of the provisions of the Master Lease. In the
event of the termination of Sublessor's interest as Tenant under the Master
Lease for any reason, then this Sublease shall terminate coincidentally
therewith. Unless caused by a termination of the Master Lease as a result of
the default of Sublessor thereunder, Sublessor shall not be liable to Sublessee
for any termination of the Master Lease prior to the Sublease Expiration Date.
Sublessor and Sublessee shall deliver to each other any notices of default or
alleged default received from Master Lessor or any notice from any other party
alleging a violation of the terms of the Sublease or Master Lease.
7
<PAGE> 9
16. Cafeteria Equipment. If permitted under the Master Lease,
Sublessor may remove the fixtures, furnishings and equipment installed in the
cafeteria area of the Leased Premises, provided that Sublessor completes the
removal of such items and repairs any damage to the Leased Premises caused by
such removal before the Sublease Commencement.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease on
the date first above written.
SUBLESSOR:
SIGMA DESIGNS INC.,
a California corporation
By: ____________________________
Its: ___________________________
SUBLESSEE:
MEDIA VISION TECHNOLOGY,
INC., a Delaware corporation
By: ____________________________
Its: ___________________________
-8-
<PAGE> 10
CONSENT TO SUBLEASE
This Consent to Sublease is entered into this 16th day of February, 1994 by
and between RENCO EQUITIES IV, a California partnership ("Master Landlord"),
SIGMA DESIGNS, INC., a California corporation ("Master Tenant") and MEDIA VISION
TECHNOLOGY, a Delaware corporation ("Subtenant").
R E C I T A L S
A. Master Landlord is the owner of those certain premises (the "Leased
Premises") located at 47900 Bayside Parkway in Fremont, California consisting of
approximately 122,092 sq. ft. within Building 22 and the surrounding outside
areas as more particularly described on Exhibit "A" attached hereto and
incorporated herein by reference.
B. Master Landlord leased to Master Tenant the Leased Premises pursuant to
a written lease dated October 31, 1990, as thereafter amended by a Lease
Addendum dated November 29, 1990 and a First Amendment to Lease dated November
7, 1991, which written documents were collectively amended and replaced in their
entirety by the Amended and Restated Industrial Space Lease dated February 16,
1994 ("Master Lease").
C. Master Tenant has requested Master Landlord to consent to a Sublease of
the Amended and Restated Lease to Subtenant.
D. Master Landlord is agreeable to consenting to the Sublease upon certain
conditions as specified below:
NOW THEREFORE, the parties agree as follows:
1. Master Tenant agrees to sublease the Leased Premises to Subtenant
pursuant to the terms of the Sublease.
1
<PAGE> 11
2. Master Landlord hereby consents to the Sublease between Master Tenant
and Subtenant subject to the following terms and conditions, all of which Master
Tenant and Subtenant agree to:
(a) Such consent shall not release Master Tenant of its obligations,
or alter the primary liability of Master Tenant to pay rent and other monies
payable under the Master Lease, and conform and comply with all of the
obligations of Master Tenant to be performed under the Master Lease.
(b) The acceptance of rent or other monies by Master Landlord from
Subtenant or anyone else liable under the Master Lease shall not be deemed a
waiver by Master Landlord of any provisions of the Master Lease.
(c) All rent payable by Subtenant under the Sublease shall be paid
directly to Master Landlord and such receipt by Master Landlord, shall be
credited towards the rental obligations of Master Tenant under the Master Lease.
(d) This consent to the Sublease shall not constitute a consent to any
subsequent subletting or assignment.
(e) If the Master Lease is terminated for any reason other than a
default by Subtenant under the Master Lease, Master Landlord and Subtenant
shall be deemed to have entered into a direct Lease beginning on the date of
termination of the Master Lease and continuing for the remainder of the term of
the Master Lease ("Direct Lease"). The Direct Lease shall otherwise be on the
same terms and conditions as those set forth in the Master Lease, except for
requirements which are no longer applicable or have already been performed, and
except that the Base Monthly Rent under the Direct Lease shall be in the
2
<PAGE> 12
same amounts and for the same time periods as set forth in paragraph 3 of the
Sublease and the Professional Management Fees in paragraph 13.12C shall be
reduced from three percent (3%) to two and one-half percent (2 1/2%). In no case
shall Master Landlord be liable for any security deposit paid by Subtenant to
Master Tenant nor shall Master Landlord be liable for any default of Master
Tenant under the Sublease. Master Tenant agrees that in the event Master
Landlord and Subtenant are deemed to have entered into a Direct Lease (i) Master
Landlord shall have all of its remedies under the Master Lease and California
law against Master Tenant to collect any unpaid monies due by Master Tenant
under the Master Lease (including, but not necessarily limited to, the
differential between the rent payable by Master Tenant to Master Landlord under
the Master Lease and the rent required to be paid by Subtenant to Master
Landlord under the Direct Lease) and damages under California law and (ii)
Master Landlord, by entering into the Direct Lease with Subtenant, has acted
reasonably and in a good faith effort to mitigate its damages under the Master
Lease and California law.
(f) Master Landlord acknowledges that to the best of Master Landlord's
knowledge; no default presently exists under the Master Lease of obligations to
be performed by Master Tenant; the Master Lease is in full force and effect; and
the Leased Premises is in a structurally, sound condition.
(g) Master Landlord's consent to the Sublease does not alter or amend
any of the terms and conditions of the Master Lease, all of which shall remain
in full force and effect. Master Landlord is not bound by any of the terms and
conditions of the Sublease and
3
<PAGE> 13
does not agree to any representations or warranties made by Master Tenant in the
Sublease, except Master Landlord agrees to abide by the terms of paragraph 9.3
of the Master Lease as modified by paragraph 4 (b) (xiv) of the Sublease.
Master Landlord expressly disclaims any knowledge in reference to the number of
parking spaces available under the Sublease.
(h) This consent to Sublease shall not be effective unless and until
Master Tenant deposits with Master Landlord an additional security deposit in
the form of an irrevocable letter of credit in the form acceptable to Master
Landlord issued by Wells Fargo Bank in the face amount of Seven Hundred Fifty
Thousand Dollars ($750,000.00) (the "Letter of Credit"). Provided Master Tenant
is not in default under the terms of the Master Lease, the face amount of the
Letter of Credit may be reduced by Five Hundred Thousand Dollars ($500,000.00)
on or after November 1, 1996 and to Two Hundred Fifty Thousand Dollars
($250,000.00) on or after November 1, 1997. The Letter of Credit shall provide
that Master Landloard may draw upon the Letter of Credit by delivering to the
issuing bank a sight draft signed by Master Landlord containing one or more of
the following statements:
(1) One or more payments required to be made by Master Tenant
under the Master Lease has not been made as and when due;
(2) An event of default by Master Tenant has occurred under the
Master Lease;
(3) Master Tenant has not renewed the Letter of Credit for an
additional year at least thirty (30) days prior to its expiration date.
4
<PAGE> 14
The Letter of Credit shall have a term of not less than one (1) year and
shall be renewed by Master Tenant for the entire remaining Lease Term at least
thirty (30) days prior to its then expiration date. The last such renewal shall
be for at least fourteen (14) months so that the Letter of Credit extends sixty
(60) days behond the end of the Lease Term.
Master Landlord, at its election, may draw upon the Letter of Credit prior
to applying or using all or any portion of the original Security Deposit
described in Section 3.7 of the Master Lease.
DATED: 2/17/94 RENCO EQUITIES IV, a California
-------------------- partnership, Master Landlord
By /s/
------------------------------
Name
-----------------------------
Title
----------------------------
DATED: 2/16/94 SIGMA DESIGNS, INC., a California
-------------------- corporation, Master Tenant
By /s/
------------------------------
Name
-----------------------------
Title
----------------------------
DATED: 2/16/94 MEDIA VISION TECHNOLOGY, a Delaware
-------------------- corporation, Subtenant
By /s/
------------------------------
Name
-----------------------------
Title
----------------------------
5
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<PAGE> 2
EXHIBIT 11.1
SIGMA DESIGNS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR THE FISCAL YEARS ENDED JANUARY 31, 1995, 1994 AND 1993
The basis for computing net loss per common and equivalent share is
described in Note 2 of the Notes to Consolidated Financial Statements.
The computation of common and common share equivalents is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average number of
common shares outstanding
during the period 7,307 5,733 5,234
Number of common share
equivalents resulting from
stock options, computed
using the treasury stock
method -- -- --
----- ----- -----
Number of common and common
share equivalents used in
computation 7,307 5,733 5,234
===== ===== =====
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<PAGE> 2
EXHIBIT 21.1
SUBSIDIARIES OF SIGMA DESIGNS, INC.
<TABLE>
<CAPTION>
JURISDICTION
NAME AND ADDRESS OF INCORPORATION
- --------------------------------------- ---------------------------
<S> <C>
Sigma Designs Imaging Systems, Inc. California
(formerly known as DocuPoint, Inc.)
46515 Landing Parkway
Fremont, CA 46538
Sigma Designs International, Inc. Guam
134 Soldad Avenue
Bank of Hawaii Building
Suite 401
Agana, Guam 96911
Sigma Designs (Asia) Ltd. Hong Kong
Unit 3503, Metroplaza Tower 2
223 Hing Fong Road
Kwai Fong
Hong Kong
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
<PAGE> 2
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 33-8316 on Forms S-8 and S-3 and in Registration Statements Nos. 33-20226,
33-23699, 33-33571, 33-41330 and 33-81914 on Forms S-8 of our reports dated
March 10, 1995, appearing in this Annual Report on Form 10-K of Sigma Designs,
Inc. for the year ended January 31, 1995.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
San Jose, California
April 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<CASH> 881
<SECURITIES> 7,349
<RECEIVABLES> 13,059
<ALLOWANCES> 1,101
<INVENTORY> 9,736
<CURRENT-ASSETS> 31,010
<PP&E> 5,718
<DEPRECIATION> 4,375
<TOTAL-ASSETS> 33,387
<CURRENT-LIABILITIES> 13,564
<BONDS> 0
<COMMON> 38,820
0
0
<OTHER-SE> (23,099)
<TOTAL-LIABILITY-AND-EQUITY> 33,387
<SALES> 43,700
<TOTAL-REVENUES> 43,700
<CGS> 36,980
<TOTAL-COSTS> 53,355
<OTHER-EXPENSES> 16,375
<LOSS-PROVISION> 382
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> (9,319)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 546
<CHANGES> 0
<NET-INCOME> (8,773)
<EPS-PRIMARY> (1.20)
<EPS-DILUTED> (1.20)
</TABLE>
