UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-2287
SYMMETRICOM, INC.
(Exact name of registrant as specified in its charter)
California No. 95-1906306
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
85 West Tasman Drive, San Jose, California 95134-1703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 943-9403
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(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 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K ($229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-
affiliates of the registrant at September 2, 1996 was approximately
$222,575,473. The number of shares outstanding of the registrant's
Common Stock at September 2, 1996 was 15,650,849.
Documents Incorporated by Reference
Portions of the SymmetriCom, Inc. Proxy Statement for the 1996
Annual Meeting of Shareholders filed with the Commission on or about
September 13, 1996 are incorporated by reference into Part III of this
Annual Report on Form 10-K.
PART I
ITEM 1. Business
SymmetriCom, Inc. (the "Company") was incorporated in California in
1956. The Company conducts its business through two separate operations,
Telecom Solutions and Linfinity Microelectronics Inc. (Linfinity). Each
operates in a different industry segment. Telecom Solutions principally
designs, manufactures and markets advanced network synchronization
systems and intelligent access systems for telephone companies, private
network operators and wireless service providers. Linfinity principally
designs, manufactures and markets linear and mixed signal integrated
circuits as well as modules for use in power supply, data communications
and signal conditioning applications in commercial, industrial, and
defense and space markets.
Telecom Solutions
Telecom Solutions offers a broad range of time reference, or
synchronization, systems and intelligent access, or transmission,
systems for the worldwide telecommunications industry.
Synchronization
Reliable synchronization is fundamental to telecommunications
services, as it permits the orderly and error free transmission of data.
Synchronization allows digital switching and transmission systems to
operate at a common, or synchronized, clock rate. High quality
synchronization is an essential requirement for telecommunications
service providers as they move from analog to digital and implement
transmission technologies such as the Synchronous Optical Network (SONET)
and the Signaling System Seven (SS7) network. Synchronization
degradation can cause digital signal impairments such as jitter, wander
and phase transients, resulting in loss of data.
The Company's core synchronization products consist principally of
quartz and rubidium based Digital Clock Distributors (DCDs), which
provide highly accurate and uninterruptible clocks that meet the
synchronization requirements of digital networks. Telecom Solutions has
established itself as a leader in telephone network synchronization and
has introduced a series of DCDs and related products. These products
provide the critical timing which enables telecommunications service
providers to synchronize precisely such diverse telephone network
elements as digital switches, digital cross-connect systems and
multiplexers for customers who are dependent upon high quality data
transmission.
Telecom Solutions has two key product platforms that are fundamental
to the DCD product family, the DCD 500 Series and the DCD Local Primary
Reference (LPR) Series. The DCD 500 Series is a third generation
synchronization and timing distribution platform that provides the
accurate clock references needed throughout a network to ensure reliable
synchronization. The platform can be equipped with a variety of cards to
increase functionality. The Maintenance Interface System (MIS) and the
Precision Synchronization Monitor (PSM) cards provide an interface for
network management and performance monitoring capabilities, which are
becoming increasingly important for network maintenance. Such
capabilities include network alarm surveillance, central location
monitoring and additional clock functions. Furthermore, the platform
meets the international standards required for deployment in a
Synchronous Digital Hierarchy (SDH) network.
The DCD-LPR Series provides the ability to effectively use either
the Global Positioning System (GPS) or Long Range Navigation (LORAN-C)
satellite and land navigation services which provide direct Stratum 1
traceable synchronization at offices equipped with DCD systems.
The Integrated Local Primary Reference (ILPR) system integrates the
two platforms, the DCD 500 Series and the DCD-LPR in a single package.
The ILPR is a self-contained primary reference source solution.
The Company's ability to provide network management is essential as
Telecommunications Management Network (TMN) standards, established by the
International Telecommunications Union (ITU), have gained popularity
among major telecommunications service providers. Telecom Solutions has
recently introduced a UNIX-based TMN Element Manager, the TEMTM network
management system, which is TMN compliant. The Company has also
developed a Windows NT based proprietary network management system. The
Company anticipates commercial shipments to commence during fiscal 1997.
Telecom Solutions introduced CellSyncTM, for the wireless
communications market during fiscal 1996 and expects commercial shipments
to commence during fiscal 1997. CellSync is a compact synchronization
device which combines GPS technology with a feature called BESTIMETM for
use with applications in both conventional mobile phone cellular sites
and in Personal Communication Systems (PCS) cell sites. BESTIME is a
Multiple Input Frequency Lock Loop (MIFLL) designed to adaptively
ensemble a variety of frequency sources.
In the first quarter of fiscal 1994, the Company acquired Navstar
Limited, a United Kingdom company, and its U.S. affiliate (collectively
"Navstar"). Navstar develops and manufactures systems that use global
positioning technology to determine precise geographic locations and
elevations to an accuracy of a few centimeters. GPS receivers are used
internally in the Company's synchronization products, such as the LPR and
ILPR. Navstar products are also sold in the survey, positioning and
location markets.
Telecom Solutions synchronization systems are typically priced from
$3,000 to $40,000. Navstar products are typically priced from $300 to
$5,000.
Transmission Products
Telecom Solutions transmission products include Secure 7 and the
Integrated Digital Services Terminal (IDST). Secure 7, is a multi-
bandwidth, intelligent, fault-tolerant, digital transmission terminal
that automatically reroutes disrupted high priority telephone data links
such as those used for emergency call services within SS7
telecommunications networks. Secure 7 is designed to provide
approximately 100% availability for these critical data applications.
The IDST is a network access system designed for use in telephone
company central and end offices. Customers have deployed the IDST
primarily as a transmission, monitoring and test access vehicle for SS7
networks. The IDST provides maintenance personnel with flexible,
centralized remote access to SS7 links for troubleshooting and
performance verification, resulting in a comprehensive solution in the
monitoring and transport of links requiring increased reliability. The
IDST can also be deployed as an intelligent digital terminal, an
intelligent network element providing connectivity between the transport
network and customer-serving side of the network. The IDST enhances the
network with distributed digital cross-connect functionality and provides
subrate, multipoint, test and surveillance capabilities to the subscriber
loop.
Transmission products are typically priced at less than $20,000 for a
small system to more than $300,000 for a large system.
The Company supplies its synchronization systems and transmission
products predominantly to the seven Regional Bell Operating Companies
(RBOCs), interexchange carriers, independent telephone companies, private
network operators, wireless service providers and international
telecommunications service providers. Navstar predominantly sells it
products to Telecom Solutions, the U.S. Government, original equipment
manufacturers (OEMs) and international customers.
Linfinity Microelectronics Inc.
During fiscal 1994, substantially all of the assets and liabilities
of the Company's Semiconductor Group were transferred to Linfinity, a
newly-formed subsidiary of the Company. Linfinity products principally
include linear and mixed signal, standard and custom integrated circuits
(ICs) as well as modules primarily for use in power supply, data
communications and signal conditioning applications in commercial,
industrial, and defense and space markets.
ICs are generally divided into three categories; linear, also
referred to as analog, digital and mixed signal circuits. Linear
circuits process, measure or control real world functions such as
temperature, pressure, sound, weight, light and speed. Digital signals
are either "on " or "off" and are represented by binary digits "1" or
"0". Mixed signal ICs consist of a combination of linear and digital
functionality on one chip. The need for analog devices designed to
manage real world functionality continues to grow.
Linfinity's marketing strategy is to shift to high-volume commercial
products from low-volume, custom military programs and to focus on value-
added standard "off-the-shelf" products. Linfinity has been
transitioning to standard products since fiscal 1994 and now offers
approximately 400 standard products in its catalog.
Linfinity derived the majority of its net sales in fiscal 1996 from
power supply products, predominantly standard linear ICs which control,
regulate, monitor, convert or route voltage and current. These products
are used in computer and data storage, lighting, automotive,
telecommunications, test, instrumentation, and defense and space
equipment. These products include pulse width modulators which shape and
manage the characteristics of voltage, low dropout regulators which
convert unregulated input voltage to regulated output voltage with a
minimum amount of overhead voltage, linear voltage regulators which
control the power supply output levels, supervisory circuits which
monitor power supply, and power factor correction ICs which reduce energy
consumption in fluorescent lighting and other applications. New power
supply products introduced by Linfinity include backlight inverter
modules and voltage regulator modules, both of which first shipped in the
fourth quarter of fiscal 1996. The backlight inverters incorporate
Linfinity's proprietary technology and are single-stage cold cathode
fluorescent lamp inverter modules that provide dimmable backlighting for
LCD products. The voltage regulator modules are used in PC motherboards
employing Intels' new, high end Pentiumr Pro processors which require an
intelligent voltage supply.
Data communications ICs are a relatively new product line for
Linfinity. These products include Small Computer Systems Interface
(SCSI) products; high speed, parallel communications buses which permit
high data transfer rates between computers and various peripheral devices
such as hard disk drives, host adapter cards, motherboards, bus
extenders, cables and connectors.
Linfinity offers a range of products for use in analog signal
conditioning applications. Signal conditioning ICs translate and buffer
analog signals from sensors in a variety of applications including
instrumentation, industrial controls, telecommunications and audio
equipment. Products include voltage references, comparators and
operational amplifiers.
Linfinity has established a range of manufacturing processes in its
in-house fabrication facility which includes both bipolar and bipolar
complementary metal oxide semiconductor (BiCMOS) wafer fabrication
processes. The bipolar processes provide (1) a high-voltage, high-power
process for certain power supply applications and (2) a high-performance,
low-voltage process for certain signal conditioning applications. The
BiCMOS process combines the high-performance, low-voltage bipolar process
with a CMOS process for mixed signal applications such as certain power
supply and data communications ICs.
Linfinity products are generally priced from $0.30 to $5.00 for
commercial and industrial applications, $2.50 to $22.00 for defense
applications and $200 to $500 for high reliability defense and space
applications.
Linfinity sells its products in the commercial, industrial, and
defense and space markets to OEMs and distributors.
Industry Segment Information
Information as to net sales, operating income and identifiable assets
attributable to each of the Company's two industry segments for each year
in the three-year period ended June 30, 1996, is contained in Note L of
the Notes to Consolidated Financial Statements. See Item 8, Part II,
"Financial Statements and Supplementary Data."
Marketing
In the United States, Telecom Solutions markets and sells most of its
products through its own sales force to the seven RBOCs, major
interexchange carriers, independent telephone companies, private network
operators and wireless service providers. Internationally, Telecom
Solutions markets and sells its products through its own sales operation
in the United Kingdom and independent sales representatives and
distributors elsewhere. In the United States and internationally,
Linfinity sells its products through its own sales force and independent
sales representatives to original equipment manufacturers and
distributors.
Licensing and Patents
The Company incorporates a combination of trademark, copyright and
patent registration, contractual restrictions and internal security to
establish and protect its proprietary rights. The Company has United
States patents and patent applications pending covering certain
technology used by its Telecom Solutions and Linfinity operations. In
addition, both operations use technology licensed from others. However,
while the Company believes that its patents have value, the Company
relies primarily on innovation, technological expertise and marketing
competence to maintain its competitive advantage. The telecommunications
and semiconductor industries are both characterized by the existence of a
large number of patents and frequent litigation based on allegations of
patent infringement. The Company intends to continue its efforts to
obtain patents, whenever possible, but there can be no assurance that
patents will be issued or that any existing patents or patents that are
obtained will not be challenged, invalidated or circumvented or that the
rights granted will provide any commercial benefit to the Company.
Additionally, if any of the Company's processes or designs are identified
as infringing upon patents held by others, there can be no assurances
that a license will be available or that the terms of obtaining any such
license will be acceptable to the Company.
Manufacturing
The Telecom Solutions manufacturing process consists primarily of in-
house electrical assembly and test performed by the Company's subsidiary
in Aguada, Puerto Rico. Additionally, the Company's subsidiary, Navstar,
in England performs in-house electrical assembly and test of its GPS
receivers.
The Linfinity manufacturing process consists primarily of bipolar and
BiCMOS wafer fabrication, component assembly and final test. Its ICs are
principally fabricated in the Company's wafer fabrication facility in
Garden Grove, California. However, Linfinity also utilizes outside
services to perform certain operations during the fabrication process.
In addition, most of Linfinity's ICs utilizing CMOS wafer processes are
currently manufactured by outside semiconductor foundries. Component
assembly and final test are performed in the Far East by independent
subcontract manufacturers or in Garden Grove by employees.
The manufacturing of Linfinity's ICs is a highly precise and complex
process. Minute impurities, contaminants, errors or difficulties in the
manufacturing process, defects in the masks used to print circuits on a
wafer, or equipment failure among other factors can cause a substantial
number of wafers to be rejected or numerous die on each wafer to be
nonfunctional. There can be no assurance that current manufacturing
yields can be maintained or better yields will be achieved in the future.
The Company primarily uses standard parts and components and standard
subcontract assembly and test, which are generally available from
multiple sources. The Company, to date, has not experienced any
significant delays in obtaining needed standard parts, single source
components or services from its suppliers but there can be no assurance
that such problems will not develop in the future. However, the Company
maintains a reserve of certain ICs, certain single source components and
seeks alternative suppliers where possible. The Company believes that a
lack of availability of ICs or single source components would have an
adverse effect on the Company's operating results.
Backlog
The Company's backlog was approximately $26.6 million at June 30,
1996, compared to approximately $21.6 million at June 30, 1995. Backlog
consists of orders which are expected to be shipped within the next
twelve months. However, the Company does not believe that current or
future backlog levels are meaningful indicators of future revenue levels.
Furthermore, most orders in backlog can be rescheduled or canceled
without significant penalty. Telecom Solutions backlog was approximately
$9.8 million and $5.1 million at June 30, 1996 and 1995, respectively.
Historically, a substantial portion of Telecom Solutions net sales in any
fiscal period has been derived from orders received during that period.
Linfinity backlog was approximately $16.8 million and $16.5 million at
June 30, 1996 and 1995, respectively. Linfinity backlog is dependent on
the cancellation or delay of customer orders, the overall condition of
the semiconductor industry and the cyclical nature of customer demand in
each of its markets. See Item 7, Part II, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Business
Outlook and Risk Factors."
Key Customers and Export Sales
No customer accounted for 10% or more of net sales in fiscal years
1996 or 1994. One of Telecom Solutions' customers, Southwestern Bell
Telephone, accounted for 11% of the Company's net sales in fiscal 1995.
Export sales, primarily to the Far East (13% and 11% in fiscal years 1996
and 1995, respectively), Canada and Western Europe accounted for 28%, 24%
and 19% of the Company's net sales in fiscal years 1996, 1995 and 1994,
respectively.
International sales may be subject to certain risks, including but
not limited to, foreign currency fluctuations, export restrictions,
longer payment cycles and unexpected changes in regulatory requirements
or tariffs. Gains and losses on the conversion to U.S. dollars of
foreign currency accounts receivable and accounts payable arising from
international operations may in the future contribute to fluctuations in
the Company's business and operating results. Sales and purchase
obligations denominated in foreign currencies have not been significant.
Accordingly, the Company does not currently engage in foreign currency
hedging activities or derivative arrangements but may do so in the future
to the extent that such obligations become more significant.
Additionally, currency fluctuations could have an adverse effect on the
demand for the Company's products in foreign markets.
Competition
The telecommunications and semiconductor industries as well as the
markets in which the Company competes are highly competitive and subject
to changing technologies. A number of the Company's competitors or
potential competitors have been in operation for a much longer period of
time than the Company, have greater financial, manufacturing, technical
and marketing resources, and are able to or could offer much broader
lines of products than are presently marketed by the Company.
Telecom Solutions competes primarily on product reliability and
performance, product features, adherence to standards, customer service
and, to a lesser extent, price. The Company experienced increased
competition in fiscal 1996, and it expects increasing competition in
fiscal 1997, from existing and new competitors as the demand for
synchronization and related products continues to develop. In early
1996, the Telecommunications Act of 1996 was enacted which permits RBOCs,
under certain conditions, to manufacture telecommunications equipment
which also could result in increased competition. The Company believes
that Telecom Solutions generally competes favorably with respect to the
factors listed above.
Linfinity competes primarily on price, product reliability and
performance, delivery time, and customer service. Linfinity has a broad
spectrum of customers predominantly in North America, the Far East and
Europe. Large multinational companies as well as smaller, niche
companies compete with Linfinity in North America. Primarily large
multinational companies compete with Linfinity in the Far East and
Europe. The Company believes that Linfinity generally competes favorably
with respect to these factors.
There can be no assurance that either Telecom Solutions or Linfinity
will be able to compete successfully in the future. The Company's
ability to compete successfully is dependent upon its response to the
entry of new competitors, changing technology and customer requirements,
development or acquisition of new products, the timing of new product
introductions by the Company or its competitors, continued improvement of
existing products, cost effectiveness, quality, price, service and market
acceptance of the Company's products.
Research and Development
The Company has actively pursued the application of new technology in
the industries in which it competes and has its own staff of engineers
and technicians who are responsible for the design and development of new
products. In fiscal years 1996, 1995 and 1994, the Company's overall
research and development expenditures were $15,413,000, $13,407,000, and
$11,454,000, respectively. All research and development expenditures
were expensed as incurred. At June 30, 1996, 77 engineering and
engineering support employees were engaged in development activities.
Telecom Solutions focused its development efforts in fiscal year 1996 on
wireless communications products and network management functionality and
monitoring products, as well as enhancement of core synchronization and
transmission products. Telecom Solutions research and development
expenditures were $9,581,000, $8,457,000 and $7,821,000 in fiscal years
1996, 1995 and 1994, respectively. Linfinity continued to focus its
development efforts in fiscal year 1996 on improving its design
capabilities, improving its bipolar and BiCMOS process technologies and
new product development. New products, which are now in production
include backlight inverter and voltage regulator modules, low dropout
regulators and SCSI terminators. Enhancement of these products and
additional new products are in the development stage. Linfinity research
and development expenditures were $5,832,000, $4,950,000 and $3,633,000
in fiscal years 1996, 1995 and 1994, respectively. The Company will
continue to make significant investments in product development, although
there can be no assurance that the Company will be able to successfully
develop new products or enhanced existing products or that such new or
enhanced products will achieve market acceptance.
Government Regulation
The telecommunications industry is subject to government regulatory
policies regarding pricing, taxation and tariffs which may adversely
impact the demand for the Company's telecommunications products. These
policies are continuously reviewed and subject to change by the various
governmental agencies. The Company is also subject to government
regulations which set installation and equipment standards for newly
installed hardware.
Environmental Regulation
The Company's operations are subject to numerous federal, state and
local environmental regulations related to the storage, use, discharge
and disposal of toxic, volatile or otherwise hazardous chemicals used in
its manufacturing process. Failure to comply with such regulations could
result in suspension or cessation of the Company's operations, could
require significant capital expenditures, or could subject the Company to
significant future liabilities.
Employees
At June 30, 1996, the Company had 667 employees, including 374 in
manufacturing, 112 in engineering and 181 in sales, marketing and
administration. At June 30, 1996, Telecom Solutions had 426 employees
and Linfinity had 241 employees. The Company believes that its future
success is highly dependent on its ability to attract and retain highly
qualified management, sales, marketing and technical personnel.
Accordingly, the Company maintains employee incentive and stock plans for
certain of its employees. Additionally, Linfinity maintains a separate
employee stock option plan for certain Linfinity employees. The Company
currently has a number of open positions primarily in engineering. Any
difficulties in filling these positions could lead to delays in new
product development. No Company employees are represented by a labor
union, and the Company has experienced no work stoppages. The Company
believes that its employee relations are good.
ITEM 2. Properties
The following are the principal facilities of the Company as of June
30, 1996:
Approximate Owned/Lease
Principal Floor Area Expiration
Location Operations (Sq. Ft.)____ Date_____
San Jose, California Corporate Offices
and Telecom Solutions
administration,
sales, engineering
and manufacturing 47,000 July 1997
Aguada, Puerto Rico Telecom Solutions
manufacturing 45,000 September 1999
Aguada, Puerto Rico Telecom Solutions
manufacturing 22,000 September 2000
Northampton, Navstar administration,
England sales, engineering and
manufacturing 18,000 April 1999
Garden Grove, Linfinity administration,
California sales, engineering
and manufacturing 96,000 Owned
Garden Grove, Linfinity wafer
California fabrication 9,000 Owned
During June 1996, the Company entered into an agreement to lease a
118,000 square foot facility to be constructed in San Jose, California,
which will replace existing facilities currently leased for certain
Telecom Solutions and Corporate operations. The estimated lease
commencement date is April 1997. The lease expires twelve years from the
commencement date.
The 96,000 square foot facility located in Garden Grove, California
is subject to an encumbrance as described in Note E of the Notes to
Consolidated Financial Statements. See Item 8, Part II, "Financial
Statements and Supplementary Data." The Company believes that its
current facilities are well maintained and generally adequate to meet
short-term requirements.
ITEM 3. Legal Proceedings
In January 1994, a complaint was filed in the United States District
Court for the Northern District of California against the Company and
three of its officers, by one of the Company's shareholders. The
plaintiff requested that the court certify him as representative of a
class of persons who purchased shares of the Company's common stock
during a specified period in 1993. The complaint alleges that false and
misleading statements made during that period artificially inflated the
price of the Company's common stock in violation of federal securities
laws. There is no specific amount of damages requested in the complaint.
Limited discovery has occurred and no trial date has been set. In
November 1995, an amended complaint was filed which named a fourth
officer of the Company as a defendant. The Company and its officers have
filed a motion to dismiss the amended complaint which is pending before
the Court. After consultation with counsel, the Company and its officers
believe that the complaint is entirely without merit, and intend to
vigorously defend against the action. The Company is also a party to
certain other claims in the normal course of its operations. While the
results of such claims cannot be predicted with certainty, management,
after consultation with counsel, believes that the final outcome of such
matters will not have a material adverse effect on the Company's
financial position or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders of the
Company during the last quarter of the fiscal year ended June 30, 1996.
Executive Officers of the Company
Following is a list of the executive officers of the Company as of
June 30, 1996 and brief summaries of their business experience. All
officers, including executive officers, are elected annually by the Board
of Directors at its meeting following the annual meeting of shareholders.
The Company is not aware of any officer who was elected to the office
pursuant to any arrangement or understanding with another person.
Name Age Position
William D. Rasdal 63 Chairman of the Board and Chief
Executive Officer
Paul N. Risinger 63 Vice Chairman and Assistant Secretary
Retired August 14, 1996
J. Scott Kamsler 48 Vice President, Finance, Chief
Financial Officer and Secretary
D. Ronald Duren 53 President and Chief Operating
Officer, Telecom Solutions
Dale Pelletier 45 Vice President, Operations, Telecom
Solutions
Brad P. Whitney 42 President and Chief Operating
Officer, Linfinity Microelectronics
Inc.
Mr. Rasdal has served as Chairman of the Board of the Company since
July 1989 and as Chief Executive Officer since joining the Company in
November 1985. From November 1985 until July 1989, Mr. Rasdal was
President and a Director of the Company. Mr. Rasdal has also served as a
Director of Celeritek, Inc., a manufacturer of high frequency radio
products, since April 1985. From March 1980 until March 1985, Mr. Rasdal
was associated with Granger Associates, a manufacturer of
telecommunications products. His last position with Granger Associates
was President and Chief Operating Officer. From November 1972 to January
1980, Mr. Rasdal was employed by Avantek as Vice President and Division
Manager for Avantek's microwave integrated circuit and semiconductor
operations. For the thirteen years prior to joining Avantek, he was
associated with TRW in various management positions.
Mr. Risinger served as Vice Chairman of the Company from August 1990
to August 1996 and as a Director of the Company from March 1989 to August
1996. Mr. Risinger retired from all of his Company positions effective
August 14, 1996. From November 1985, when Mr. Risinger joined the
Company, until August 1990, he served as Executive Vice President,
Advanced Marketing and Technology (AMAT). Mr. Risinger has also served
as a Director of Applied Microsystems Corporation, a supplier of tools
used in embedded systems solutions, since December 1993. From April 1981
to May 1985, Mr. Risinger served as Executive Vice President, AMAT, for
Granger Associates and was responsible for the development of new
businesses for the Digital Signal Processing Division. For four years
prior thereto, he served as Executive Vice President and Chief Operating
Officer of the Safariland Companies, a manufacturer of equipment and
accessories in the public safety field. Prior to joining Safariland, Mr.
Risinger was associated with TRW in various management roles in
marketing, research and development, and general management for seventeen
years.
Mr. Kamsler has served as Vice President, Finance, Chief Financial
Officer and Secretary since joining the Company in October 1989. Mr.
Kamsler has also served as a Director of DSP Technology Inc., a
manufacturer of computer automated measurement and control
instrumentation, since November 1988. Prior to October 1989, Mr. Kamsler
served as Vice President, Finance and Chief Financial Officer of Solitec,
Inc. (January 1984 to September 1989), a manufacturer of semiconductor
production equipment, DSP Technology Inc. (April 1984 to September 1989),
a former affiliate of Solitec, and E-H International, Inc. (March 1982 to
January 1984), a manufacturer of automatic test equipment, disk and tape
drive controllers, and printed circuit boards. From November 1977 until
January 1982, Mr. Kamsler held various finance positions with Intel
Corporation.
Mr. Duren has served as President and Chief Operating Officer,
Telecom Solutions, a division of the Company, since August 1990. From
August 1988 until August 1990, Mr. Duren served as Vice President, Sales,
Telecom Solutions. From July 1986, when Mr. Duren joined the Company,
until August 1988, he held the position of Director of Marketing and
Sales, Telecom Solutions. For three years prior to joining the Company,
Mr. Duren served as Vice President, Telco Sales for Granger Associates.
Previously, Mr. Duren served in various management positions with AT&T
for seventeen years.
Mr. Pelletier has served as Vice President, Operations, Telecom
Solutions, a division of the Company, since November 1993. From July
1993 until November 1993, Mr. Pelletier served as Vice President and
General Manager, Telecom Solutions. From July 1992 until July 1993, Mr.
Pelletier served as General Manager, Synchronization Division, Telecom
Solutions. From August 1990 until July 1992, he served as
Synchronization Division Manager, Telecom Solutions. From August 1989
until August 1990, Mr. Pelletier served as Operations Manager, Telecom
and Analog Solutions Divisions. From August 1986, when Mr. Pelletier
joined the Company, until August 1989, he held the position of
Manufacturing Manager, Telecom Solutions. Previously, Mr. Pelletier
served in various finance and manufacturing positions for nine years with
several manufacturing companies.
Mr. Whitney has served as President and Chief Operating Officer for
Linfinity Microelectronics Inc., a subsidiary of the Company, since
joining the Company in November 1992. From May 1980 until November 1992,
Mr. Whitney held various positions with Texas Instruments (TI), an
electronics company. From November 1990 to November 1992, Mr. Whitney
was the Standard Linear Products Manager, Semiconductor Group at TI.
From December 1985 to November 1990, Mr. Whitney was the Op Amps Product
Manager, Semiconductor Group. From November 1983 through November 1985,
Mr. Whitney held various positions within the Voltage Regulator Product
Group at TI. For the three years prior to working in the Semiconductor
Group, Mr. Whitney was associated with the Consumer Products Group. His
last position in this Group was as IC Development Manager, Home Computer
Division. Prior to joining TI, Mr. Whitney was an Engineering Supervisor
and Instructor for the University of Southwestern Louisiana Departments
of Computer Science and Electrical Engineering.
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
The information is described in Note M of the Notes to Consolidated
Financial Statements. See Item 8, Part II, "Financial Statements and
Supplementary Data."
ITEM 6. Selected Financial Data
The following selected financial data should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes
thereto included in Item 8, Part II, "Financial Statements and
Supplementary Data," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Item 7, Part
II.
Year ended June 30,
1996 1995 1994 1993 1992
________ _______ _______ _______ _______
(In thousands, except per share amounts)
Operating Results:
Net sales:
Telecom Solutions $ 68,243 $ 62,814 $59,215 $57,031 $42,094
Linfinity
Microelectronics
Inc. 37,795 40,294 39,170 30,882 26,704
________ ________ _______ _______ _______
Total 106,038 103,108 98,385 87,913 68,798
Operating income 8,263 10,868 8,331 7,940 3,136
Earnings before
income taxes 9,476 11,599 8,125 7,724 2,825
Net earnings 7,478 10,346 6,551 6,001 2,194
Net earnings per
common and common
equivalent share .47 .66 .43 .40 .16
Balance Sheet:
Cash and
investments 34,270 33,205 21,250 18,232 10,146
Working capital 55,522 50,739 38,503 29,348 20,661
Total assets 93,531 85,326 69,054 58,954 48,231
Long-term debt 5,709 5,766 5,818 5,865 5,907
Shareholders' equity 70,403 60,125 46,786 38,102 30,185
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto.
Business Outlook and Risk Factors
Certain trend analysis and other information contained in
Management's Discussion and Analysis of Financial Condition and Results
of Operations consist of "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, and are subject to
the safe harbor provisions of those Sections. The Company's actual
results could differ materially from those discussed in the forward
looking statements due to a number of factors including the factors
listed below.
Potential Fluctuations in Operating Results. The Company's quarterly
and annual operating results have fluctuated in the past, and may
continue to fluctuate in the future, due to a number of factors including
the timing, cancellation or delay of customer orders; changes in the
product or customer mix of sales; the timing of new product introductions
by the Company or its competitors; customer delays in qualification of
key new products; delays in new product development and production
startup; increasing competition; market acceptance of the Company's and
its competitors' products; the long sales cycles associated with the
Company's products and other competitive factors. Company operations
entail a high level of fixed costs and require an adequate volume of
production and sales to maintain reasonable gross margins. Accordingly,
any significant decline in demand or any material delay of customer
orders would have a material adverse effect on the Company's business,
operating results and financial condition.
Order Timing. A substantial portion of each quarter's shipments is
based on orders received during that quarter, and from time to time, a
significant portion of each quarter's shipments is based on orders
received in the last month of that quarter. Furthermore, most orders in
backlog can be rescheduled or cancelled without significant penalty.
Therefore, operating results may fluctuate significantly from the
Company's expectations quarter to quarter due to uncertainty in the
timing and the receipt of orders, delays in product shipment and
rescheduling or cancellation of orders. Although Linfinity's bookings
rate increased during the fourth quarter of fiscal 1996, the Company
continues to remain cautious for the first quarter of fiscal 1997 due to
the overall weakness in the semiconductor industry.
New Product Development. The Company is affected by changing
technologies and frequent new product introductions. The Company's
success will depend on its ability to respond to changing technologies
and customer requirements. Delays in new product development or delays
in production startup could have a material adverse effect on the
Company's business, operating results and financial condition. There can
be no assurance that the Company will successfully develop and introduce
new or enhanced products, or that such new or enhanced products will
achieve market acceptance.
Product Performance and Reliability. The Company's customers
establish demanding specifications for performance and reliability. The
Company's products are complex and use many state of the art components,
processes and techniques. There can be no assurance that new products or
enhancements of existing products will not contain undetected errors or
failures due to the complexities of such products. Any such unforeseen
problem could have a material adverse effect on the Company's business,
operating results and financial condition.
Market Change. Future results depend in large part on growth in the
markets for the Company's products. The growth in each of these markets
depends on, among other things, changes in general economic conditions,
or conditions which relate specifically to the markets in which the
Company competes. Some factors which affect the markets for the
Company's products include changes in regulatory conditions, legislation,
export rules or conditions, interest rates and fluctuations in the
business cycle for any particular market segment.
Competition. Markets for the Company's products are highly
competitive, and some of the Company's competitors, or potential
competitors are much larger than the Company, with substantially greater
financial, manufacturing, technical and marketing resources. Operating
results are subject to fluctuation based on unforeseen actions taken by
competitors, the entry of new competitors and the introduction of new or
enhanced competing products. Competition for some of the Company's
products is increasing. Results will depend on the Company's ability to
maintain competitive performance, quality, price and service.
The Company's stock price has been and may continue to be subject to
significant volatility. Many factors, including any shortfall in sales
or earnings from levels expected by securities analysts and investors
could have an immediate and significant adverse effect on the trading
price of the Company's common stock.
Results of Operations
The Company conducts its business through two separate operations.
Telecom Solutions designs, manufactures and markets telecommunications
equipment including advanced network synchronization systems and
intelligent access systems. Linfinity Microelectronics Inc. (Linfinity)
designs, manufactures and markets linear and mixed signal integrated
circuits as well as modules for use in power supply, data communications
and signal conditioning applications.
Net Sales
Net sales increased by $2.9 million (3%) to $106.0 million in fiscal
1996 and by $4.7 million (5%) to $103.1 million in fiscal 1995. The
increase in fiscal 1996 sales was due to higher sales at Telecom
Solutions offset by lower Linfinity sales. The increase in fiscal 1995
sales was due to higher sales at both operations.
Telecom Solutions' net sales increased by $5.4 million (9%) to $68.2
million in fiscal 1996 and by $3.6 million (6%) to $62.8 million in
fiscal 1995. The increase in fiscal 1996 sales primarily resulted from
new synchronization products sales which offset declines in mature
synchronization products sales, and higher Integrated Digital Services
Terminal (IDST), and Secure 7 sales. The increase in fiscal 1995 sales
principally resulted from new synchronization products sales which more
than offset substantial declines in sales of analog and mature
synchronization products.
Linfinity's net sales decreased by $2.5 million (6%) to $37.8 million
in fiscal 1996 and increased by $1.1 million (3%) to $40.3 million in
fiscal 1995. The decrease in fiscal 1996 was essentially due to lower
unit volume of product sold primarily resulting from the general slowdown
in the demand for integrated circuits used in personal computers in the
last half of fiscal 1996. Also, the Company shifted its product sales to
lower priced commercial and industrial products. The increase in fiscal
1995 sales was primarily due to higher unit volume which more than offset
a shift in sales to lower priced products.
Gross Margin
The Company's gross margins were 44%, 46% and 42% in fiscal 1996,
1995 and 1994, respectively. In fiscal 1996, the lower gross margin was
essentially due to decreased manufacturing efficiencies and a shift to
lower margin products at Telecom Solutions, and a significant decline in
unit volume and other manufacturing efficiencies at Linfinity. In fiscal
1995, the higher gross margin resulted primarily from increased
manufacturing efficiencies at both operations and to a shift to higher
margin products at Telecom Solutions. Future gross margins will largely
depend on product mix, manufacturing efficiencies, selling prices and the
development and market acceptance of new products with higher gross
margins.
Operating Expenses
Research and development expense increased to $15.4 million (or 15%
of net sales) in fiscal 1996 from $13.4 million (or 13% of net sales) and
$11.5 million (or 12% of net sales) in fiscal 1995 and 1994,
respectively. The increase in fiscal 1996 was principally due to a
higher investment in new product development by both operations. Telecom
Solutions focused on developing wireless synchronization products and
network management software, as well as enhancing the core
synchronization and transmission products. Linfinity's development
efforts were focused on low dropout regulators, backlight inverters and
the Small Computer Systems Interface (SCSI) product line. Additionally,
the increased spending in fiscal 1996 more than offset a decrease
attributable to substantially lower earnings-based incentive compensation
due to both operations' performance in fiscal 1996 compared to fiscal
1995. In fiscal 1995, the increase was primarily due to the Company's
continued emphasis on new product development, with a proportionately
higher increase at Linfinity.
Selling, general and administrative expense decreased by 1% to $22.5
million (or 21% of net sales) in fiscal 1996 from $22.8 million (or 22%
of net sales) in fiscal 1995 and increased by 6% in fiscal 1995 from
$21.4 million (or 22% of net sales) in fiscal 1994. The decrease in
fiscal 1996 was substantially due to lower earnings-based incentive
compensation due to both operations' performance partially offset by
increased marketing expenditures to support Telecom Solutions new
wireless synchronization products and continued expansion in
international markets. The increase in fiscal 1995 was principally due
to higher earnings-based incentive compensation.
Operating Income
Operating income decreased by 24% to $8.3 million in fiscal 1996 and
increased by 30% to $10.9 million in fiscal in 1995. The decrease in
fiscal 1996 was primarily due to a decline in Linfinity's operating
income and, to a lesser extent, a decline in Telecom Solutions' operating
income. The increase in fiscal 1995 was entirely due to higher Telecom
Solutions' operating income as Linfinity's operating income declined
slightly. See Note L of the Notes to Consolidated Financial Statements
included in Item 8, Part II, "Financial Statements and Supplementary
Data."
Interest Income (Expense)
Interest income increased by $.5 million to $1.8 million in fiscal
1996 and by $.9 million to $1.3 million in fiscal 1995 essentially due to
an increase in the average cash, cash equivalents and short-term
investments balance. Interest expense was $.6 million in fiscal 1996,
1995 and 1994.
Income Taxes
The Company's effective tax rate was 21%, 11% and 19% in fiscal 1996,
1995 and 1994, respectively. The effective tax rate was lower than the
combined federal and state tax rate essentially due to the benefit of
lower income tax rates on income earned in Puerto Rico and state credits.
The effective tax rate in fiscal 1996 is higher than the effective tax
rate in fiscal 1995 principally due to the reduction in the valuation
allowance for deferred tax assets in fiscal 1995. In future years, the
Company expects the effective tax rate to increase over the fiscal 1996
tax rate, and to approximate the combined federal and state tax rate
reduced by any available tax credits and any benefit that may be derived
from the Company's operation in Puerto Rico. Certain provisions of the
Omnibus Budget Reconciliation Act of 1993 and The Small Business Job
Protection Bill of 1996 may result in less favorable tax treatment for
future income earned in Puerto Rico, and this tax treatment will be
eliminated in fiscal 2006.
As a result of the factors discussed above, net income was $7.5
million, or $.47 per share, in fiscal 1996 compared to net income of
$10.3 million, or $.66 per share, in fiscal 1995 and net income of $6.6
million, or $.43 per share, in fiscal 1994.
New Accounting Pronouncements
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS 121), was issued which requires
recognition of impairment of long-lived assets in the event the net book
value of such assets exceeds the future undiscounted cash flows
attributable to such assets. The Company anticipates adoption of SFAS
121 in 1997, and it is not expected to have a material impact on the
Company's financial position or results of operations.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), was issued which
establishes a fair value based method of accounting for stock-based
compensation plans. The Company believes, as permitted by SFAS 123, that
beginning in 1997 it will elect to continue to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees," for purposes of determining
net earnings and will adopt SFAS 123 pro forma disclosure requirements
for net earnings and net earnings per share information.
Liquidity and Capital Resources
Working capital increased by $4.8 million to $55.5 million at June
30, 1996, from $50.7 million at June 30, 1995, while the current ratio
increased to 4.8 to 1.0 from 4.2 to 1.0. During the same period, cash,
cash equivalents and short-term investments increased to $34.3 million
from $33.2 million primarily due to $9.0 million in cash provided by
operating activities and $1.8 million in proceeds from the issuance of
common stock, offset by $9.1 million used for capital expenditures. At
June 30, 1996, the Company had $7.0 million of unused credit available
under its bank line of credit.
The Company believes that cash, cash equivalents, short-term
investments, funds generated from operations and funds available under
its bank line of credit will be sufficient to satisfy working capital and
capital equipment requirements in fiscal 1997. At June 30, 1996, the
Company had no material outstanding commitments to purchase capital
equipment.
ITEM 8. Financial Statements and Supplementary Data
The Company's financial statements follow Item 14, Part IV.
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information regarding directors appearing under the caption "Proposal
No. One - Election of Directors--Nominees" on pages 2 and 3 of the
Company's Proxy Statement for the 1996 Annual Meeting of Shareholders
filed with the Commission on September 13, 1996, (the "Proxy Statement")
is incorporated herein by reference.
Information regarding executive officers is included in Part I hereof
under the heading "Executive Officers of the Company" immediately
following Item 4 in Part I hereof.
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, is incorporated herein by reference
from the section entitled "Other Information--Section 16(a) Beneficial
Ownership Reporting Compliance" appearing of page 4 of the Proxy
Statement.
ITEM 11. Executive Compensation
Incorporated herein by reference to the Proxy Statement under the
captions "Proposal No. One - Election of Directors--Nominees" on pages 2
and 3, "Executive Officer Compensation" on pages 6, 7 and 8, "Proposal
No. One - Election of Directors--Director Compensation" on page 4 and
"Certain Transactions" on page 8.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management
Incorporated herein by reference to the Proxy Statement under the
caption "Other Information--Share Ownership by Principal Shareholders and
Management" on page 5.
ITEM 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the Proxy Statement under the
caption "Certain Transactions" on page 8.
PART IV
ITEM 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K
(a) Financial Statements and Financial Statement Schedule
1. Financial Statements. The following financial statements
of the Company and the report of Deloitte & Touche LLP,
Independent Auditors, are included in this report on Form
10-K on the pages indicated.
Consolidated Balance Sheets at June 30, 1996 and 1995
Consolidated Statements of Operations for the years ended
June 30, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the
years ended June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. Financial Statement Schedule. The following financial
statement schedule of the Company for the years ended June
30, 1996, 1995, and 1994 is filed as part of this report
on Form 10-K and should be read in conjunction with the
financial statements.
Schedule II Valuation and Qualifying Accounts and
Reserves
All other schedules have been omitted because they are not
applicable, not required, or the required information is
included in the Consolidated Financial Statements or notes
thereto.
3. Exhibits:
See Item 14(c) below.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
the fiscal year ended June 30, 1996. A report on Form 8-K
was filed during July 1996, pursuant to Item 5 of Form 8-K,
to report the retirement on August 15, 1996, of Paul
Risinger, a Director and the Vice Chairman of the Company.
(c) Exhibits
The exhibits listed on the accompanying index immediately
following the signature page are filed as a part of this
report.
(d) Financial Statement Schedules
See Item 14(a) above.
SYMMETRICOM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30,
1996 1995
_______ _______
ASSETS
Current assets:
Cash and cash equivalents $31,327 $19,354
Short-term investments 2,943 13,851
_______ _______
Cash and investments 34,270 33,205
Accounts receivable, net of allowance for
doubtful accounts of $330 and $339 14,544 11,845
Inventories 17,847 17,855
Other current assets 3,647 3,715
_______ _______
Total current assets 70,308 66,620
Property, plant and equipment, net 21,547 16,978
Other assets, net 1,676 1,728
_______ _______
$93,531 $85,326
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,544 $ 4,308
Accrued liabilities 9,185 11,521
Current maturities of long-term debt 57 52
_______ _______
Total current liabilities 14,786 15,881
Long-term debt, less current maturities 5,709 5,766
Deferred rent 231
Deferred income taxes 2,633 3,323
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
Authorized - 500 shares
Issued - none
Common stock, no par value:
Authorized - 32,000 shares
Issued and outstanding - 15,570
and 15,097 shares 21,862 19,062
Retained earnings 48,541 41,063
_______ _______
Total shareholders' equity 70,403 60,125
_______ _______
$93,531 $85,326
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year ended June 30,
1996 1995 1994
________ ________ _______
Net sales $106,038 $103,108 $98,385
Cost of sales 59,824 56,047 57,165
________ ________ _______
Gross profit 46,214 47,061 41,220
Operating expenses:
Research and development 15,413 13,407 11,454
Selling, general and
administrative 22,538 22,786 21,435
________ ________ _______
Operating income 8,263 10,868 8,331
Interest income 1,807 1,341 397
Interest expense (594) (610) (603)
________ ________ _______
Earnings before income taxes 9,476 11,599 8,125
Income taxes 1,998 1,253 1,574
________ ________ _______
Net earnings $ 7,478 $ 10,346 $ 6,551
======== ======== =======
Net earnings per common and common
equivalent share $ .47 $ .66 $ .43
======== ======== =======
Weighted average common and common
equivalent shares outstanding 16,034 15,714 15,370
======== ======== =======
The accompanying notes are an integral part of these consolidated
financial statements.
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Total
Share-
Common Stock Retained holders'
Shares Amount Earnings Equity
______ _______ _______ _______
Balances at June 30, 1993 13,728 $13,936 $24,166 $38,102
Issuance of common stock:
Stock option exercises 343 977 977
Tax benefit from stock
option plans 1,156 1,156
Net earnings 6,551 6,551
______ _______ _______ _______
Balances at June 30, 1994 14,071 16,069 30,717 46,786
Issuance of common stock:
Stock option exercises, net
of shares tendered upon
exercise 910 1,611 1,611
Employee stock purchase plan 18 188 188
Net exercise of warrant 98
Tax benefit from stock
option plans 1,194 1,194
Net earnings 10,346 10,346
______ _______ _______ _______
Balances at June 30, 1995 15,097 19,062 41,063 60,125
Issuance of common stock:
Stock option exercises, net
of shares tendered upon
exercise 407 1,079 1,079
Employee stock purchase plan 66 710 710
Tax benefit from stock
option plans 1,011 1,011
Net earnings 7,478 7,478
______ _______ _______ _______
Balances at June 30, 1996 15,570 $21,862 $48,541 $70,403
====== ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended June 30,
1996 1995 1994
________ ________ _______
Cash flows from operating activities:
Cash received from customers $103,056 $103,800 $97,514
Cash paid to suppliers and employees (94,610) (86,910) (87,805)
Interest received 1,723 1,303 407
Interest paid (594) (610) (603)
Income taxes paid (559) (725) (1,273)
________ ________ _______
Net cash provided by operating
activities 9,016 16,858 8,240
________ ________ _______
Cash flows from investing activities:
Purchases of short-term investments (24,644) (16,754)
Maturities of short-term investments 35,552 2,903
Capital expenditures, net (9,092) (6,629) (3,606)
Acquisition of other assets (596) (26) (539)
Purchase of Navstar (2,012)
________ ________ _______
Net cash provided by (used for)
investing activities 1,220 (20,506) (6,157)
________ ________ _______
Cash flows from financing activities:
Repayment of long-term debt (52) (47) (42)
Proceeds from issuance of
common stock 1,789 1,799 977
________ ________ _______
Net cash provided by financing
activities 1,737 1,752 935
________ ________ _______
Net increase (decrease) in cash
and cash equivalents 11,973 (1,896) 3,018
Cash and cash equivalents at
beginning of year 19,354 21,250 18,232
________ ________ _______
Cash and cash equivalents at end
of year $ 31,327 $ 19,354 $21,250
======== ======== =======
Reconciliation of net earnings to
net cash provided by operating
activities:
Net earnings $ 7,478 $ 10,346 $ 6,551
Adjustments (net of effects of 1994
Navstar purchase):
Depreciation and amortization 5,171 5,260 5,789
Net deferred income taxes (98) (713) (656)
Changes in assets and liabilities:
Accounts receivable (2,699) 432 (1,060)
Inventories 8 (2,044) (2,430)
Other current assets (524) (54) (194)
Accounts payable 1,236 84 275
Accrued liabilities (1,325) 3,746 139
Deferred rent (231) (199) (174)
________ _______ _______
Net cash provided by operating
activities $ 9,016 $16,858 $ 8,240
======== ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A--Summary of Significant Accounting Policies
Business. SymmetriCom, Inc. (the Company) conducts its business through
two separate operations, Telecom Solutions and Linfinity Microelectronics
Inc. (Linfinity). Each operates in a different industry segment. Telecom
Solutions principally designs, manufactures and markets
telecommunications equipment including advanced network synchronization
systems and intelligent access systems. Linfinity designs, manufactures
and markets linear and mixed signal integrated circuits as well as
modules for use in power supply, data communications and signal
conditioning applications.
Principles of Consolidation. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions are eliminated.
Fiscal Period. The Company's fiscal year ends on the Sunday closest to
June 30. For presentation purposes, each fiscal year is presented as if
it ended on June 30. All references to years refer to the Company's
fiscal years. Fiscal years 1996 and 1995 consisted of 52 weeks and
fiscal year 1994 consisted of 53 weeks.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Cash Equivalents. The Company considers all highly liquid debt
investments purchased with an original maturity of three months or less
to be cash equivalents.
Short-term Investments. Short-term investments, consisting of corporate
debt securities and repurchase agreements which mature through November
1996, are classified as available-for-sale and reported at fair value.
Net unrealized gains and losses, if significant, are excluded from
earnings and included as a separate component of shareholders' equity.
The cost of securities sold is based on the specific identification
method.
Fair Values of Financial Instruments. Fair values of cash, cash
equivalents and short-term investments approximate carrying value based
upon quoted market prices. The estimated fair value of long-term debt
approximates carrying value using current market interest rates.
Inventories. Inventories are stated at the lower of cost (first-in,
first-out) or market.
Property, Plant and Equipment. Property, plant and equipment are stated
at cost. Depreciation and amortization are computed using the straight-
line method based on the estimated useful lives of the assets (three to
thirty years) or the lease term if shorter.
Intangible Assets. Intangible assets, primarily purchased technology,
are included in other assets and amortized over five years.
Revenue Recognition. Sales are recognized upon shipment. Provisions are
made for warranty costs, sales returns and price protection.
Foreign Currency Translation. Foreign currency translation gains and
losses and the effect of foreign currency exchange rate fluctuations have
not been significant.
Concentrations of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally
of cash equivalents, short-term investments and accounts receivable. The
Company places its investments with high-credit-quality corporations and
financial institutions. Accounts receivable are derived primarily from
sales to telecommunications service providers, original equipment
manufacturers and distributors. Management believes that its credit
evaluation, approval and monitoring processes substantially mitigate
potential credit risks.
Net Earnings Per Common and Common Equivalent Share. Net earnings per
common and common equivalent share is computed using the weighted average
number of common shares outstanding and dilutive stock options, using the
treasury stock method.
Recent Accounting Pronouncements. In March 1995, Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121), was
issued which requires recognition of impairment of long-lived assets in
the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. The Company
anticipates adoption of SFAS 121 in 1997, and it is not expected to have
a material impact on the Company's financial position or results of
operations.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), was issued which
establishes a fair value based method of accounting for stock-based
compensation plans. The Company believes, as permitted by SFAS 123, that
beginning in 1997 it will elect to continue to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees," for purposes of determining
net earnings and will adopt SFAS 123 pro forma disclosure requirements
for net earnings and net earnings per share information.
Note B--Acquisition
In August 1993, the Company acquired, in a purchase transaction,
substantially all the assets of Navstar Limited, a U.K. company, and its
U.S. affiliate (collectively "Navstar") for $2,012,000 in cash and the
assumption of $1,035,000 in liabilities. The fair value of assets
acquired included purchased technology of $1,756,000, tangible assets of
$1,071,000 and goodwill of $220,000. Navstar designs, manufactures and
markets Global Positioning System receivers.
Note C--Linfinity Microelectronics Inc.
In July 1993, substantially all of the assets and liabilities of the
Company's Semiconductor Group were transferred to Linfinity, a newly-
formed subsidiary, in exchange for 6,000,000 shares of Linfinity Series A
preferred stock and 2,000,000 shares of Linfinity common stock. No other
Linfinity capital stock has been issued except for shares issued under
Linfinity's employee stock option plan. Each Series A preferred share is
convertible into one share of common stock. In addition, 2,000,000
shares of Linfinity's common stock have been reserved for issuance under
Linfinity's employee stock option plan. All options have been granted at
the fair market value on the date of grant as determined by Linfinity's
Board of Directors based upon independent appraisal; accordingly, no
compensation expense has been recorded. Outstanding stock options
generally vest 25% per year from date of grant and expire no later than
ten years from date of grant. At June 30, 1996, options to purchase
1,778,000 shares of Linfinity's common stock had been granted and were
outstanding with exercise prices of $.50 to $2.65 per share, options to
purchase 12,000 shares had been exercised at prices of $.50 to $.80 per
share, 210,000 shares were available for grant and options to purchase
909,000 shares were exercisable at prices of $.50 to $2.65 per share.
Note D--Balance Sheet Components
June 30,
1996 1995
_______ _______
(In thousands)
Inventories:
Raw materials $ 6,704 $ 5,433
Work-in-process 6,868 6,910
Finished goods 4,275 5,512
_______ _______
$17,847 $17,855
======= =======
Property, Plant and Equipment, net:
Land $ 1,247 $ 1,247
Buildings and improvements 8,659 8,666
Machinery and equipment 38,864 30,369
Leasehold improvements 2,312 2,173
_______ _______
51,082 42,455
Accumulated depreciation and amortization (29,535) (25,477)
_______ _______
$21,547 $16,978
======= =======
Accrued Liabilities:
Employee compensation and benefits $ 3,687 $ 5,954
Accrued warranty expense 2,088 2,520
Other 3,410 3,047
_______ _______
$ 9,185 $11,521
======= =======
Note E--Borrowing Arrangements
The Company has a $7,000,000 unsecured bank line of credit which
expires in December 1997 and bears interest at the bank's prime rate,
8.25% at June 30, 1996. The line of credit agreement requires that the
Company maintain certain financial ratios and prohibits an operating loss
in two consecutive quarters. The unsecured bank line of credit has not
been utilized during the last three years.
Long-term debt consists of a 10.25% note, payable in monthly
installments of approximately $54,000, including interest, until November
1997 when the balance of the principal is due. The note is
collateralized by land, building and related personal property. At June
30, 1996, maturities of long-term debt were $57,000 in 1997 and
$5,709,000 in 1998.
Note F--Income Taxes
Income tax expense consists of:
Year ended June 30,
1996 1995 1994
_______ _______ _______
(In thousands)
Current:
Federal $ 1,250 $ 1,341 $ 1,366
State (56) 159 778
Puerto Rico 902 466 86
_______ _______ _______
2,096 1,966 2,230
_______ _______ _______
Deferred:
Federal 386 (532) (1,144)
State (114) (373) 104
Puerto Rico (370) 192 384
_______ _______ _______
(98) (713) (656)
_______ _______ _______
$ 1,998 $ 1,253 $ 1,574
======= ======= =======
Deferred income tax expense (benefit) is recorded when income and
expenses are recognized in different periods for financial reporting and
tax purposes. The significant components of deferred income tax expense
(benefit) are as follows:
Year ended June 30,
1996 1995 1994
_______ _______ _______
(In thousands)
Net operating loss and credit carryforwards $ (156) $ (813) $ 642
Reserves and accruals 32 631 (548)
Depreciation and amortization (93) (263) (639)
Deferred taxes on Puerto Rico earnings (688) 204 1,339
Change in valuation allowance 807 (472) (1,450)
_______ _______ _______
$ (98) $ (713) $ (656)
======= ======= =======
The Company's effective income tax rate differs from the federal
statutory income tax rate as follows:
Year ended June 30,
1996 1995 1994
_______ _______ _______
Federal statutory income tax rate 35.0% 35.0% 35.0%
Change in valuation allowance ( 17.6) (17.8)
Federal tax benefit of Puerto Rico
operations (17.2) (12.9) (8.9)
Puerto Rico taxes 5.6 5.7 5.8
Research and development tax credit (2.6) (1.6)
State income taxes, net of federal benefit (1.8) 1.2 5.9
Other (.5) 2.0 1.0
_______ _______ _______
Effective income tax rate 21.1% 10.8% 19.4%
======= ======= =======
The principal components of the Company's deferred tax assets and
liabilities are as follows:
June 30,
1996 1995
_______ _______
(In thousands)
Deferred tax assets:
Net operating loss and credit carryforwards $ 5,560 $ 5,404
Reserves and accruals 2,692 2,724
_______ _______
8,252 8,128
Valuation allowance (5,115) (4,308)
_______ _______
3,137 3,820
_______ _______
Deferred tax liabilities:
Depreciation and amortization 815 908
Unremitted Puerto Rico earnings 2,296 2,984
_______ _______
3,111 3,892
_______ _______
Net deferred tax (asset) liability $ (26) $ 72
======= =======
Based on the Company's assessment of future realizability of deferred
tax assets, a valuation allowance has been provided as it is more likely
than not that sufficient taxable income will not be generated to realize
certain temporary differences and tax credit carryforwards.
Additionally, at June 30, 1996, approximately $4,750,000 of the valuation
allowance was attributable to the potential tax benefit of stock option
transactions, which will be credited directly to common stock if
realized.
At June 30, 1996, for federal income tax purposes, the Company had
net operating loss carryforwards of approximately $1,900,000 which expire
in the years 2003 through 2007, research and development and investment
tax credit carryforwards of approximately $3,200,000 which expire in the
years 1999 through 2010 and alternative minimum tax credit carryforwards
of approximately $1,000,000 which have no expiration date. Additionally,
for state income tax purposes, the Company had research and development
tax credit carryforwards of approximately $700,000 which have no
expiration date.
The Company operates a subsidiary in Puerto Rico under a grant
providing for partial exemption from Puerto Rico taxes through the year
2008. During 1993, the Company elected to have this subsidiary taxed
under Section 936 of the U.S. Internal Revenue Code which exempts
qualified Puerto Rico source earnings from federal income taxes. Certain
provisions of the Omnibus Budget Reconciliation Act of 1993 and the Small
Business Job Protection Bill of 1996 may result in less favorable tax
treatment for future income earned in Puerto Rico, and this tax treatment
will be eliminated in 2006. Appropriate taxes have been provided on this
subsidiary's earnings which are intended to be remitted to the parent
company. Approximately $9,000,000 of Puerto Rico earnings were
distributed to the Company during 1996. At June 30, l996, the total
unremitted earnings of the Puerto Rico subsidiary and the related tax
liability were approximately $19,500,000 and $2,296,000, respectively.
Note G--Commitments
The Company leases certain facilities and equipment under operating
lease agreements which expire at various dates through September 2000.
During June 1996, the Company entered into an agreement to lease a
facility to be constructed which will replace existing facilities
currently leased for certain Telecom Solutions and Corporate operations.
The Company has committed to fund a minimum of $2,950,000 of tenant
improvements in the new facility. The estimated lease commencement date
is April 1997. The lease expires twelve years from the commencement date
and contains two renewal options for five years each.
Rental expense charged to operations was $1,741,000 in 1996,
$1,554,000 in 1995 and $1,859,000 in 1994. Future minimum payments due
under noncancelable leases at June 30, 1996, were $2,003,000 in 1997,
$2,085,000 in 1998, $1,809,000 in 1999, $1,665,000 in 2000, $1,687,000 in
2001 and $15,673,000 thereafter.
Note H--Contingencies
In January 1994, a complaint was filed in the United States District
Court for the Northern District of California against the Company and
three of its officers, by one of the Company's shareholders. The
plaintiff requests that the court certify him as representative of a
class of persons who purchased shares of the Company's common stock
during a specified period in 1993. The complaint alleges that false and
misleading statements made during that period artificially inflated the
price of the Company's common stock in violation of federal securities
laws. There is no specific amount of damages requested in the complaint.
Limited discovery has occurred and no trial date has been set. In
November 1995, an amended complaint was filed which named a fourth
officer of the Company as a defendant. The Company and its officers have
filed a motion to dismiss the amended complaint which is pending before
the Court. After consultation with counsel, the Company and its officers
believe that the complaint is entirely without merit, and intend to
vigorously defend against the action. The Company is also a party to
certain other claims in the normal course of its operations. While the
results of such claims cannot be predicted with certainty, management,
after consultation with counsel, believes that the final outcome of such
matters will not have a material adverse effect on the Company's
financial position or results of operations.
Note I--Related Party Transactions
The Company paid $36,000 in each of the three years ended June 30,
1996 for marketing research to a firm whose Managing Director was a
director of the Company. During 1995, certain executive officers
exercised stock options in exchange for notes of $43,000. These notes
bear interest at approximately 6% per annum, payable annually. The notes
are collateralized by the stock issued upon exercise of the stock options
and are due in July 1997. The notes are offset against common stock.
During 1993, the Company made a $95,000 unsecured 5% loan to an executive
officer which was repaid in 1996.
Note J--Benefit Plans
401(k) Plans. The Company's U.S. and Puerto Rico employees are eligible
to participate in the Company's 401(k) plans. The Company's
discretionary contributions vest immediately and were $102,000, $101,000
and $89,000 in 1996, 1995 and 1994, respectively.
Note K--Shareholders' Equity
Stock Options. The Company has an employee stock option plan under which
employees and consultants may be granted non-qualified and incentive
options to purchase shares of the Company's authorized but unissued
common stock. Stock appreciation rights may also be granted under this
plan, however, none have been granted. The Company's shareholders have
approved a plan under which the number of shares reserved for issuance
under the employee stock option plan will automatically increase each
July by an amount equal to 3% of the Company's outstanding shares as of
June 30. In July 1996, the number of shares reserved for issuance
increased by 467,000. In addition, the Company has a director stock
option plan under which non-employee directors are granted options each
January to purchase 10,000 shares of the Company's authorized but
unissued common stock. All options have been granted at the fair market
value of the Company's common stock on the date of grant. Options expire
no later than ten years from the date of grant and are generally
exercisable in annual installments of 25%, 25% and 50% at the end of each
of the first three years following the date of grant. Stock option
activity for the three years ended June 30, 1996, is as follows:
Shares Options Outstanding
Available Number Price
For Grant of Shares Per Share
_________ _________ _________
(In thousands, except per share amounts)
Balances at June 30, 1993 936 2,231 $ 1.50 to 13.00
Granted (489) 489 7.63 to 17.75
Exercised -- (343) 1.50 to 7.50
Canceled 92 (92) 2.50 to 17.75
_____ _____
Balances at June 30, 1994 539 2,285 1.63 to 17.75
Granted (591) 591 8.94 to 16.75
Exercised -- (967) 1.63 to 13.00
Canceled 332 (332) 3.13 to 17.75
_____ _____
Balances at June 30, 1995 280 1,577 1.63 to 17.75
Authorized 650 -- --
Granted (871) 871 11.13 to 22.75
Exercised -- (427) 1.63 to 10.13
Canceled 370 (370) 7.50 to 22.75
_____ _____
Balances at June 30, 1996 429 1,651 $ 1.75 to 22.75
===== ===== ===============
Exercisable at June 30, 1996 593 $ 1.75 to 17.75
===== ===============
The stock option activity includes the cancellation of options for 235,000
shares in July 1994 and 297,000 shares in April 1996 and the corresponding
grant of new options at exercise prices equal to the fair market value on
the dates of the new grants, $8.94 in July 1994 and $11.98 in April 1996.
The new options began revesting in July 1994 and April 1996, respectively.
Employee Stock Purchase Plan. The Company has an employee stock purchase
plan under which eligible employees may authorize payroll deductions of up
to 10% of their compensation to purchase shares of the Company's common
stock at 85% of the fair market value at certain specified dates. Under
this plan, 450,000 shares of common stock have been reserved for issuance
and 84,000 shares have been issued through June 30, 1996.
Common Share Purchase Rights. The Company has a shareholder rights plan
which authorizes the issuance of one common share purchase right for each
share of common stock. The rights expire in December 2000 and are not
exercisable or transferable apart from the common stock until the
occurrence of certain events. Such events include the acquisition of 20%
or more of the Company's outstanding common stock or the commencement of
a tender or exchange offer for 30% or more of the Company's outstanding
common stock. If the rights become exercisable, each right entitles its
holder to purchase one new share of common stock at an exercise price of
$25.00, subject to certain antidilution adjustments. Additionally, if
the rights become exercisable, a holder will be entitled, under certain
circumstances, to purchase, for the exercise price, shares of common
stock of the Company or in other cases, of the acquiring company, having
a market value of twice the exercise price of the right. Under certain
conditions, the Company may redeem the rights for a price of $.01 per
right or exchange each right not held by the acquirer for one share of
the Company's common stock.
Warrants. During March 1995, the Company issued 98,000 shares of common
stock, net of 27,000 shares tendered, in connection with the exercise of
a warrant to purchase common stock at $3.375 per share.
Note L--Business Segment Information
Industry Segment Information. Information relating to the Company's
industry segments is as follows:
Year ended June 30,
1996 1995 1994
________ ________ _______
(In thousands)
Net sales:
Telecom Solutions $ 68,243 $ 62,814 $59,215
Linfinity 37,795 40,294 39,170
________ ________ _______
$106,038 $103,108 $98,385
======== ======== =======
Operating income:
Telecom Solutions $ 5,880 $ 6,222 $ 3,588
Linfinity 2,383 4,646 4,743
________ ________ _______
$ 8,263 $ 10,868 $ 8,331
======== ======== =======
Identifiable assets:
Telecom Solutions $ 62,574 $ 55,098 $43,223
Linfinity 30,957 30,228 25,831
________ ________ _______
$ 93,531 $ 85,326 $69,054
======== ======== =======
Depreciation and amortization expense:
Telecom Solutions $ 2,654 $ 2,841 $ 2,917
Linfinity 2,517 2,419 2,872
________ ________ _______
$ 5,171 $ 5,260 $ 5,789
======== ======== =======
Capital expenditures:
Telecom Solutions $ 3,832 $ 2,102 $ 2,017
Linfinity 5,260 4,527 1,589
________ ________ _______
$ 9,092 $ 6,629 $ 3,606
======== ======== =======
Major Customers and Export Sales. No customer accounted for 10% or more of
net sales in 1996 or 1994. One of Telecom Solutions' customers accounted
for 11% of the Company's net sales in 1995. Export sales, primarily to the
Far East (13% and 11% in 1996 and 1995, respectively), Canada and Western
Europe accounted for 28%, 24% and 19% of the Company's net sales in 1996,
1995 and 1994, respectively.
Note M--Quarterly Results Unaudited
QUARTERLY RESULTS AND STOCK MARKET DATA (UNAUDITED)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
_______ _______ _______ _______ ________
(In thousands, except per share amounts)
Fiscal Year 1996:
Net sales:
Telecom Solutions $17,215 $18,360 $14,336 $18,332 $ 68,243
Linfinity
Microelectronics
Inc. 10,463 10,066 8,357 8,909 37,795
_______ _______ _______ _______ ________
Total 27,678 28,426 22,693 27,241 106,038
Gross profit 13,066 13,589 8,328 11,231 46,214
Operating income 3,500 4,146 (244) 861 8,263
Earnings before
income taxes 3,817 4,479 58 1,122 9,476
Net earnings 2,771 3,337 318 1,052 7,478
Net earnings per
common and common
equivalent share .17 .21 .02 .07 .47
Common stock
price range (A):
High 26-5/8 22-5/8 13-7/8 14-3/4 26-5/8
Low 20-5/8 12-7/8 8-7/8 9-5/8 8-7/8
Fiscal Year 1995:
Net sales:
Telecom Solutions $14,407 $15,753 $16,027 $16,627 $ 62,814
Linfinity
Microelectronics
Inc. 9,774 9,837 10,234 10,449 40,294
_______ _______ _______ _______ ________
Total 24,181 25,590 26,261 27,076 103,108
Gross profit 10,821 11,380 12,463 12,397 47,061
Operating income 2,371 2,419 2,924 3,154 10,868
Earnings before
income taxes 2,444 2,547 3,152 3,456 11,599
Net earnings 1,999 2,412 2,786 3,149 10,346
Net earnings per
common and common
equivalent share .13 .15 .18 .20 .66
Common stock
price range (A):
High 12 13-5/8 17 21-3/4 21-3/4
Low 8 10-7/8 13-1/8 15-1/2 8
(A) The Company's common stock trades on The Nasdaq Stock Market
under the symbol SYMM. At June 30, 1996, there were approximately 1,498
shareholders of record. Common stock prices are closing prices as
reported on the Nasdaq Stock Market System. The Company has not paid
cash dividends during the last two fiscal years and has no present plans
to do so.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
SymmetriCom, Inc.
We have audited the accompanying consolidated balance sheets of
SymmetriCom, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended June 30, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of SymmetriCom,
Inc. and subsidiaries at June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three
years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
San Jose, California
July 23, 1996
SCHEDULE II
SYMMETRICOM, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Balance Charged
at to Costs Balance
Beginning and Deductions at End
of Year Expenses (1) of Year
Year ended June 30, 1996:
Accrued warranty expense $ 2,520 $ 1,105 $ 1,537 $ 2,088
Allowance for doubtful
accounts $ 339 $ 16 $ 25 $ 330
Year ended June 30, 1995:
Accrued warranty expense $ 2,071 $ 1,021 $ 572 $ 2,520
Allowance for doubtful
accounts $ 242 $ 122 $ 25 $ 339
Year ended June 30, 1994:
Accrued warranty expense $ 2,136 $ 386 $ 451 $ 2,071
Allowance for doubtful
accounts $ 114 $ 155 $ 27 $ 242
(1) Deductions represent costs charged or amounts written off against
the reserve or allowance.
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.
SYMMETRICOM, INC.
Date: September 16, 1996 By: /s/ J. Scott Kamsler
__________________________
(J. Scott Kamsler)
Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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/ William D. Rasdal Chairman of the Board and September 16, 1996
______________________ Chief Executive Officer
(William D. Rasdal) (Principal Executive Officer)
/s/ J. Scott Kamsler Vice President, Finance September 16, 1996
______________________ and Chief Financial Officer
(J. Scott Kamsler) (Principal Financial
and Accounting Officer)
/s/ Roger A. Strauch Director September 16, 1996
______________________
(Roger A. Strauch)
/s/ Robert M. Wolfe Director September 16, 1996
______________________
(Robert M. Wolfe)
Exhibit
Number Index of Exhibits
3.1(1) Restated Articles of Incorporation.
3.2(2) Certificate of Amendment to Restated Articles of
Incorporation filed December 11, 1990.
3.3(10) Certificate of Amendment to Restated Articles of
Incorporation filed October 27, 1993.
3.4(10) By-Laws, as amended July 21, 1993.
4.1(3) Common Shares Rights Agreement dated December 6, 1990,
between Silicon General, Inc. and Manufacturers Hanover
Trust Company of California, including the form of Rights
Certificate and the Summary of Rights attached thereto as
Exhibits A and B, respectively.
4.2(4) Amendment to the Common Shares Rights Agreement dated
February 5, 1993 between Silicon General, Inc. and Chemical
Trust Company of California, formerly Manufacturers Hanover
Trust Company of California, including the form of Rights
Certificate and the Summary of Rights attached thereto as
Exhibits A and B, respectively.
10.1(5)(15) Amended and Restated Employees' Stock Option Plan (1980),
with form of Stock Option Agreement (1980 Plan).
10.2(5)(15) Amended and Restated Non-Qualified Stock Option Plan (1982),
with form of Employee Non-Qualified Stock Option (1982
Plan).
10.3(5)(15) Amended and Restated Employee Stock Option Plan (1983), with
form of Stock Option Under Incentive Stock Option Plan 1983.
10.4(13)(15) 1990 Director Option Plan (as amended through October 25,
1995).
10.5(5)(15) Form of Director Option Agreement.
10.6(13)(15) 1990 Employee Stock Plan (as amended through October 25,
1995).
10.7(5)(15) Forms of Stock Option Agreement, Restricted Stock Purchase
Agreement, Tandem Stock Option/SAR Agreement, and Stock
Appreciation Right Agreement for use with the 1990 Employee
Stock Plan.
10.8(11)(15) 1995 Employee Stock Purchase Plan, with form of Subscription
Agreement.
10.9(2) Loan Agreements between the Company and the John Hancock
Mutual Life Insurance Company, dated October 18, 1990,
including exhibits thereto.
10.10(6) Lease Agreement by and between the Company and Menlo Tasman
Investment Company dated June 16, 1986, and Amendment to
Lease dated March 27, 1987.
10.11(2) Lease Agreement by and between Zeltex Puerto Rico, Inc., a
subsidiary of the Company, and Puerto Rico Industrial
Development Company dated January 22, 1991.
10.12(10) Lease Agreement by and between Telecom Solutions Puerto Rico,
Inc., a subsidiary of the Company, and Puerto Rico Industrial
Development dated August 9, 1994.
10.13(10) Lease Agreement by and between Navstar Systems Limited, a
subsidiary of the Company, and Baker Hughes Limited dated
April 22, 1994.
10.14 Lease Agreement by and between the Company and Nexus Equity,
Inc. dated June 10, 1996.
10.15(10) Revolving Credit Loan Agreement between the Company and
Comerica Bank-Detroit dated December 1, 1993.
10.16(12) First Amendment to the Revolving Credit Loan Agreement between
the Company and Comerica Bank-Detroit dated April 20, 1995.
10.17 Second Amendment to the Revolving Credit Loan Agreement
between the Company and Comerica Bank-Detroit dated June 1,
1996.
10.18(7) Form of Indemnification Agreement.
10.19(9) Linfinity Microelectronics Inc. Common Stock and Series A
Preferred Stock Purchase Agreement dated June 28, 1993.
10.20(9) Tax Sharing Agreement between Linfinity Microelectronics Inc.
and the Company dated June 28, 1993.
10.21(9) Intercompany Services Agreement between Linfinity
Microelectronics Inc. and the Company dated June 28, 1993.
10.22(9)(15) Linfinity Microelectronics Inc. 1993 Stock Option Plan with
form of Stock Option Agreement.
10.23(9) Linfinity Microelectronics Inc. Form of Indemnification
Agreement.
10.24(9)(15) Employment offer letter by and between the Company and Brad
P. Whitney, President and Chief Operating Officer, Linfinity
Microelectronics Inc. dated November 20, 1992.
10.25(8) Agreement for Sale and Purchase of the Navstar Business of
Radley Services Limited.
10.26(8) Agreement for the Sale and Purchase of Certain Assets of
Navstar Electronics, Inc.
10.27(14) Supplement and Amendment, dated November 27, 1995, to the
Lease Agreement by and between Telecom Solutions Puerto Rico,
Inc., a subsidiary of the Company, and Puerto Rico Industrial
Development dated August 9, 1994
21.1 Subsidiaries of the Company.
23.1 Independent Auditors' Consent and Report on Schedule.
27.1 Financial Data Schedule.
Footnotes to Exhibits
(1) Incorporated by reference from Exhibits to Annual Report on Form
10-K for the fiscal year ended July 2, 1989.
(2) Incorporated by reference from Exhibits to Annual Report on Form
10-K for the fiscal year ended June 30, 1991.
(3) Incorporated by reference from Exhibits to Registration Statement
on Form 8-A filed with the Securities and Exchange Commission on
December 8, 1990.
(4) Incorporated by reference from Exhibits to Registration Statement
on Form 8-A filed with the Securities and Exchange Commission on
February 11, 1993.
(5) Incorporated by reference from Exhibits to Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on
December 24, 1990.
(6) Incorporated by reference from Exhibits to Annual Report on Form
10-K for the fiscal year ended June 28, 1987.
(7) Incorporated by reference from Exhibits to the 1990 Proxy
Statement.
(8) Incorporated by reference from Exhibits to Current Report on Form
8-K filed with the Securities and Exchange Commission on September
2, 1993.
(9) Incorporated by reference from Exhibits to Annual Report on Form
10-K for the fiscal year ended June 30, 1993.
(10) Incorporated by reference from Exhibits to Annual Report on Form
10-K for the fiscal year ended June 30, 1994.
(11) Incorporated by reference from Exhibits to Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on
January 4, 1995.
(12) Incorporated by reference from Exhibits to Annual Report on Form
10-K for the fiscal year ended June 30, 1995.
(13) Incorporated by reference from Exhibits to Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on
January 19, 1996.
(14) Incorporated by reference from Exhibits to Quarterly Report on Form
10-Q for the quarter ended December 31, 1995.
(15) Indicates a management contract or compensatory plan or
arrangement.
LEASE
NEXUS EQUITY, INC.
"Landlord"
AND
SYMMETRICOM, INC.
"Tenant"
SAN JOSE, CALIFORNIA
LEASE
TABLE OF CONTENTS
Page
1. Lease Premises 1
2. Basic Lease Provisions 1
3. Term 2
4. Construction, Possession and Commencement Date 3
5. Rent 6
6. Rental Adjustments 6
7. Additional Rent and Expenses 7
8. Rentable Area 10
9. Security Deposit 10
10. Use 11
11. Brokers 13
12. Holding Over 13
13. Taxes and Assessments 14
14. Condition of Premises 16
15. Parking Facilities 17
16. Utilities and Services 17
17. Alterations 18
18. Repairs and Maintenance 18
19. Liens 20
20. Indemnification and Exculpation 20
21. Insurance - Waiver of Subrogation 21
22. Damage or Destruction 25
23. Eminent Domain 27
24. Defaults and Remedies 28
25. Assignment or Subletting 31
26. Arbitration - Attorney's Fees 33
27. Bankruptcy 34
28. Definition of Landlord 34
29. Estoppel Certificate 35
30. Removal of Property 35
31. Limitation of Landlord's Liability 36
32. [Intentionally Left Blank] 37
33. Quiet Enjoyment 37
34. Quitclaim Deed 37
35. Subordination and Attornment 37
36. Surrender 38
37. Waiver and Modification 39
38. Waiver of Jury Trial and Counterclaims 39
39. Hazardous Materials 39
40. Option to Extend 42
41. Right of First Refusal to Purchase 45
42. Miscellaneous 46
42.1 Terms and Headings 46
42.2 Examination of Lease 46
42.3 Time 46
42.4 Covenants and Conditions 47
42.5 Consents 47
42.6 Entire Agreement 47
42.7 Severability 47
42.8 Recording 47
42.9 Impartial Construction 47
42.10 Inurement 47
42.11 Force Majeure 47
42.12 Notices 47
42.13 Authority to Execute Lease 47
EXHIBIT "A" -- Work Letter
EXHIBIT "B" -- Form of Acknowledgement of Term Commencement Date
EXHIBIT "C" -- Memorandum of Lease
LEASE
THIS LEASE ("Lease") is made as of June 10, 1996, by and between
NEXUS EQUITY, INC., a California corporation ("Landlord"), and
SYMMETRICOM, INC., a California corporation ("Tenant").
1. Lease Premises.
1.1 Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises ("Premises") located on Orchard Parkway
in San Jose, California, consisting of (i) that certain real property
("Real Property") legally described as Parcel 2 of Parcel Map filed with
the Santa Clara County Recorder on December 6, 1995, in Book 671 of
Maps, Pages 40 and 41, (ii) the entirety of the building (the
"Building") to be constructed on the Real Property, and (iii) all
landscaping, drainage, irrigation, lighting, parking facilities,
walkways, driveways and other improvements and appurtenances related
thereto.
2. Basic Lease Provisions.
2.1 For convenience of the parties, certain basic
provisions of this Lease are set forth herein. The provisions set forth
herein are subject to the remaining terms and conditions of this Lease
and are to be interpreted in light of such remaining terms and
conditions.
2.1.1 Rentable Area of Premises:
118,000 square feet, subject to adjustment
as provided in Section 8.2
2.1.2 Initial Basic Annual Rent:
$1,458,480 ($12.36 per square foot of
Rentable Area per year), subject to
adjustment as provided in Sections 6.1 and
8.2
2.1.3 Monthly Installment of Basic Annual Rent:
$121,540 ($1.03 per square foot of
Rentable Area per month), subject to
adjustment as provided in Sections 6.1 and
8.2
2.1.4 (a) Estimated Term Commencement Date:
April 15, 1997, subject to adjustment
as provided in Section 4.6
(b) Term Expiration Date: Twelve (12)
years from Term Commencement Date
2.1.5 Permitted Use: Uses permitted in
Section 10.1
2.1.6 Security Deposit: $121,540
2.1.7 Address for Rent Payment and Notices to
Landlord:
Nexus Equity, Inc.
1740 Technology Drive, Suite 315
San Jose, California 95110
Address for Notices to Tenant
Before Term Commencement Date:
SymmetriCom, Inc.
85 West Tasman Drive
San Jose, California 95110
After Term Commencement Date: Premises
2.2 Capitalized terms not otherwise defined in this Lease
shall have the meaning set forth in the Work Letter attached hereto as
Exhibit "A" ("Work Letter").
3. Term.
3.1 This Lease shall take effect upon the date of
execution hereof by each of the parties hereto, and each of the
provisions hereof shall be binding upon and inure to the benefit of
Landlord and Tenant from the date of execution hereof by each of the
parties hereto; provided, however, the effectiveness of this Lease is
conditioned upon Tenant's approval (in its sole discretion) on or before
June 6, 1996, of (i) CC&Rs prepared by Atmel Corporation which will
encumber the Real Property, and (ii) approval by Atmel Corporation in a
form satisfactory to Tenant of elevations and schematic plans of the
Building (described on Attachment A-2) and the placement of Tenant's
antennas on the roof of the Building.
3.2 The term of this Lease will be that period from the
Term Commencement Date described in Sections 2.1.4(a) and 4.6 through
the Term Expiration Date as set forth in Section 2.1.4(b), subject to
earlier termination of this Lease or extension of the term of this Lease
as provided herein.
3.3 Notwithstanding anything in this Lease to the
contrary, Tenant shall have the right to terminate this Lease due to
nonperformance by Landlord if:
(i) Landlord has not on or before June 30, 1996,
secured a construction loan and/or other funding, from sources
reasonably satisfactory to Tenant as to financial ability to perform, in
an amount reasonably necessary to complete the work required of Landlord
under the Work Letter; provided however, that such date shall be
extended to that date which is the earlier of (i) August 15, 1996 and
(ii) the date to which close of escrow for the acquisition of the Real
Property is extended by the written agreement of Atmel Corporation, the
seller of the Real Property;
(ii) Landlord has not on or before September 1, 1996,
received architectural site approval from the City of San Jose;
(iii) Landlord has not on or before September 15,
1996, substantially commenced Landlord's Work, defined to mean grading
has been substantially completed and work on footings and foundations
has commenced and is substantially underway; or
(iv) Landlord fails at any time thereafter to
diligently pursue construction of Landlord's Work to completion, defined
to mean (for the purposes of this subsection 3.3(iv) only) substantial
cessation of work for more than thirty (30) consecutive days.
The time for Landlord to perform its obligations under
subsections (i) and (ii) above will be extended on account of Tenant-
Caused Delays, but not Landlord-Caused Delays or Force-Majeure Delays.
The time for Landlord to perform its obligations under subsection (iii)
will be extended on account of Tenant-Caused Delays and no more than
thirty (30) days of Force Majeure Delays, but not Landlord-Caused
delays.
The time for Landlord to perform its obligations under subsection (iv)
will be extended on account of Tenant-Caused Delays and Force Majeure
Delays, but not Landlord-Caused delays. In the event Tenant terminates
this Lease pursuant to this Section 3.3, neither Landlord nor Tenant
shall have any further duties, obligations or liability to the other,
except that Landlord shall promptly return to Tenant the first month's
Basic Annual Rent deposited under Section 5.1, and the security deposit
deposited under Section 9.1.
4. Construction, Possession and Commencement Date
4.1 Landlord shall make available to Tenant the Building
Shell within the time period set forth in the Construction Schedule with
Landlord's Work sufficiently complete to allow Tenant to commence
construction of Tenant's Improvements. Landlord shall Substantially
Complete Landlord's work (as that term is defined in the Work Letter
attached hereto as Exhibit "A") within the time period set forth in the
Project Schedule. Landlord shall use diligent good faith efforts to
continuously prosecute the construction of Landlord's Work to
completion.
Tenant shall Substantially Complete Tenant's Improvements within the
time period set forth in the Project Schedule. Landlord and Tenant
shall
allow each other reasonable access to the Premises for the completion of
work required hereunder, and shall conduct such work in a commercially
reasonable manner. All time periods set forth in the Project Schedule
for the construction of Landlord's Work and Tenant's Improvements shall
be extended by Landlord-Caused Delays, Tenant-Caused Delays and/or
Force-
Majeure Delays in the manner and to the extent set forth in the Work
Letter, subject to the limitations on Landlord with respect to Force-
Majeure Delays set forth in the last paragraph of Section 3.3 above.
4.2 As used in Section 4.1 above and elsewhere in this
Lease and the Work Letter, the terms "Substantially Complete",
"Substantially Completed", and "Substantial Completion" shall mean (i)
with respect to Landlord's Work, the date by which all of the following
shall have occurred: (a) construction of Landlord's Work is completed
substantially in accordance with the plans and specifications therefor
and all applicable governmental laws, ordinances, regulations and
requirements ("Laws"), (b) the Project Architect has certified in
writing that Landlord's Work is substantially complete, (c) there exist
no incomplete or deficient items identified by or on behalf of Tenant on
its "punch-list" that could materially interfere with Tenant's use of
the Premises for its intended purpose, and (d) Landlord shall have
substantially completed Landlord's Work to such a point to enable Tenant
to obtain all permits and approvals for Tenant's legal occupancy of the
Premises, assuming that Tenant's Improvements are Substantially
Completed, and (ii) with respect to Tenant's Improvements, the date by
which all of the following shall have occurred: (a) construction of
Tenant's Improvements is completed substantially in accordance with the
plans and specifications therefor and all applicable Laws, (b) Tenant's
Architect has certified in writing that Tenant's Improvements are
substantially complete, (c) no incomplete or deficient items exist that
would materially interfere with Tenant's use of the Premises for its
intended purpose, and (d) Tenant shall have substantially completed
Tenant's Improvements and shall have obtained all permits and approvals
for Tenant's legal occupancy of the Premises.
4.3 Tenant agrees that in the event Landlord fails to
tender possession of the Premises with the Building Shell and Land
Improvements Substantially Completed on or before the date set forth in
the Project Schedule for the Substantial Completion of Landlord's Work,
this Lease shall not be void or voidable and Landlord shall not be
liable
to Tenant for any loss or damage resulting therefrom except as otherwise
set forth in Sections 3.3 and 4.4. In such event, however, Tenant's
obligation to pay Rent and any other amounts under this Lease shall not
commence until the actual Term Commencement Date.
4.4 Notwithstanding Section 4.3, in the event Landlord
fails to tender possession of the Premises with the Building Shell and
Land Improvements Substantially Completed on or before April 15, 1997
(as
such date is extended by Tenant-Caused Delays, and Tenant is unable to
occupy the Premises on or before July 15, 1997 on account thereof,
Landlord shall pay to Tenant liquidated damages equal to any holdover or
penalty rent or other sums in excess of the normal rental paid by Tenant
to the landlord of its present premises at 85 West Tasman Drive, San
Jose, California, on account of Tenant's extension or holding over of
its tenancy at such location, for a number of days equal to the number
of days between April 15, 1997 and the date the Premises are tendered to
Tenant with the Building Shell and Land Improvements Substantially
Completed (but for no longer period than Tenant actually holds over at
its present location). In the event that the landlord of Tenant's
present premises does not consent to Tenant's holding over, Landlord
shall indemnify Tenant from any and all claims, damages, losses, costs
and liabilities incurred by Tenant as a result of Landlord's failure to
deliver the Building Shell and Land Improvements to Tenant Substantially
Completed on or before April 15, 1997.
4.5 The actual Term Commencement Date shall be the date
set forth in the Project Schedule as the date by which Tenant's
Improvements and Landlord's Work is to be Substantially Complete;
provided, however, that (i) such date shall be extended by the number of
days that Tenant is prevented from commencing construction of Tenant's
Improvements on the date for commencement thereof as set forth in the
Project Schedule as a result of Force Majeure Delays and Landlord-Caused
Delays (as more particularly described in the Work Letter), (ii) such
date shall be extended by the number of days that Tenant is prevented
from continuously prosecuting to completion and Substantially Completing
Tenant's Improvements as a result of Force-Majeure Delays and/or
Landlord-Caused Delays, and (iii) in no event shall the Term
Commencement
Date occur prior to the date by which all of the following shall have
occurred; (a) Landlord shall have Substantially Completed Landlord's
Work, (b) the Land Improvements are Substantially Completed to a point
where ingress and egress to the Building is not unreasonably impeded,
the
parking lot is completed and the landscaping is to a point where any
incomplete or deficient landscaping can be completed or corrected within
thirty (30) days or which consists of trees, shrubs or other landscaping
which have not been installed for reasons relating to the then climatic
season, and (c) no "punch-list" items remain uncompleted that would
materially interfere with Tenant's use of the Premises for its intended
purposes. Landlord and Tenant shall execute a written acknowledgment of
the Term Commencement Date and the Term Expiration Date when such is
established in substantially the form attached hereto as Exhibit "B" and
attach it to this Lease as Exhibit "B-1"; however, failure to execute
and deliver such acknowledgement shall not affect Tenant's liability
hereunder.
4.6 Prior to entry by Tenant onto the Premises for the
purposes of constructing Tenant's Improvements or installation of
personal property within the Premises which are not part of the work
required of Landlord under the Work Letter, Tenant shall furnish to
Landlord evidence satisfactory to Landlord that insurance coverage
required of Tenant under the provisions of Article 21 and the Work
Letter
are in effect. Entry by Tenant onto the Premises prior to the Term
Commencement Date for such purposes shall be subject to all of the terms
and conditions of this Lease other than the payment of Rent, and shall
not interfere with the performance by Landlord or the Project Contractor
with the work required of Landlord under the Work Letter. Tenant agrees
to indemnify, protect, defend and hold Landlord harmless from any and
all loss or damage to property, completed work, fixtures, equipment, or
materials, or from liability for death of or injury to any person,
during any such entry prior to the Term Commencement Date to the extent
caused by the negligence or willful acts of Tenant or its agents and/or
contractors (and their agents, contractors and subcontractors), and
subject to Tenant's right to seek contribution or indemnity from
Landlord
or other responsible party. Landlord agrees to indemnify, protect,
defend and hold Tenant harmless from any and all loss or damage to
property, completed work, fixtures, equipment, or materials, or from
liability for death of or injury to any person, during any such entry
prior to the Term Commencement Date to the extent caused by the
negligence or willful acts of Landlord or its agents and/or contractors
(and their agents, contractors and subcontractors), and subject to
Landlord's right to seek contribution or indemnity from Tenant or other
responsible party.
4.7 Tenant shall be responsible for construction of
Tenant's Improvements in the Premises pursuant to the Work Letter at the
sole cost of Tenant, without any contribution or reimbursement by
Landlord (except to the extent of Landlord's indemnity obligations under
Section 4.6), at a cost not to be less than Twenty Five Dollars ($25.00)
per square foot of Rentable Area. However, with regard to any space
that
Tenant does not intend to initially occupy (up to a maximum of 20,000
square feet of Rentable Area), Tenant shall not be required to construct
improvements at a cost per square foot greater than that required to
finish interior surfaces of interior walls to the extent they are ready
for paint, the floor is carpeted or tiled, HVAC and other utility
systems
and bathrooms are in place. If and to the extent required by Landlord's
construction lender, Tenant shall provide assurances reasonably
satisfactory to such lender of Tenant's ability to fund the construction
of Tenant's Improvements in accordance with the terms of this Lease and
the Work Letter.
5. Rent.
5.1 Tenant agrees to pay Landlord as Basic Annual Rent
for the Premises the sum set forth in Section 2.1.2, subject to the
rental adjustments provided in Sections 6.1 and 8.2. Basic Annual Rent
shall be paid in the equal monthly installments set forth in Section
2.1.3, subject to the rental adjustments provided in Sections 6.1 and
8.2, each in advance on the first day of each and every calendar month
during the term of this Lease, except that the first month's Basic
Annual
Rent shall be paid upon the execution hereof in addition to the Security
Deposit in the amount set forth in Section 2.1.3. On the Term
Commencement Date, the first month's Basic Annual Rent deposit shall be
credited to the Basic Annual Rent due for the calendar month in which
rental commences and any balance will be a credit against the next
rental
to become due. Prior to the Term Commencement Date, the deposit of the
first month's Basic Annual Rent shall constitute additional security for
Tenant's obligations hereunder and be treated in like manner as the
Security Deposit.
5.2 In addition to Basic Annual Rent, Tenant agrees to
pay to Landlord as additional rent ("Additional Rent"), at the times
hereinafter specified in this Lease, the costs of management and
administrative services as provided in Article 7.1, and all other
amounts
that Tenant agrees to pay under the provisions of this Lease, including
without limitation (i) any and all other sums that may become due by
reason of any default of Tenant or failure on Tenant's part to comply
with the agreements, terms, covenants and conditions of this Lease to be
performed by Tenant, and (ii) expenses of Landlord's performance of any
obligations of Tenant under this Lease.
5.3 Basic Annual Rent and Additional Rent shall together
be denominated "Rent". Rent shall be paid to Landlord in lawful money
of
the United States of America, at the office of Landlord as set forth in
Section 2.1.7 or to such other person or at such other place as Landlord
may from time to time designate in writing, without notice, demand,
abatement, suspension, deduction, setoff, counterclaim, or defense.
5.4 In the event the term of this Lease commences or ends
on a day other than the first day of a calendar month, then the Rent for
such fraction of a month shall be prorated for such period on the basis
of a thirty (30) day month and shall be paid at the then current rate
for such fractional month prior to the commencement of the partial
month.
6. Rental Adjustments.
6.1 Basic Annual Rent then in effect (as increased by
previous adjustments under this Section 6.1) shall be increased four
percent (4%) on each annual anniversary of the Term Commencement Date.
7. Additional Rent and Expenses.
7.1 As Additional Rent, Tenant shall pay or reimburse
Landlord for costs of management and administrative services in an
amount
equal to two percent (2%) of the Basic Annual Rent due from Tenant
("Management Fee"), whether or not Landlord incurs fees payable to any
third party to provide such services and without regard to the actual
costs incurred by Landlord for such services.
7.2 Tenant shall pay, at its own cost and expense and
without any cost or expense to Landlord, or reimbursement or
contribution
by Landlord, directly to the provider of the services, all costs of any
kind incurred in connection with the operation, maintenance, repairs,
replacements and management of the Premises, including, except as
otherwise set forth in Sections 7.5, 18.1, and 20.1, and Articles 22 and
23, or elsewhere in this Lease, (i) reasonable costs directly related to
maintenance and repairs to improvements, fixtures and personal property
within the Premises, including the roof membranes (but not the roof
structure itself), as appropriate to maintain the Premises in
commercially reasonable condition (allowing wear and tear consistent
with
commercially reasonable maintenance and repair standards applicable to
comparable buildings), but shall exclude any costs related to defects in
design, materials or construction to Landlord's Work to the extent of
Landlord's warranties in Article 14; (ii) costs of new improvements and
fixtures added to the Premises by Tenant; (iii) costs of utilities
furnished to the Premises; (iv) sewer use fees; (v) costs of cable TV
when applicable; (vi) costs of trash collection; (vii) costs of
cleaning;
(viii) costs of maintenance, repairs and replacements of heating,
ventilation, air conditioning, plumbing, electrical and other systems
(but excluding costs related to defects in design, materials or
construction of such systems to the extent they were included within
Landlord's Work to the extent of Landlord's warranties in Article 14);
(ix) costs of security services and devices; (x) costs of building
supplies; (xi) insurance premiums pursuant to Section 21.2 and portions
of insured losses deductible by reason of insurance policy terms subject
to the limitations contained in Section 21.8; (xii) costs of service
contracts and services of independent contractors retained to do work of
a nature before referenced; (xiii) taxes and assessments pursuant to
Sections 13.1 and 13.2; and (xv) costs of compliance with applicable
Laws
(except costs of modifications to Landlord's Work required by something
other than a change in Tenant's use or occupancy of the Premises).
Notwithstanding anything to the contrary in this Lease, costs incurred
by Tenant for replacement of major HVAC components, the parking lot, and
the roof (including structural elements and roof membranes) and, except
to the extent required as a result of a change in Tenant's use or
occupancy of the Premises, costs to construct alterations, additions
and/or improvements required by applicable Laws, with a useful life in
excess of the balance of the initial term shall be reimbursed to Tenant
by Landlord at the time the replacement or improvement is made in the
proportion that the remaining useful life during any period of time
following the expiration of the initial term bears to the entire useful
life of the item; in the event Tenant exercises its option to extend the
term, Tenant shall at such time reimburse Landlord for the pro rata
portion paid by Landlord for the extension term. By way of example
only, if in the tenth
(10th) year of the Lease Term, Tenant is required to replace an HVAC
compressor with a useful life of fifteen (15) years and at a cost of
Sixty Thousand Dollars ($60,000), then Tenant would be responsible for
paying for the replacement and, at the time that Tenant makes such
payment, Landlord would be obligated to pay to Tenant in cash Fifty-Two
Thousand Dollars ($52,000) (($60,000) x (13/15)). If, in such example,
Tenant exercises its option to extend the Lease Term for five (5) years,
then at the commencement of the option term, Tenant would be obligated
to pay Landlord Twenty Thousand Dollars ($20,000) (($60,000/15) x (5)).
7.3 Notwithstanding anything herein to the contrary,
Landlord shall pay, at its own cost and expense and without any cost or
expense to Tenant, or reimbursement or contribution by Tenant, the costs
described in Section 18.1 and any other cost described herein for which
Tenant is not responsible.
7.4 Notwithstanding anything in this Lease to the
contrary, Tenant shall not be responsible, and Landlord shall be
responsible, for the payment of the following costs and expenses:
(a) costs incurred for the construction, repair,
maintenance or replacement of the Premises or any portion or component
thereof, to the extent of (i) proceeds of insurance which Tenant is
required to maintain under the Lease or maintains on the Premises (but
Tenant shall be responsible for payment of any deductibles and uninsured
losses as set forth in Article 21), and (ii) any reimbursement which
Landlord receives therefor under any warranties or from any third party;
(b) costs incurred for the construction, repair,
maintenance or replacement of the Premises or any portion or component
thereof resulting from the active or passive negligence or willful
misconduct of Landlord, or its agents, employees, contractors, or
invitees, except to the extent of proceeds of insurance which Tenant is
required to maintain under this Lease which covers such conduct;
(c) costs incurred for the repair, maintenance or
replacement of the foundations, structural walls, floors, including the
second floor deck, and roof of the Premises to the extent set forth in
Section 18.1;
(d) costs of construction of the Landlord's Work;
(e) costs incurred to correct any patent or latent
defects in the design, materials or construction of Landlord's Work to
the extent of Landlord's warranties under Article 14;
(f) costs, expenses and penalties (including without
limitation attorneys fees) incurred as a result of the use, storage,
removal or remediation of any toxic or hazardous substances or other
environmental contamination not caused by Tenant;
(g) rentals and other payments by Landlord under any
ground lease or other lease underlying the Lease, and interest,
principal, points and other fees on debt or amortization of any debt
secured in whole or part by all or any portion of the Premises;
(h) costs incurred in connection with the financing,
sale or acquisition of the Premises or any portion thereof;
(i) costs, expenses, and penalties (including
without limitation attorneys' fees) incurred due to the violation by
Landlord of any underlying deed of trust, mortgage or ground lease
affecting the Premises or any portion thereof;
(j) depreciation on the Premises or any portion
thereof, or any equipment or machinery owned by Landlord;
(k) any costs incurred as a result of Landlord's
violation of any statute, ordinance or other source of applicable law,
or breach of contract or tort liability to any other party, including
without limitation, any unrelated third party, or Landlord's
employee(s), contractor(s), subcontractor(s), agent(s) or
representative(s);
(l) leasing commissions, attorneys' fees and other
costs and expenses incurred in connection with the leasing of the
Premises;
(m) advertising, marketing, media and promotional
expenditures regarding the Premises and costs of signs in or on the
Building identifying the owner, lender or any contractor thereof;
(n) costs incurred to comply with the Americans with
Disabilities Act except to the extent otherwise expressly provided
herein;
(o) costs incurred to comply with Title 24 of the
California Code of Regulations except to the extent otherwise expressly
provided herein;
(p) costs incurred to comply with any other existing
laws, rules, regulations, codes or permits except to the extent
otherwise expressly provided herein;
(q) any fees or salaries of the principals of
Landlord;
(r) any costs and expenses arising from or related
to breach of Landlord's warranties in Sections 14.4 and 14.5 hereof; and
(s) any costs and expense incurred as a result of
conditions existing as of or prior to the Term Commencement Date to the
extent of required modifications to Landlord's Work, unless caused by a
change in use or occupancy of the Premises by Tenant;.
7.5 Tenant shall not be responsible for Rent or any other
expenses under this Lease attributable to the time period prior to the
Term Commencement Date.
7.6 The Management Fee for the calendar year in which
Tenant's obligation to pay them commences and in the calendar year in
which such obligation ceases shall be prorated. Expenses such as taxes
and assessments and insurance which are incurred for an extended time
period shall be prorated based upon time periods to which they are
applicable so that the amounts attributed to the Premises relate in a
reasonable manner to the time period wherein Tenant has an obligation to
pay Rent.
7.7 In fulfilling its obligations set forth in
Section 7.2 and Article 18, Tenant shall maintain the HVAC system,
elevator and other systems in accordance with no less than the minimum
standards established by the manufacturer and the minimum standards
necessary to maintain any warranties in effect, and Tenant may enter
into
such maintenance contracts as Tenant determines is reasonably necessary
in order to do so. Landlord shall have the right, upon reasonable
notice, to inspect and copy any such maintenance contracts, as well as
records of maintenance conducted by Tenant or any such service provider.
7.8 Landlord shall have the right, upon reasonable
notice, to inspect and copy documents showing in reasonable detail the
actual expenses paid by Tenant pursuant to Section 7.2 and Article 16
(Utilities and Services) of this Lease. Tenant shall maintain such
documents as are reasonably necessary for such purpose for a period of
not less than three (3) years.
8. Rentable Area.
8.1 The Rentable Area of the Premises as set forth in
Section 2.1.1 and as referenced within the Work Letter and as may
otherwise be referenced within this Lease, is determined by making
separate calculations of the Rentable Area of each floor within the
Building and totalling the Rentable Area of all floors within the
Building (excluding any parking areas). The Rentable Area of a floor is
calculated by measuring to the outside finished surface of each
permanent
outer Building wall where it intersects the floor. The full area
calculated as set forth above is included as Rentable Area of the
Premises without deduction for (i) columns or projections, (ii) vertical
penetrations such as stairs, elevator shafts, flues, pipe shafts,
vertical ducts, and the like, and their enclosing walls, (iii)
corridors,
equipment rooms, rest rooms, entrance ways, elevator lobbies, and the
like, and their enclosing walls, or (iv) any other unusable area of any
nature.
8.2 The Rentable Area as set forth in Section 2.1.1 is an
estimate of the area which will upon completion of development of the
Building constitute the Rentable Area of the Premises, which shall be
adjusted upon Substantial Completion of the Building in accordance with
a certification of the Rentable Area from the Project Architect. If
either party disputes the certification of the Project Architect, upon
Substantial Completion of the Building Shell, the Rentable Area shall be
field measured and confirmed by a mutually agreeable architect or civil
engineer, which measurement shall be conclusive and binding on Landlord
and Tenant. If the Rentable Area as determined hereunder is greater or
less than the Rentable Area set forth in Section 2.1.1, Basic Annual
Rent and monthly installments of Basic Annual Rent shall be adjusted
upward or downward, as the case may be, based on the actual Rentable
Area of the Premises.
9. Security Deposit.
9.1 Promptly upon execution of this Lease, Tenant shall
deposit with Landlord the sum set forth in Section 2.1.6, which sum
shall
be held by Landlord as security for the faithful performance by Tenant
of
all of the terms, covenants, and conditions of this Lease to be kept and
performed by Tenant during the term and any extension term hereof. If
Tenant defaults with respect to any provision of this Lease, including
but not limited to any provision relating to the payment of Rent, and
subject to any notice requirements and cure periods for Tenant's benefit
set forth in Article 24, Landlord may (but shall not be required to)
use,
apply or retain all or any part of such security deposit for the payment
of any Rent or any other sum in default, or to compensate Landlord for
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of said deposit is so used or applied, Tenant
shall, upon demand therefor, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount and
Tenant's failure to do so shall be a material default of this Lease.
Landlord shall not be required to keep this security deposit separate
from its general fund, and Tenant shall not be entitled to interest on
such deposit.
9.2 In the event of bankruptcy or other debtor-creditor
proceeding against Tenant, such security deposit shall be deemed to be
applied first to the payment of Rent and other charges due Landlord for
all periods prior to the filing of such proceedings.
9.3 Landlord may deliver the funds deposited hereunder by
Tenant to any purchaser of Landlord's interest in the Premises and
thereupon Landlord shall be discharged from any further liability with
respect thereto. This provisions shall also apply to any subsequent
transfers.
9.4 So long as Tenant is not in material default as of
the Term Commencement Date, the security deposit, or any balance
thereof,
shall be returned to Tenant upon the Term Commencement Date.
10. Use.
10.1 Tenant may use the Premises for any of those
purposes, and only those purposes, allowed by (i) City of San Jose
zoning
ordinances in effect from time to time and as applicable to the
Premises,
(ii) any other applicable laws, regulations, ordinances, permits and
approvals applicable to the Premises, and (iii) all covenants,
conditions
and restrictions recorded against the Real Property, and shall not use
the Premises, or permit or suffer the Premises to be used, for any other
purpose without the prior written consent of Landlord. Landlord
warrants
that, as of the Term Commencement Date, Tenant's intended use of the
Premises for manufacture, assembly, distribution and sales of Tenant's
products, and for office and other activities related thereto, are
permitted uses under applicable zoning ordinances, and, to the best of
Landlord's knowledge, under other applicable laws, regulations,
ordinances, permits and approvals applicable to the Premises. Landlord
represents and warrants that there are no covenants, conditions and
restrictions on the Real Property which will interfere with Tenant's
intended use of the Premises. Landlord acknowledges that Tenant intends
to install numerous antennas on the roof of the Building.
10.2 Tenant shall use the Premises in compliance with all
federal, state, and local laws, regulations, ordinances, requirements,
permits and approvals applicable to the Premises. Tenant shall not use
or occupy the Premises in violation of any law or regulation, or the
certificate of occupancy issued for the Building, and shall, upon five
(5) days' written notice from Landlord, discontinue any use of the
Premises which is declared by any governmental authority having
jurisdiction to be a violation of law or the certificate of occupancy.
10.3 Tenant shall comply with any direction of any
governmental authority having jurisdiction which shall, by reason of the
nature of Tenant's use or occupancy of the Premises, impose any duty
upon
Tenant or Landlord with respect to the Premises or with respect to the
use or occupation thereof, including any duty to make structural or
capital improvements, alterations, repairs and replacements to the
Premises. However, Landlord shall have the obligation to make any such
improvements to the Land Improvements or the Building Shell unless
required by a government authority because of a change in Tenant's use
or
occupancy of the Premises. Tenant's obligation to make structural or
capital improvements, alterations, repairs and replacements to any
portion of the Premises other than the Land Improvements and Building
Shell shall not exceed the amortized amount described in the last three
sentences of Section 7.2. Both Landlord and Tenant shall have the right
to contest any such direction of a governmental authority.
10.4 Landlord warrants that the work required of Landlord
under the Work Letter shall be in compliance with the Americans with
Disabilities Act of 1990 ("ADA") at the time possession is tendered to
Tenant. Tenant shall comply with the ADA, and the regulations
promulgated thereunder, as amended from time to time. All
responsibility
for compliance with the ADA relating to the Premises and the activities
conducted by Tenant within the Premises shall be exclusively that of
Tenant and not of Landlord, including any duty to make structural or
capital improvements, alterations, repairs and replacements to the
Premises (subject to the limitation set forth in the last three
sentences
of Section 7.2); however, Landlord shall have the duty to make such
structural or capital improvements, alterations, repairs and
replacements
to the Land Improvements and the Building Shell if the duty to do so
under ADA is triggered by something other than a change in Tenant's use
or occupancy of the Premises. Any alterations to the Premises made by
Tenant for the purpose of complying with the ADA or which otherwise
require compliance with the ADA shall be done in accordance with
Article 17 of this Lease; provided, that Landlord's consent to such
alterations shall not constitute either Landlord's assumption, in whole
or in part, of Tenant's responsibility for compliance with the ADA, or
representation or confirmation by Landlord that such alterations comply
with the provisions of the ADA.
Nothing in this Lease shall be construed to require
either Landlord or Tenant to make structural or capital improvements,
alterations, repairs or replacements to comply with ADA unless and until
required to do so by order of any government entity or court of law
exercising proper jurisdiction with regard thereto, subject to any right
to appeal or otherwise contest any such order.
10.5 Tenant may install signage on the Building to the
extent permitted by, and in conformity with, applicable provisions of
any
City of San Jose sign ordinance, any other applicable governmental sign
regulation, and any covenants, conditions and restrictions recorded
against the Real Property. Tenant acknowledges it is not relying on any
representations or warranty of Landlord regarding the number, size or
location of any signage. No other sign, advertisement, or notice shall
be exhibited, painted or affixed by Tenant on any part of the Premises
which is visible from outside the Building, or any part of the exterior
of the Building or elsewhere in the Premises, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld.
The expense of design, permits, purchase and installation of any signs
shall be the responsibility of Tenant and the cost thereof shall be
borne
by Tenant. At the termination of the Lease, all signs shall be the
property of Tenant and may be removed from the Premises by Tenant,
subject to the provisions of Article 30.
10.6 No equipment shall be placed at a location within the
Building other than a location designed to carry the load of the
equipment. Equipment weighing in excess of floor loading capacity shall
not be placed in the Building.
10.7 Tenant shall not use or allow the Premises to be used
for any unlawful purpose.
11. Brokers.
11.1 Landlord and Tenant represent and warrant one to the
other that there have been no dealings with any real estate broker or
agent in connection with the negotiation of this Lease other than The
Commercial Property Services Company, the fees of which shall be paid by
Landlord, and that to the best of their knowledge, no other real estate
broker or agent is or might be entitled to a commission in connection
with this Lease. Each shall indemnify, defend, protect, and hold
harmless the other from any claim of any other broker as a result of any
act or agreement of the indemnitor.
11.2 Landlord and Tenant each represent and warrant to the
other that no broker or agent has made any representation or warranty
relied upon by such party in its decision to enter into this Lease other
than as contained in this Lease.
11.3 The employment of brokers by Landlord is for the
purpose of solicitation of offers of lease from prospective tenants and
no authority is granted to any broker to furnish any representation
(written or oral) or warranty from Landlord unless placed within this
Lease. Landlord and Tenant in executing this Lease do so in reliance
upon the other's representations and warranties contained within
Sections 11.1 and 11.2.
12. Holding Over.
12.1 If, with Landlord's consent, Tenant holds possession
of all or any part of the Premises after the expiration or earlier
termination of this Lease, Tenant shall become a tenant from month to
month upon the date of such expiration or earlier termination, and in
such case Tenant shall continue to pay in accordance with Article 5 the
Basic Annual Rent as adjusted from the Term Commencement Date, together
with the Management Fee in accordance with Article 7 and other
Additional
Rent as may be payable by Tenant, and such month-to-month tenancy shall
be subject to every other term, covenant and condition contained herein.
12.2 If Tenant remains in possession of all or any portion
of the Premises after the expiration or earlier termination of the term
hereof without the express written consent of Landlord, Tenant shall
become a tenant at sufferance upon the terms of this Lease except that
monthly rental shall be equal to one hundred fifteen percent (115%) of
the Basic Annual Rent in effect during the last twelve (12) months of
the Lease term.
12.3 Acceptance by Landlord of Rent after such expiration
or earlier termination shall not result in a renewal or reinstatement of
this Lease.
12.4 The foregoing provisions of this Article 12 are in
addition to and do not affect Landlord's right to re-entry or any other
rights of Landlord under Article 24 or elsewhere in this Lease or as
otherwise provided by law.
13. Taxes and Assessments.
13.1 Tenant shall pay and discharge as they become due,
promptly and before delinquency, all taxes, assessment, rates, charges,
license fees, municipal liens, levies, excises or imposts, whether
general or special, or ordinary or extraordinary, of every name, nature,
and kind whatsoever, including all governmental charges of whatsoever
name, nature, or kind, which may be levied, assessed, charged, or
imposed, or may become a lien or charge on the Premises, or any part
thereof, or any improvements now or hereafter thereon, or on Landlord by
reason of its ownership of the Premises or any part thereof, during the
entire term hereof, saving and excepting only those taxes hereinafter in
this Lease specifically excepted. Notwithstanding the foregoing, Tenant
shall not be in Default for failure to pay any such tax or other payment
until ten (10) days after receipt of a written bill or statement
therefore from Landlord.
13.2 Specifically and without in any way limiting the
generality of the foregoing, Tenant shall pay any and all special
assessments or levies or charges made by any municipal or political
subdivision for local improvements, and shall pay the same in cash as
they shall fall due and before they shall become delinquent and as
required by the act and proceedings under which any such assessments or
levies or charges are made by any municipal or political subdivision.
If
the right is given to pay either in one sum or in installments, Tenant
may elect either mode of payment subject to Landlord's approval. If by
making an election to pay in installments, any of the installments shall
be payable after the termination of this Lease or any extended term
thereof, the unpaid installments shall be prorated as of the date of
termination, and amounts payable after said date shall be paid by
Landlord without reimbursement from Tenant. All other taxes and charges
payable under this Article 13 shall be prorated as of and payable at the
commencement and expiration of the term of this Lease, as the case may
be. Landlord shall not during the term of this Lease undertake any
action to place any special assessments, levies or charges on the
Premises without first obtaining the prior written approval of Tenant,
other than those due to Landlord's acquisition of the Real Property and
construction of the Premises pursuant to the Work Letter, and other than
those imposed by the City of San Jose or other government entity over
which Landlord has no control. If Landlord does undertake such action
without Tenant's approval, Tenant shall not be required to pay or
reimburse Landlord for such special assessments, levies or charges
sought by such action.
13.3 Anything in this Article 13 to the contrary
notwithstanding, Tenant shall not be required to pay or reimburse
Landlord for any estate, gift, inheritance, succession, franchise,
income, excess profits, sales or payroll taxes, or any tax in the nature
of a transfer tax arising from the conveyance of the Premises or the
recording of a deed of trust or mortgage encumbering the Premises, that
may be payable by Landlord or Landlord's legal representative,
successors, or assigns.
13.4 Any and all rebates on account of taxes, rates,
levies, charges or assessments paid or reimbursed by Tenant under the
provisions of this Lease shall belong to Tenant, and Landlord will, on
the request of Tenant, execute any receipts, assignments, or other
acquittances that may be necessary in order to secure the recovery of
the
rebates, and will pay over to Tenant any rebates that may be received by
Landlord.
13.5 Tenant shall pay before delinquency, without
reimbursement or contribution from Landlord, taxes levied against any
fixtures, equipment and personal property in or about the Premises,
including any and all personal property installed as part of the work
required of Landlord under the Work Letter.
13.6 If Tenant shall in good faith desire to contest the
validity or amount of any tax, assessment, levy, or other governmental
charge herein agreed to be paid or reimbursed by Tenant, Tenant shall be
permitted to do so, and to defer the payment of said tax or charge, the
validity or amount of which Tenant is so contesting, until final
determination of the contest, by giving to Landlord written notice
thereof prior to the commencement of any contest, which shall be at
least
fifteen (15) days prior to delinquency, and, if requested by Landlord
during the last three years of the term, by protecting Landlord on
demand
by a good and sufficient surety bond against any tax, levy, assessment,
rate or governmental charge, and from any costs, penalties, interest,
liability, or damage arising out of a contest. Landlord shall not be
required to join in any proceeding or contest brought by Tenant unless
the provisions of any law require that the proceeding or contest be
brought by or in the name of Landlord. In that case, Landlord shall
join
in the contest or permit it to be brought in Landlord's name so long as
Landlord is not required to bear any costs. Tenant, on final
determination of the contest, shall immediately pay or discharge any
decision or judgment rendered, together with all costs, charges,
interest
and penalties incidental to the decision or judgment.
13.7 If Tenant shall from time to time desire to seek a
reassessment of the Premises for real property tax purposes, Tenant
shall
be permitted to do so. Landlord shall not be required to join in any
such proceeding unless the provisions of any law require that the
proceeding to be brought by or in the name of Landlord. In that case,
Landlord shall join in the proceeding and permit it to be brought in
Landlord's name so long as Landlord is not required to bear any costs.
13.8 To the extent Tenant fails to make any payment
required by this Article 13 and Landlord does so on Tenant's behalf,
Tenant shall reimburse Landlord for the cost thereof pursuant to the
provisions of Sections 7.1 and 24.3 of this Lease.
14. Condition of Premises.
14.1 Tenant acknowledges that neither Landlord nor any
agent of Landlord has made any representation or warranty, express or
implied, with respect to the condition of the Premises, or to the work
required of Landlord under the Work Letter, except as set forth herein,
or with respect to their suitability for the conduct of Tenant's
business.
14.2 Upon Substantial Completion of the Premises, Tenant
shall accept the Premises in the condition in which they then exist, and
shall waive any right or claim Tenant may have against Landlord for any
cause directly or indirectly arising out of the condition or delay in
delivery of possession of the Premises, appurtenances thereto, the
improvements thereon and the equipment thereof, except for (i) damages
in
the event of completion delays to the extent of Section 4.4 hereof, (ii)
the warranties made by Landlord under Sections 14.4 and 14.5 to the
extent thereof, (iii) covenants and representations made by Landlord in
Article 39, (iv) the obligation to deliver the Premises lien-free
pursuant to Section 35.4, (v) the completion of punch list items
relating
to the Building Shell and Land Improvements pursuant to the provisions
of
the Work Letter, and (vi) any other duties or obligations of Landlord
arising under the provisions of this Lease and applicable law. Tenant
shall thereafter indemnify, defend, protect and hold Landlord harmless
from liability, as provided in Article 20 of the Lease.
14.3 Tenant's taking possession of the Premises and
acceptance of the Premises shall not constitute a waiver of any claims
based upon warranty or defect in regard to design, materials, or
construction of Landlord's Work under the Work Letter against the design
professional, contractor, materialman, manufacturer, or other
responsible
party (other than Landlord, whose liability is described in Section 14.4
and 14.5 below), nor for failure of any such party (other than Landlord)
to comply with all applicable building code requirements, regulations,
laws, rules, orders, ordinances, directions, permits, approvals, and
requirements of all governmental agencies, offices, departments, bureaus
and boards having jurisdiction, nor for failure to comply with the
rules,
orders, directions, regulations, and requirements of any applicable fire
rating bureau. Landlord hereby assigns to Tenant, and Tenant shall have
the benefit of, on a non-exclusive basis, any and all warranties with
respect to the design, materials and construction of the work required
of
Landlord under the Work Letter which are assignable to Tenant, together
with all other rights and claims it may have against any design
professional, contractor, materialman, manufacturer, or other
responsible
party, or from applicable insurance policies. Landlord and Tenant agree
to cooperate with regard to the enforcement of all such warranties,
rights and claims. Tenant shall comply with whatever maintenance and
similar standards are required to maintain any applicable warranties in
affect.
14.4 Landlord warrants to Tenant that Landlord's Work will
be on Substantial Completion built in a good and workmanlike manner and
in compliance with the plans and specifications approved under the Work
Letter and all applicable building code requirements, laws, rules,
orders, ordinances, directions, regulations, permits, approvals, and
requirements of all governmental agencies, offices, departments, bureaus
and boards having jurisdiction, and with the rules, orders, directions,
regulations, and requirements of any applicable fire rating bureau.
14.5 Landlord warrants to Tenant that Landlord's Work will
be on Substantial Completion free of patent and latent defects in
design,
materials and construction. The warranty given by Landlord in this
Section 14.5 shall terminate one (1) year after the recording of the
notice of completion of the Premises, except for any breach claimed by
Tenant as long as Tenant has notified Landlord in writing of such claim
of breach (identifying the breach in reasonable detail) within such one
(1) year period. The warranty given by Landlord shall be extended to
the
extent of any warranty given by a design professional, contractor,
materialman, manufacturer, or other responsible party which exceeds one
(1) year after the recording of the notice of completion.
Notwithstanding the foregoing, (i) Landlord's warranty with regard to
latent defects in the design, materials and construction of the parking
areas shall not terminate after one (1) year and shall continue for the
entire Lease Term and any extensions hereof, and (ii) Landlord's
warranty
with regard to defects in the design, materials and construction of the
roof membranes shall not terminate after one (1) year, but shall
terminate ten (10) years after the recording of the notice of completion
of the Premises, except for any breach claimed by Tenant as long as
Tenant has notified Landlord in writing of such claim of breach
(identifying the breach in reasonable detail) within such ten (10) year
period.
14.6 Nothing in this Article 14 shall restrict Tenant's
right to pursue remedies against any responsible party other than
Landlord. Landlord and Tenant shall cooperate with regard to the repair
and replacement of any improvements for which they are responsible from
recoveries from any applicable warranty or insurance policy. Any and
all
warranties set forth in this Article 14 shall survive the expiration or
earlier termination of the Lease.
15. Parking Facilities.
15.1 Tenant acknowledges that any exterior areas used for
Tenant's equipment, equipment enclosures, trash enclosures, mechanical
systems, and the like will reduce available parking.
15.2 Tenant shall not place any equipment, storage
containers or any other property on the surface parking area except in
accordance with the plans and specification approved pursuant to the
Work
Letter or as otherwise approved by Landlord, which approval shall not be
unreasonably withheld.
16. Utilities and Services.
16.1 Tenant shall pay directly to the provider, prior to
delinquency, for all water, gas, electricity, telephone, sewer, and
other
utilities which may be furnished to the Premises during the term of this
Lease, together with any taxes thereon. The cost of installing all
utility meters shall be paid by Tenant.
16.2 Landlord shall not be liable for, nor shall any
eviction of Tenant result from, any failure of any such utility or
service, provided such failure is not due to the gross negligence or
willful misconduct of Landlord, and in the event of such failure Tenant
shall not be entitled to any abatement or reduction of Rent, nor be
relieved from the operation of any covenant or agreement of this Lease,
and Tenant waives any right to terminate this Lease on account thereof.
17. Alterations.
17.1 Tenant shall make no alterations, additions or
improvements (hereinafter in this article, "improvements") in or to the
Premises, other than interior non-structural improvements the cost of
which does not exceed $50,000, without Landlord's prior written consent,
which shall not be unreasonably withheld. Tenant shall deliver to
Landlord final plans and specifications and working drawings for the
improvements to Landlord, and Landlord shall have fifteen (15) days
thereafter to grant or withhold its consent. If Landlord does not
notify
Tenant of its decision within the fifteen (15) days, Landlord shall be
deemed to have given its approval.
17.2 If a permit is required to construct the
improvements, Tenant shall deliver a completed, signed-off inspection
card to Landlord within ten (10) days of completion of the improvements,
and shall promptly thereafter obtain and record a notice of completion
and deliver a copy thereof to Landlord.
17.3 The improvements shall be constructed only by
licensed contractors approved by Landlord, which approval shall not be
unreasonably withheld. Any such contractor must have in force a general
liability insurance policy with commercially reasonable limits, which
policy of insurance shall name Landlord as an additional insured.
Tenant
shall provide Landlord with a copy of the contract with the contractor
prior to the commencement of construction.
17.4 Tenant agrees that any work by Tenant shall be
accomplished in such a manner as to permit any fire sprinkler system and
fire water supply lines to remain fully operable at all times except
when
minimally necessary for building reconfiguration work.
17.5 Tenant covenants and agrees that all work done by
Tenant shall be performed in compliance with all laws, rules, orders,
ordinances, directions, regulations, permits, approvals, and
requirements
of all governmental agencies, offices, departments, bureaus and boards
having jurisdiction, and in full compliance with the rules, orders,
directions, regulations, and requirements of any applicable fire rating
bureau. Tenant shall provide Landlord with "as-built" plans showing any
change in the Premises within thirty (30) days after completion.
17.6 Landlord shall make no improvements in or to the
Premises without Tenant's prior written consent, and the provisions of
this article shall apply to improvements undertaken by Landlord to the
same extent as they apply to improvements undertaken by Tenant.
18. Repairs and Maintenance.
18.1 Landlord shall, throughout the term of this Lease, at
its own cost and expense, and without any cost or expense to Tenant,
keep
and maintain in good condition and repair the structural components, but
not the surface finishes or cosmetic improvements, of (i) the
foundations, (ii) structural walls (including responsibility for the
watertight integrity of the exterior glazing and framing system), (ii)
floors, including the second floor deck, and (iii) structural roof (but
excluding the roof membranes) of the Premises (subject to wear and tear
consistent with commercially reasonable maintenance and repair standards
applicable to comparable buildings). However, Tenant shall take all
reasonable precautions to insure that, in accordance with Section 10.6,
the second floor deck is not over-loaded with improvements, fixtures or
equipment. In addition, Landlord shall, at its own cost and expense,
and
without any cost or expense to Tenant, promptly repair any patent or
latent defects in the design, materials or construction of the work
required of Landlord under the Work Letter to the extent of Landlord's
warranties in Section 14.4 and 14.5 hereof.
18.2 Except as otherwise set forth in Sections 18.1 and
elsewhere in this Lease, including without limitation Articles 7, 21, 22
and 23, throughout the term of this Lease, at its own cost and expense,
and without any cost or expense to Landlord, Tenant shall keep and
maintain in good, sanitary and neat order, condition, and repair, the
Premises and every part thereof (subject to wear and tear consistent
with
commercially reasonable maintenance and repair standards applicable to
comparable buildings), including all improvements, fixtures, equipment
and personal property, and all appurtenances thereto, including but not
limited to water, gas and electrical distribution systems and
facilities,
all signs, both illuminated and non-illuminated that are now or
hereafter
on the Premises, and exterior sidewalks, parking areas, curbs, internal
roads, driveways, lighting standards, landscaping, sewers, and drainage
facilities.
18.3 If Landlord fails to make any repairs required of
Landlord under this Article 18, and such failure unreasonably interferes
with Tenant's use or occupancy of the Premises and continues for more
than fifteen (15) days after written notice from Tenant to Landlord
demanding performance by Landlord, Tenant may, without waiving or
releasing Landlord from any obligation therefore, make such repairs on
behalf of Landlord. However, Tenant may not deduct the cost thereof
from, or set off the cost against, Basic Annual Rent except in
accordance
with the provisions of Article 26. Tenant waives Civil Code Sections
1941 and 1942 relating to a landlord's duty to maintain the Premises in
a
tenantable condition, and under said sections or under any law, statute
or ordinance now or hereafter in effect to make repairs at Landlord's
expense, so that the parties' rights and obligations regarding repairs
and maintenance shall be governed by this Article 18, Article 26, and
other applicable provisions of this Lease.
18.4 There shall be no abatement of Rent and no liability
of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or
improvements in or to any portion of the Premises, or in or to
improvements, fixtures, equipment and personal property therein,
provided
that Landlord makes commercially reasonable efforts to comply with its
repair and replacement obligations under this Article 18 at such times
and in such manner as do not unreasonably interfere with Tenant's use or
occupancy of the Premises. If repairs or replacements become necessary
which by the terms of this Lease are the responsibility of Tenant and
Tenant fails to make the repairs or replacements, Landlord may do so
pursuant to the provisions of Section 24.3 of this Lease.
19. Liens.
19.1 Tenant shall keep the Premises and every part thereof
free from any liens arising out of work performed, materials furnished
or
obligations incurred by Tenant. Tenant further covenants and agrees
that
any mechanic's lien filed against the Premises for work claimed to have
been done directly for, or materials claimed to have been furnished to,
Tenant, will be discharged by Tenant, by bond or otherwise, within
thirty
(30) days after the filing thereof (or within ten (10) days after the
filing thereof if requested by Landlord as necessary to facilitate a
pending sale or refinancing), at the cost and expense of Tenant.
19.2 Should Tenant fail to discharge any lien of the
nature described in Section 19.1, Landlord may at Landlord's election
pay
such claim or post a bond or otherwise provide security to eliminate the
lien as a claim against title and the cost thereof shall be immediately
due from Tenant as Additional Rent.
19.3 In the event Tenant shall lease or finance the
acquisition of office equipment, furnishings, or other personal property
utilized by Tenant in the operation of Tenant's business, should any
holder of a security agreement executed by Tenant record or place of
record a financing statement which appears to constitute a lien against
any interest of Landlord, Tenant shall upon request of Landlord (i)
cause
copies of the security agreement or other documents to which the
financing statement pertains to be furnished to Landlord to facilitate
Landlord's being in a position to show such lien is not applicable to
any
interest of Landlord, and (ii) cause the holder of the security interest
to amend documents of record so as to clarify that such lien is not
applicable to any interest of Landlord in the Premises. Nothing herein
shall be deemed to imply any security interest in favor of Landlord in
any fixtures or personal property owned by Tenant, or that Tenant may
not
grant security interests in its property to others. Upon request of
Tenant, Landlord shall execute documents in a form reasonably acceptable
to Tenant to evidence Landlord's waiver of any right, title, lien or
interest in any fixtures or personal property owned by Tenant which
Tenant has the right to remove.
20. Indemnification and Exculpation.
20.1 Except to the extent of Landlord's indemnity
obligations set forth in Sections 20.2 and 21.6 and other applicable
provisions of the Lease, Tenant agrees to indemnify Landlord, and its
partners and affiliates, and their respective shareholders, directors,
officers, agents, contractors (and their subcontractors) and employees
(collectively, "Landlord's Agents") against, and to protect, defend, and
save them harmless from, all demands, claims, causes of action,
liabilities, losses and judgments, and all reasonable expenses incurred
in investigating or resisting the same (including reasonable attorneys'
fees), for death of or injury to person or damage to property arising
out
of (i) any occurrence in, upon or about the Premises during the term of
this Lease to the extent of proceeds of insurance required to be
maintained by Tenant under this Lease and applicable deductibles,
(ii) Tenant's use, occupancy, repairs, maintenance, and improvements of
the Premises and all improvements, fixtures, equipment and personal
property thereon, and (iii) any act or omission of Tenant, its
shareholders, directors, officers, agents, employees, servants,
contractors (and their subcontractors), invitees and subtenants.
Tenant's obligation under this Section 20.1 shall survive the expiration
or earlier termination of the term of this Lease.
20.2 Landlord agrees to indemnify Tenant, and its partners
and affiliates, and their respective shareholders, directors, officers,
agents, contractors (and their subcontractors) and employees
(collectively, "Tenant's Agents") against, and to protect, defend, and
save them harmless from, all demands, claims, causes of action,
liabilities, losses and judgments, and all reasonable expenses incurred
in investigating or resisting the same (including reasonable attorneys'
fees), for death of or injury to person or damage to property by
Landlord
and arising out of (i) any occurrence in, upon or about the Premises
during the term of this Lease to the extent caused by the willful
misconduct or gross negligence of Landlord or Landlord's Agents,
(ii) Landlord's repairs, maintenance, and improvements of the Premises,
and (iii) any act or omission of Landlord or Landlord's Agents
(including
servants, contractors and their subcontractors and invitees).
Landlord's
obligation under this Section 20.2 shall survive the expiration or
earlier termination of the term of this Lease.
20.3 Notwithstanding any provision of Sections 20.1 and
20.2 to the contrary, Landlord shall not be liable to Tenant and Tenant
assumes all risk of damage to any fixtures, goods, inventory,
merchandise, equipment, records, research, experiments, computer
hardware
and software, leasehold improvements, and other personal property of any
nature whatsoever (including any personal property installed as part of
the work required of Landlord under the Work Letter), and Landlord shall
not be liable for injury to Tenant's business or any loss of income
therefrom relative to such damage, unless caused by Landlord's or
Landlord's Agents' willful misconduct or gross negligence.
20.4 The indemnity obligations of both Landlord and Tenant
under this Section 20 shall be satisfied to the extent of proceeds of
applicable insurance maintained by Tenant to the extent thereof, and
thereafter to proceeds of any applicable insurance maintained by
Landlord; Landlord and Tenant shall be required to satisfy any such
obligation only to the extent it is not satisfied by proceeds of
applicable insurance as set forth above.
20.5 Security devices and services, if any, while intended
to deter crime may not in given instances prevent theft or other
criminal
acts and it is agreed that Landlord shall not be liable for injuries or
losses caused by criminal acts of third parties and the risk that any
security device or service may malfunction or otherwise be circumvented
by a criminal is assumed by Tenant. Tenant shall at Tenant's cost
obtain
insurance coverage to the extent Tenant desires protection against such
criminal acts.
21. Insurance - Waiver of Subrogation.
21.1 Commencing prior to Tenant's first entry onto the
Premises for purposes of constructing Tenant's Improvements, and
continuing at all times during the term of this Lease, Tenant shall
maintain, at Tenant's expense and without any cost or expense to
Landlord, or any reimbursement or contribution by Landlord, commercial
general liability insurance, on an occurrence basis (or on a claims made
basis as long as Tenant makes adequate arrangements for claims made
after
the expiration of the term or earlier termination of the Lease for
occurrences during the term of the Lease), insuring Tenant and Tenant's
agents, employees and independent contractors against all bodily injury,
property damage, personal injury and other covered loss arising out of
the use, occupancy, improvement and maintenance of the Premises and the
business operated by Tenant, or any other occupant, on the Premises.
Such insurance shall have a minimum combined single limit of liability
per occurrence of not less than $3,000,000.00 and a general aggregate
limit of $3,000,000.00. Such insurance shall: (i) name Landlord, and
Landlord's lenders if required by such lenders, and any management
company retained to manage the Premises if requested by Landlord, as
additional insureds; (ii) include a broad form contractual liability
endorsement insuring Tenant's indemnity obligations under Section 20.1;
(iii) include boiler and machinery liability endorsement, and a products
completed operations coverage endorsement; (iv) provide that it is
primary coverage and noncontributing with any insurance maintained by
Landlord or Landlord's lenders, which shall be excess insurance with
respect only to losses arising out of Tenant's negligence; and
(v) provide for severability of interests or include a cross-liability
endorsement, such that an act or omission of an insured shall not reduce
or avoid coverage of other insureds.
21.2 At all times during the term of this Lease, Tenant
shall also maintain "all risk" insurance, including, but not limited to,
coverage against loss or damage by fire, flood, vandalism, and malicious
mischief covering the Premises and all improvements and fixtures
therein,
whether owned by Landlord or Tenant, and all other improvements and
fixtures that may be constructed or installed on the Premises, in an
amount equal to one hundred percent (100%) of the full replacement value
thereof, subject to commercially reasonable premiums and deductibles.
The parties acknowledge that Landlord's investment in the Premises is
limited to the Real Property, Land Improvements and Building Shell only
and that Tenant, with its own funds, will construct Tenant's
Improvements
and all other improvements in the Building other than the Building
Shell.
Landlord and Tenant desire that neither Landlord, any lender of
Landlord, nor any other person or entity have any interest in any
insurance proceeds attributable to Tenant's Improvements and/or any
other
improvements constructed by Tenant at its sole cost and that Tenant have
exclusive control over any such proceeds (subject to any obligation of
Tenant to use proceeds for repairs and reconstruction as set forth
herein). To this end, Tenant shall have the right to satisfy its
obligations under this section 21.2 by insuring the Land Improvements
and
Building Shell and all other building improvement under one policy of
insurance or separately under one or more policies and such policy or
policies shall provide that neither Landlord, any Lender of Landlord,
nor
any other person or entity shall have any interest in, or have the right
to exercise any control over, any insurance proceeds attributable to any
improvements other than the Land Improvements and the Building Shell and
any other improvements constructed by Landlord at its sole cost (subject
to any obligation of Tenant to use proceeds for repairs and
reconstruction as set forth herein). In addition, Tenant shall
maintain,
to the extent it is reasonably available, earthquake insurance, covering
such losses and subject to premiums and deductibles as are commercially
reasonable and comparable to such insurance covering similar buildings
in
the San Jose area. If any boilers or other pressure vessels or systems
are installed on the Premises, Tenant shall maintain boiler and
machinery
insurance in an amount equal to one hundred percent (100%) of the full
replacement value thereof, subject to commercially reasonable
deductibles. The insurance described in this Section 21.2 shall:
(i) with regard to the policy insuring the Land Improvements and
Building
Shell only (or, if only one policy insures the Land Improvements,
Building Shell and all other elements of the Building, including,
without
limitation, Tenant's Improvements, then with regard to the portion of
the
policy insuring the Land Improvements and Building Shell or any proceeds
payable on account thereof), name Landlord and Landlord's lenders as
additional insureds; (ii) with regard to the policy insuring the Land
Improvements and Building Shell only (or, if only one policy insures the
Land Improvements, Building Shell and all other elements of the
Building,
including, without limitation, Tenant's Improvements, then with regard
to
the portion of the policy insuring the Land Improvements and Building
Shell or any proceeds payable on account thereof), contain a Lender's
Loss Payable Form (Form 438 BFU or equivalent) in favor of Landlord's
lenders and name Landlord, or Landlord's lender if required by such
lender, as the loss payee (subject to the obligation to use proceeds for
repairs and reconstruction as set forth herein); (iii) provide for
severability of interests or include a cross-liability endorsement, such
that an act or omission of an insured shall not reduce or avoid coverage
of other insureds; (iv) include a building ordinance endorsement, an
agreed amount endorsement and an inflation endorsement; and (v) provide
that it is noncontributing with any insurance maintained by Landlord,
and
shall be excess insurance to that maintained by Landlord. The full
replacement value of the Building, improvements and fixtures insured
thereunder shall be determined by the company issuing the insurance
policy and shall be redetermined by said company within twelve (12)
months after completion of any material alterations or improvements to
the Premises and otherwise at intervals of not more than three (3)
years.
Tenant shall increase the amount of the insurance carried pursuant to
this Section 21.2 to the amount so redetermined. The proceeds of the
insurance described in this Section shall be used for the repair,
replacement and restoration of the Premises and other improvements and
fixtures insured thereunder, as further provided in Article 22;
provided,
however, if this Lease is terminated after damage or destruction, all
proceeds of the insurance policy or policies related to such damage or
destruction, and the right to collect such proceeds, shall be allocated
as follows: (i) Landlord shall be entitled to all proceeds allocable to
the Building Shell and Land Improvements, and (ii) (a) if Landlord
terminates the Lease, Tenant shall be entitled to all proceeds
attributable to Tenant's Improvements and any alterations, additions,
and/or improvements subsequently made by Tenant, and (b) if Tenant
terminates the Lease, Tenant shall be entitled to the proceeds
attributable to Tenant's Improvements and any alterations, additions,
and/or improvements subsequently made by Tenant to the extent of the
unamortized value of Tenant's Improvements, alterations, additions
and/or
improvements based upon the cost to construct the same and an
amortization period equal to the initial Lease Term. Any deed of trust
affecting the Premises and all loan documentation relating thereto shall
provide that all insurance proceeds shall be used for the repair and
reconstruction of the Premises pursuant to the terms hereof, and shall
not conflict with the provisions of this Lease concerning the
disposition
of insurance proceeds.
21.3 At all times during the term of this Lease, Tenant
shall maintain workers' compensation insurance in accordance with
California law and employers' liability insurance with a limit of not
less than that required by California law.
21.4 All of the policies of insurance referred to in this
Article 21 shall be written by companies authorized to do business in
California and rated A+VII or better in Best's Insurance Guide, except
as
otherwise reasonably approved by Landlord. Each insurer referred to in
this Article 21 shall agree, by endorsement on the applicable policy or
by independent instrument furnished to Landlord, that it will give
Landlord, and Landlord's lenders if required by such lenders, at least
ten (10) days' prior written notice by registered mail before the
applicable policy shall be cancelled for non-payment of premium, and
thirty (30) days' prior written notice by registered mail before the
applicable policy shall be cancelled or altered in coverage, scope,
amount or other material term for any other reason (although any failure
of an insurer to give notice as provided herein shall not be a breach of
this Lease by Tenant). Except as otherwise provided in this Lease,
Tenant shall pay all of the premiums for such insurance and all
deductible amounts provided for thereunder. No policy shall provide for
a deductible amount in excess of that which is commercially reasonable,
unless approved in advance in writing by Landlord, which approval shall
not be unreasonably withheld. Tenant shall deliver to Landlord, and to
Landlord's lenders if required by such lenders, copies of the insurance
policies, certified by the insurer, or certificates evidencing such
insurance policies, issued by the insurer, together with evidence of
payment of the required premiums, prior to the required date for
commencement of such coverage. At least thirty (30) days prior to
expiration of any such policy, Tenant shall deliver to Landlord, and
Landlord's lenders if required by such lenders, a certificate evidencing
renewal, or a certified copy of a new policy or certificate evidencing
the same, together with evidence of payment of the required premiums.
If
Tenant fails to provide to Landlord any such policy or certificate by
the
required date for commencement of coverage, or within fifteen (15) days
prior to expiration of any policy, or to pay the premiums therefor when
required, Landlord shall have the right, but not the obligation, to
procure said insurance and pay the premiums therefor. Any premiums paid
by Landlord shall be repaid by Tenant to Landlord with the next due
installment of rent, and failure to repay the same shall have the same
consequences as failure to pay any installment of Rent.
21.5 Tenant may provide the property insurance only
required under this Article 21 pursuant to a so-called blanket policy or
policies of property insurance maintained by Tenant; provided, however,
that the amount and type of coverage afforded to the Landlord shall not
be reduced or adversely affected from that which would exist under a
separate policy or policies meeting all of the requirements of this
Lease
by reason of the use of a blanket policy of property insurance, and
provided further that the requirements of this Article 21 are otherwise
satisfied.
21.6 Landlord and Tenant each hereby waive any and all
rights of recovery against the other or against the officers, directors,
partners, employees, agents, subtenants, contractors and representatives
of the other, on account of loss or damage to property occasioned to
such
waiving party or its property or the property of others under its
control, to the extent that such loss or damage is caused by or results
from risks insured against under any insurance policy which insures such
waiving party at the time of such loss or damage (or which would have
been insured against under a policy of insurance required to be carried
by such waiving party under this Lease had such waiving party carried
such insurance), which waiver shall continue in effect as long as the
parties' respective insurers permit such waiver under the terms of their
respective insurance policies or otherwise in writing. Any termination
of such waiver shall be by written notice as hereinafter set forth.
Prior to obtaining policies of insurance required or permitted under
this
Lease, Tenant shall give notice to the insurers that the foregoing
mutual
waiver is contained in this Lease, and each party shall use its best
efforts to cause such insurer to approve such waiver in writing and to
cause each insurance policy obtained by it to provide that the insurer
waives all right of recovery by way of subrogation against the other
party. If such written approval of such waiver of subrogation cannot be
obtained from any insurer or is obtainable only upon payment of an
additional premium which the party seeking to obtain the policy
reasonably determines to be commercially unreasonable, the party seeking
to obtain such policy shall notify the other thereof, and the latter
shall have twenty (20) days thereafter to either: (i) identify other
insurance companies reasonably satisfactory to the other party that will
provide the written approval and waiver of subrogation; or (ii) agree to
pay such additional premium. If neither (i) nor (ii) are done, the
mutual waiver set forth above shall not be operative, and the party
seeking to obtain the policy shall be relieved of the obligation to
obtain the insurer's written approval and waiver of subrogation with
respect to such policy during such time as such policy is not obtainable
or is obtainable only upon payment of a commercially unreasonable
additional premium as described above. If such policies shall at any
subsequent time be obtainable or obtainable upon payment of a
commercially reasonable additional premium, neither party shall be
subsequently liable for failure to obtain such insurance until a
reasonable time after notification thereof by the other party. If the
release of either Landlord or Tenant, as set forth in the first sentence
of this Section 21.9, shall contravene any law with respect to
exculpatory agreements, the liability of the party in question shall be
deemed not released but shall be secondary to the other's insurer.
21.7 Any property management firm retained by Landlord to
manage the Premises shall be required to maintain commercial general
liability insurance with such limits of liability as are commercially
reasonable naming Tenant as an additional insured.
21.8 It is understood and agreed that insurance policies
required under this Article 21 may be blanket policies covering other
locations operated by Landlord or Tenant, or by their affiliates or
subsidiaries, subject to the reasonable approval of the other party.
21.9 Notwithstanding anything in this Section 21 or 22 to
the contrary, in the event damages attributable to uninsured losses and
deductibles relating to earthquake and flood losses exceed twenty
percent
(20%) of the replacement cost of the Premises, either Landlord or Tenant
may terminate this Lease in the manner and within the time periods set
forth in Article 22. In the event damages attributable to uninsured
losses and deductibles relating to earthquake and flood losses do not
exceed twenty percent (20%) of the value of the Premises, or if they do
and neither party elects to terminate this Lease, Tenant shall pay for
one-seventeenth (1/17th) of fifty percent (50%) of the loss or
deductible
for each year remaining in the initial term and first extension period,
and Landlord shall pay the balance. Tenant shall not be required to pay
any deductible amount under any policy of insurance if either Landlord
or
Tenant terminate this Lease in accordance with its terms.
22. Damage or Destruction.
22.1 In the event of damage to or destruction of all or
any portion of the Premises or the improvements and fixtures thereon
(collectively in this Article 22, "improvements") arising from a risk
covered by the insurance described in Section 21.2, Landlord shall, with
the use of the insurance proceeds and any deductibles payable by Tenant,
and within a reasonable time, commence and proceed diligently to repair,
reconstruct and restore (collectively in this Article 22, "restore" or
"restoration") such improvements to substantially the same condition as
they were in immediately prior to the casualty, whether or not the
insurance proceeds and deductibles are sufficient to cover the actual
cost of restoration, and this Lease shall continue in full force and
effect notwithstanding such damage or destruction. Subject to the
limitations and rights set forth in Section 21.8 hereof, Landlord shall
contribute any amounts necessary to restore the Land Improvements and
Building Shell in excess of the proceeds of insurance attributable
thereto and applicable deductibles, and Tenant shall contribute any
amounts necessary to restore Tenant's Improvements in excess of the
proceeds of insurance attributable thereto together with any applicable
deductibles.
22.2 In the event of damage to or destruction of all or
any portion of the improvements arising from a risk which is not covered
by the insurance described in Section 21.2, Landlord may elect to
restore
the improvements, and this Lease shall continue in full force and
effect.
Landlord shall give Tenant written notice of its election to restore
the
improvements within sixty (60) days after the damage or destruction
occurs, and shall, at its expense and within a reasonable period of time
thereafter, commence and proceed diligently to restore the improvements
to substantially the same condition as they were in immediately prior to
the casualty. If Landlord does not elect to restore the improvements
within such 60-day period, then this Lease shall terminate unless Tenant
delivers to Landlord written notice of its election to continue this
Lease within thirty (30) days thereafter. If Tenant elects to continue
this Lease, Tenant shall, at its expense and within a reasonable period
of time, commence and proceed diligently to restore the improvements to
substantially the same condition as they were in immediately prior to
the
casualty, and this Lease shall continue in full force and effect
notwithstanding such damage or destruction. Notwithstanding anything to
the contrary in this Section 22.2, the rights and obligations of
Landlord
and Tenant under this Section 22.2 shall be subject to the terms and
conditions of Section 21.8.
22.3 Notwithstanding anything in Section 22.1 or 22.2 to
the contrary, if, in the opinion of an independent architect selected by
Landlord and Tenant, the damage or destruction is so substantial that it
cannot be corrected within eight (8) months of the date of damage,
Tenant
may elect to terminate this Lease by delivering to Landlord written
notice of its election to terminate within thirty (30) days after the
damage or destruction.
22.4 In the event the Lease is terminated in accordance
with the forgoing provisions, (i) Tenant shall surrender possession of
the Premises within a reasonable period of time, (ii) this Lease shall
terminate as of the date possession of the Premises is surrendered,
(iii) insurance proceeds shall be distributed in accordance with the
provisions of Section 21.2, and (iv) the parties shall be released from
all obligations arising under this Lease after such termination date.
22.5 In satisfying any restoration obligations under this
Article 22, neither party shall be required to restore improvements with
improvements identical to those which were damaged or destroyed; rather,
with the consent of the other party, which consent will not be
unreasonably withheld, the restoring party may restore the damage or
destruction with improvements reasonably equivalent to those damaged or
destroyed. In no event shall Tenant be required to restore its own
trade
fixtures or equipment.
22.6 In the event of damage, destruction and/or
restoration as herein provided, there shall be no abatement of Rent, and
Tenant shall not be entitled to any compensation or damages occasioned
by
any such damage, destruction or restoration.
22.7 Notwithstanding anything to the contrary contained in
this Lease, if the damage or destruction occurs during the last year of
the term or any extended term of this Lease, Tenant shall not be
required
to repair the damage or destruction so long as it tenders to Landlord
the
insurance proceeds and applicable deductibles for restoration which
would
otherwise been required under this Article 22.
22.8 The provisions of Article 17 shall apply to any
restoration work under this Article as if the restoration was an
alteration, addition or improvement thereunder.
22.9 Tenant waives the provisions of Civil Code
Section 1932(2) and 1933(4) or any similar statute now existing or
hereafter adopted governing destruction of the Premises, so that the
parties' rights and obligations in the event of damage or destruction
shall be governed by the provisions of this Lease.
23. Eminent Domain.
23.1 In the event the whole of the Premises shall be taken
for any public or quasi-public purpose by any lawful power or authority
by exercise of the right of appropriation, condemnation or eminent
domain, or sold to prevent such taking, Tenant or Landlord may terminate
this Lease effective as of the date possession is required to be
surrendered to said authority. The condemnation proceeds shall be
reasonably allocated to Tenant to the extent of its trade fixtures, the
value of any improvements (as that term is referred to in Article 17,
including, without limitation, Tenant's Improvements constructed by
Tenant pursuant to the Work Letter) which Tenant has the right to remove
from the Premises, the unamortized value allocable to the remainder of
the term of this Lease of any improvements (as that term is referred to
in Article 17 hereof, including, without limitation, Tenant's
Improvements constructed by Tenant pursuant to the Work Letter)
installed
at Tenant's expense which are not removable, good will, and moving
expenses, and Landlord shall be entitled to any condemnation proceed
attributable to the Real Property, the Land Improvements, the Building
Shell, the value of any improvements not allocated to Tenant above, and
any severance damages.
23.2 In the event of a partial taking of the Premises for
any public or quasi-public purpose by any lawful power or authority by
exercise of right of appropriation, condemnation, or eminent domain, or
sold to prevent such taking, then Tenant may elect to terminate this
Lease if such taking is of material detriment to, and substantially
interferes with, Tenant's use and occupancy of, and conduct of its
business from, the Premises, including but not limited to materially
affecting Tenant's parking or Tenant's ingress and egress from the
Premises, unless Landlord provides reasonable alternatives thereto
acceptable to Tenant. In no event shall this Lease be terminated when
such a partial taking does not have a material adverse effect upon
Landlord or Tenant or both. Termination pursuant to this section shall
be effective as of the date possession is required to be surrendered to
said authority. In the event of a partial taking and whether or not
Tenant terminates this Lease, Tenant and Landlord shall be entitled to
those condemnation proceeds attributable to those items for which they
are entitled to compensation pursuant to Section 23.1 (excluding moving
expenses).
23.3 If upon any taking of the nature described in this
Article 23 this Lease continues in effect, then Landlord shall promptly
proceed to restore the remaining portion of the Premises, and all
improvements and fixtures located thereon, to substantially their same
condition prior to such partial taking. Landlord shall contribute any
amount necessary for restoration of Landlord's Work described in the
Work
Letter in excess of the condemnation proceeds awarded for such purpose,
and Tenant shall contribute any amount necessary for restoration of
Tenant's Improvement Work described in the Work Letter in excess of the
condemnation proceeds awarded for such purposes. Basic Annual Rent
shall
be abated proportionately on the basis of the rental value of the
Premises, including improvements and fixtures, as restored after such
taking compared to the rental value of the Premises prior to such
taking.
23.4 The provisions of Article 17 shall apply to any
restoration work under this Article as if the restoration was an
alteration, addition or improvement thereunder.
24. Defaults and Remedies.
24.1 Late payment by Tenant to Landlord of Rent and other
sums due will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult and
impracticable to ascertain. Such costs include, but are not limited to,
processing and accounting charges and late charges which may be imposed
on Landlord by the terms of any mortgage or trust deed covering the
Premises. Therefore, if any installment of Rent due from Tenant is not
received by Landlord within fifteen (15) days of the date such payment
is
due, Tenant shall pay to Landlord an additional sum of five percent (5%)
of the overdue rent as a late charge. The parties agree that this late
charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment by Tenant. In addition to
the late charge, Rent not paid within thirty (30) days of the date such
payment is due shall bear interest from thirty (30) days after the date
due until paid at the lesser of (i) ten percent (10%) per annum or (ii)
the maximum rate permitted by law.
24.2 No payment by Tenant or receipt by Landlord of a
lesser amount than the rent payment herein stipulated shall be deemed to
be other than on account of the rent, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment
as
rent be deemed an accord and satisfaction, and Landlord may accept such
check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy provided. If at any
time
a dispute shall arise as to any amount or sum of money to be paid by
Tenant to Landlord, Tenant shall have the right to make payment "under
protest" and such payment shall not be regarded as a voluntary payment,
and there shall survive the right on the part of Tenant to institute
suit
for recovery of the payment paid under protest.
24.3 If Tenant fails to pay any sum of money (other than
Basic Annual Rent) required to be paid by it hereunder, or shall fail to
perform any other act on its part to be performed hereunder, Landlord
may, without waiving or releasing Tenant from any obligations of Tenant,
but shall not be obligated to, make such payment or perform such act;
provided, that such failure by Tenant continued for fifteen (15) days
after written notice from Landlord demanding performance by Tenant was
delivered to Tenant, or that such failure by Tenant unreasonably
interfered with the use or efficient operation of the Premises, or
resulted or could have resulted in a violation of law or the
cancellation
of an insurance policy maintained by Landlord. All sums so paid or
incurred by Landlord, together with interest thereon, from the date such
sums were paid or incurred, at the annual rate equal to ten percent
(10%)
per annum or highest rate permitted by law, whichever is less, shall be
payable to Landlord on demand as Additional Rent.
24.4 The occurrence of any one or more of the following
events shall constitute a "Default" hereunder by Tenant:
(a) The failure by Tenant to make any payment of
Rent, as and when due, where such failure shall continue for a period of
fifteen (15) days after written notice thereof from Landlord to Tenant.
Such notice shall be in lieu of, and not in addition to, any notice
required under California Code of Civil Procedure Section 1161;
(b) The failure by Tenant to observe or perform any
material obligation other than described in Section 24.4(a) to be
performed by Tenant, where such failure shall continue for a period of
thirty (30) days after written notice thereof from Landlord to Tenant;
provided, however, that if the nature of Tenant's default is such that
more than thirty (30) days are reasonably required to cure the default,
then Tenant shall not be deemed to be in default if Tenant shall
commence
such cure within said thirty (30) day period and thereafter diligently
prosecute the same to completion. Such notice shall be in lieu of, and
not in addition to, any notice required under California Code of Civil
Procedure Section 1161;
(c) Tenant makes an assignment for the benefit of
creditors;
(d) A receiver, trustee or custodian is appointed
to, or does, take title, possession or control of all, or substantially
all, of Tenant's assets;
(e) An order for relief is entered against Tenant
pursuant to a voluntary or involuntary proceeding commenced under any
chapter of the Bankruptcy Code;
(f) Any involuntary petition is filed against the
Tenant under any chapter of the Bankruptcy Code and is not dismissed
within ninety (90) days; or
(g) Tenant's interest in this Lease is attached,
executed upon, or otherwise judicially seized and such action is not
released within ninety (90) days of the action.
Notices given under this Section shall specify the
alleged default and shall demand that Tenant perform the provisions of
this Lease or pay the Rent that is in arrears, as the case may be,
within
the applicable period of time, or quit the Premises. No such notice
shall be deemed a forfeiture or a termination of this Lease unless
Landlord elects otherwise in such notice, and in no event shall a
forfeiture or termination occur without such written notice.
24.5 In the event of a Default by Tenant, and at any time
thereafter while such Default is continuing, and without limiting
Landlord in the exercise of any right or remedy which Landlord may have,
Landlord shall be entitled to terminate Tenant's right to possession of
the Premises by any lawful means, in which case this Lease shall
terminate and Tenant shall immediately surrender possession of the
Premises to Landlord. In such event Landlord shall have the immediate
right to re-enter and remove all persons and property by any lawful
means, and such property may be removed and stored in a public warehouse
or elsewhere at the cost of, and for the account of Tenant, all without
service of notice and without being deemed guilty of trespass, or
becoming liable for any loss or damage which may be occasioned thereby,
subject to the rights of personal property lessors or secured parties
with validly granted and duly perfected ownership or security interests
in any such property. In the event that Landlord shall elect to so
terminate this Lease, then Landlord shall be entitled to recover from
Tenant all damages incurred by Landlord by reason of Tenant's default,
including:
(a) The worth at the time of award of any unpaid
Rent which had been earned at the time of such termination; plus
(b) The worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss which
Tenant proves could have been reasonably avoided; plus
(c) 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 which Tenant proves could have
been reasonably avoided; plus
(d) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform its obligation under this Lease or which in the ordinary course
of things would be likely to result therefrom; plus
(e) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to
time by applicable law.
As used in Subsections (a), (b) and (c), the "time of
award" shall mean the date upon which the judgment in any action brought
by Landlord against Tenant by reason of such default is entered or such
earlier date as the court may determined. As used in Subsections (a)
and
(b), the "worth at the time of award" shall be computed by allowing
interest at the rate specified in Section 24.1. As used in Subsection
(c) above, the "worth at the time of award" shall be computed by taking
the present value of such amount using the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percentage
point.
Nothing in this Section 24.4 is intended to increase
or enlarge the damages recoverable by Landlord under Section 1951.2 of
the Civil Code, as same may be amended from time to time.
24.6 If Landlord does not elect to terminate this Lease as
provided in Section 24.5 or otherwise terminate Tenant's right to
possession of the Premises, Landlord shall have the remedy described in
Section 1951.4 of the Civil Code. Landlord may continue the lease in
effect for so long as Landlord does not terminate Tenant's right to
possession of the Premises, and may enforce all of its rights and
remedies under the Lease, including the right from time to time to
recover Rent as it becomes due under the Lease. At any time thereafter,
Landlord may elect to terminate this Lease and to recover damages to
which Landlord is entitled.
24.7 Notwithstanding anything herein to the contrary,
Landlord's reentry to perform acts of maintenance or preservation of, or
in connection with efforts to relet, the Premises, or any portion
thereof, or the appointment of a receiver upon Landlord's initiative to
protect Landlord's interest under this Lease, shall not terminate
Tenant's right to possession of the Premises or any portion thereof and,
until Landlord does elect to terminate this Lease or terminates Tenant's
right to possession of the Premises, this Lease shall continue in full
force and Landlord may pursue all its remedies hereunder, including,
without limitation, the right to recover from Tenant as they become due
hereunder all Rent and other charges required to be paid by Tenant under
the terms of this Lease.
24.8 All rights, options, and remedies of Landlord
contained in this Lease shall be construed and held to be nonexclusive
and cumulative. Landlord shall have the right to pursue any one or all
of such remedies or any other remedy or relief which may be provided by
law, whether or not stated in this Lease. No waiver of any default of
Tenant hereunder shall be implied from any acceptance by Landlord of any
rent or other payments due hereunder or by any omission by Landlord to
take any action on account of such default if such default persists or
is
repeated, and no express waiver shall affect defaults other than as
specified in said waiver.
24.9 Termination of this Lease or Tenant's right to
possession by Landlord shall not relieve Tenant from any liability to
Landlord which has theretofore accrued or shall arise based upon events
which occurred prior to the last to occur of (i) the date of Lease
termination or (ii) the date possession of Premises is surrendered or
taken by Landlord.
24.10 Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable
time, but in no event later than thirty (30) days after written notice
by
Tenant specifying wherein Landlord has failed to perform such
obligation;
provided, however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for performance, then
Landlord shall not be in default if Landlord commences performance
within
such thirty (30) day period and thereafter diligently prosecutes the
same
to completion.
24.11 In the event of any default on the part of Landlord,
Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee of a mortgage covering the
Premises whose address shall have been furnished and shall offer such
beneficiary and/or mortgagee a reasonable opportunity to cure the
default.
25. Assignment or Subletting.
25.1 Except as hereinafter provided, Tenant shall not,
either voluntarily or by operation of law, sell, hypothecate or transfer
this Lease, or sublet the Premises or any part thereof, or permit or
suffer the Premises or any part thereof to be used or occupied as work
space, storage space, concession or otherwise by anyone other than
Tenant
or Tenant's employees, without the prior written consent of Landlord in
each instance, which consent shall not be unreasonably withheld or
delayed.
25.2 If Tenant desires to sublet all or any part of the
Premises, or to assign this Lease, to any entity into which Tenant is
merged, with which Tenant is consolidated, or which acquires all or
substantially all of the assets of Tenant, or to a parent, subsidiary,
or
other affiliate of Tenant, provided that the subtenant or assignee first
executes, acknowledges and delivers to Landlord an agreement whereby the
subtenant or assignee agrees to be bound by all of the covenants and
agreements in this Lease to the extent relating to the unexpired term of
the Lease and, in the event of a sublease, the portion of the Premises
so
sublet, then Landlord upon receipt thereof will consent to the sublease
or assignment.
25.3 In the event Tenant desires to assign, sublease,
hypothecate or otherwise transfer this Lease or sublet the Premises to
an
assignee other than one set forth in Section 25.2, then at least fifteen
(15) days, but not more than ninety (90) days, prior to the date when
Tenant desires the assignment or sublease to be effective (the
"Assignment Date"), Tenant shall give Landlord a notice (the "Assignment
Notice") which shall set forth the name, address and business of the
proposed assignee or sublessee, information (including references and
financial statements) concerning the reputation and financial ability of
the proposed assignee or sublessee, the Assignment Date, any ownership
or
commercial relationship between Tenant and the proposed assignee or
sublessee, and the consideration and all other material terms and
conditions of the proposed assignment or sublease, all in such detail as
Landlord shall reasonably require.
25.4 Landlord in making its determination as to whether
consent should be given to a proposed assignment or sublease, may give
consideration to the reputation of a proposed successor, the financial
strength of such successor (notwithstanding the assignor remaining
liable
for Tenant's performance), and any use which such successor proposes to
make of the Premises. If Landlord fails to deliver written notice of
its
determination to Tenant within fifteen (15) days following receipt of
the
Assignment Notice and the information required under Section 25.3,
Landlord shall be deemed to have approved the request. In no event
shall
Landlord be deemed to be unreasonable for declining to consent to a
transfer to a successor of poor reputation, lacking financial
qualification, seeking a change in use which would involve the
generation, storage, use, treatment or disposal of Hazardous Materials
in
any manner for a purpose prohibited by any applicable Law, so long as
Landlord is reasonable in making its determination based on such
factors.
As a condition to any assignment or sublease to which Landlord has
given
consent, any such assignee or sublessee must execute, acknowledge and
deliver to Landlord an agreement whereby the assignee or sublessee
agrees
to be bound by all of the covenants and agreements in this Lease to the
extent relating to the unexpired term of the Lease and, in the event of
a
sublease, the portion of the Premises so sublet.
25.5 Any sale, assignment, hypothecation or transfer of
this Lease or subletting of Premises that is not in compliance with the
provisions of this Article 25 shall be void.
25.6 The consent by Landlord to an assignment or
subletting shall not relieve Tenant or any assignee of this Lease or
sublessee of the Premises from obtaining the consent of Landlord to any
further assignment or subletting or as releasing Tenant or any assignee
or sublessee of Tenant from full and primary liability.
25.7 If Tenant shall sublet the Premises or any part
thereof Tenant hereby immediately and irrevocably assigns to Landlord,
as
security for Tenant's obligations under this Lease, all rent from any
subletting of all or a part of the Premises and Landlord as assignee, or
a receiver for Tenant appointed on Landlord's application, may collect
such rent and apply it toward Tenant's obligations under this Lease;
except that, until the occurrence of a Default in the payment of Basic
Annual Rent by Tenant, Tenant shall have the right to collect such rent.
25.8 Notwithstanding any subletting or assignment Tenant
shall remain fully and primarily liable for the payment of all Rent and
other sums due, or to become due hereunder, and for the full performance
of all other terms, conditions, and covenants to be kept and performed
by
Tenant. The acceptance of rent or any other sum due hereunder, or the
acceptance of performance of any other term, covenant, or condition
hereof, from any other person or entity shall not be deemed to be a
waiver of any of the provisions of this Lease or a consent to any
subletting or assignment of the Premises. Landlord shall not
unreasonably withhold consent to an assignment back to the original
Tenant hereunder from a subsequent assignee.
25.9 Any sublease of the Premises shall be subject and
subordinate to the provisions of this Lease, shall not extend beyond the
term of this Lease, and shall provide that the sublessee shall attorn to
Landlord, at Landlord's sole option, in the event of the termination of
this Lease. Landlord and any lender shall upon Tenant's request provide
any subtenant of the entirety of the Premises with a recognition and
nondisturbance agreement in the form set forth in Article 35 hereof on
the condition that the sublessee agrees to attorn to Landlord on exactly
the same terms and conditions as this Lease.
26. Arbitration - Attorney's Fees.
26.1 In the event Tenant claims a breach of this Lease by
Landlord, Tenant may demand arbitration of the claim before a panel of
three arbitrators, one appointed by Tenant, one appointed by Landlord,
and the third selected by the two arbitrators so appointed. In the
event
arbitration is demanded by Tenant, Landlord may, but shall not be
required to, include in the arbitration any other claims or disputes
arising from or related to this Lease. The arbitrators shall be
instructed to conclude the arbitration within ninety (90) days of the
time the claim is submitted to arbitration. Notwithstanding the
provisions of Section 5.3, Tenant may deduct from or set off against
Rent
the amount of any final award of the arbitrators in favor of Tenant,
even
if the award is appealed by Landlord (but subject to Landlord's right to
collect the amount deducted or set off in the event the appeal is
successful). The remedy described in this Section 26.1 is optional only
and nothing contained herein shall be construed as a waiver of any other
remedy that Tenant may have at law or equity.
26.2 If either party commences an arbitration, action or
proceeding against the other party arising out of or in connection with
this Lease, the prevailing party shall be entitled to have and recover
from the other party reasonable attorneys' fees, expert witness fees and
costs of suit or arbitration.
27. Bankruptcy.
27.1 In the event a debtor or trustee under the Bankruptcy
Code, or other person with similar rights, duties and powers under any
other law, proposes to cure any default under this Lease or to assume or
assign this Lease, and is obliged to provide adequate assurance to
Landlord that (i) a default will be cured, (ii) Landlord will be
compensated for its damages arising from any breach of this Lease, or
(iii) future performance under this Lease will occur, then adequate
assurance shall include any or all of the following, as determined by
the
Bankruptcy Court:
(a) Those acts specified in the Bankruptcy Code or
other law as included within the meaning of adequate assurance;
(b) A cash payment to compensate Landlord for any
monetary defaults or damages arising from a breach of this Lease;
(c) The credit worthiness and desirability, as a
tenant, of the person assuming this Lease or receiving an assignment of
this Lease, at least equal to Landlord's customary and usual credit
worthiness requirements and desirability standards in effect at the
time
of the assumption or assignment, as determined by the Bankruptcy Court;
and
(d) The assumption or assignment of all of Tenant's
interest and obligations under this Lease.
28. Definition of Landlord.
28.1 The term "Landlord" as used in this Lease, so far as
covenants or obligations on the part of Landlord are concerned, shall be
limited to mean and include only Landlord or the successor-in-interest
of
Landlord under this Lease at the time in question. In the event of any
transfer, assignment or conveyance of Landlord's title or leasehold, the
Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor and any prior grantors) shall be
automatically freed and relieved from and after the date of such
transfer, assignment or conveyance of all liability for the performance
of any covenants or obligations contained in this Lease thereafter to be
performed by Landlord and, without further agreement, the transferee of
such title or leasehold shall be deemed to have assumed and agreed to
observe and perform any and all obligations of Landlord hereunder,
during
its ownership of the Premises. Landlord may transfer its interest in
the
Premises or this Lease without the consent of Tenant and such transfer
or
subsequent transfer shall not be deemed a violation on the part of
Landlord or the then grantor of any of the terms or conditions of this
Lease.
28.2 Notwithstanding the foregoing, the term "Landlord"
shall include the Landlord herein named with regard to (i) construction
of the work required by Landlord under the Work Letter pursuant to
Sections 4.1 hereof, (ii) damages in the event of completion delays to
the extent of Section 4.4 hereof, (iii) the warranties made by Landlord
under Sections 14.4 and 14.5 to the extent thereof, (iv) covenants and
representations made by Landlord in Article 39, (v) the obligation to
deliver the Premises lien-free pursuant to Section 35.4, (vi) the
completion of punch list items relating to the Building Shell and Land
Improvements pursuant to the provisions of the Work Letter, and (vii)
any
other duties or obligations of Landlord arising under the provisions of
this Lease and applicable Law.
29. Estoppel Certificate.
29.1 Each party shall, within fifteen (15) days of written
notice from the other party, execute, acknowledge and deliver to the
other party a statement in writing on a form reasonably requested by a
proposed lender, purchaser, assignee or subtenant (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) and the dates to which the
rental and other charges are paid in advance, if any, (ii) acknowledging
that there are not, to each party's knowledge, any uncured defaults on
the part of Landlord or Tenant hereunder (or specifying such defaults if
any are claimed) and (iii) setting forth such further information with
respect to this Lease or the Premises as may be reasonably requested
thereon.
30. Removal of Property.
30.1 Except as provided below, all fixtures and personal
property owned by Tenant (but excluding any property specifically
described in Section 30.2 even if it would otherwise be defined as a
fixture) shall be and remain the property of Tenant, and may be removed
by Tenant at the expiration of the term of this Lease, or at such
earlier
time as Tenant is not in default hereunder.
30.2 All fixtures and improvements provided by Landlord
under the Work Letter, and all other improvements, additions,
alterations, and decorations constructed or installed by Tenant that are
of general utility to the operation of the Building (but excluding trade
fixtures and personal property owned by Tenant unless specifically
described below) attached to or built into the Premises shall be deemed
real property and shall become the property of Landlord upon the
expiration or earlier termination of this Lease, and shall remain upon
and be surrendered with the Premises as a part thereof, including,
without limiting the generality of the foregoing, walls, partitions and
related coverings; flooring and floor coverings; ceilings; insulation;
doors, frames and related hardware; built-in cabinet work and paneling;
lighting fixtures; built-in security systems; fire sprinkler system;
lobbies; rest rooms; mechanical (HVAC) system, including central plant
and controls, and including equipment, screens and enclosures;
environmental control and monitoring systems; telephone, electrical and
other wires and cabling; elevator and related components; plumbing
system
and fixtures; and electrical and other utility systems and components
thereof and appurtenances thereto. Tenant shall have the right to
remove
any improvement, addition, alteration, decoration and/or trade fixture
that is not of general utility to the operation of the Building and/or
that is used in the operation of Tenant's business so long as any damage
caused by such removal is repaired, including, without limitation, the
following: (1) antenna farm; (ii) environmental chambers in
manufacturing
areas; (iii) special audio-visual cabinets; (iv) up-graded interior
office doors (provided, Tenant replaces such doors with standard doors);
(v) fencing in stock room area or other areas; (vi) hoist; (vii) power
equipment that extends from the tray to the manufacturing floor; (viii)
air compressor; and (ix) special sound equipment in exercise room.
Tenant shall not be required to remove any of such property from the
Premises or restore the Premises except as set forth in Section 30.3.
30.3 Notwithstanding Sections 30.1 hereof, Tenant may not
remove any property if such removal would cause material damage to the
Premises, unless such damages can be and is repaired by Tenant.
Furthermore, Tenant shall repair any damage to the Premises caused by
Tenant's removal of any such property, and shall, prior to the
expiration
or earlier termination of this Lease, restore and return the Premises to
the condition they were in when first occupied by Tenant (or after they
were altered as allowed by Article 17, and excepting Tenant's
Improvements and subject to the provisions of Articles 22 and 23),
reasonable wear and tear excepted. At a minimum, Tenant shall leave in
place and repair any damage to the interior floors, walls and ceilings
of
the Premises. The provisions of Article 17 shall apply to any
restoration work under this Article as if the restoration was an
alteration, addition or improvement thereunder. Should Tenant require
any period beyond the expiration or earlier termination of the Lease to
complete such restoration, Tenant shall be a tenant at sufferance
subject
to the provisions of Section 12.2 hereof.
30.4 If Tenant shall fail to remove any fixtures or
personal property which it is entitled to remove under this Article 30
from the Premises prior to termination of this Lease, then Landlord may
dispose of the property under the provisions of Section 1980 et seq. of
the California Civil Code, as such provisions may be modified from time
to time, or under any other applicable provisions of California law.
31. Limitation of Landlord's Liability.
31.1 Except as set forth in Section 31.4, if Landlord is
in default of this Lease, and as a consequence, Tenant recovers a money
judgment against Landlord, the judgment shall be satisfied only out of
the proceeds of sale received on execution of the judgment and levy
against the right, title, and interest of Landlord in the Premises, and
out of insurance proceeds, rent or other income from the Premises
receivable by Landlord or out of the consideration received by Landlord
from the sale or other disposition of all or any part of Landlord's
right, title, and interest in the Premises.
31.2 Neither Landlord nor Landlord's Agents shall be
personally liable for any deficiency except to the extent liability is
based upon willful and intentional misconduct. If Landlord is a
partnership or joint venture, the partners of such partnership shall not
be personally liable and no partner of Landlord shall be sued or named
as
a party in any suit or action, or service of process be made against any
partner of Landlord, except as may be necessary to secure jurisdiction
of
the partnership or joint venture or to the extent liability is caused by
willful and intentional misconduct. If Landlord is a corporation, the
shareholders, directors, officers, employees, and/or agents of such
corporation shall not be personally liable and no shareholder, director,
officer, employee, or agent of Landlord shall be sued or named as a
party
in any suit or action, or service of process be made against any
shareholder, director, officer, employee, or agent of Landlord, except
as
may be necessary to secure jurisdiction of the corporation. No partner,
shareholder, director, employee, or agent of Landlord shall be required
to answer or otherwise plead to any service of process and no judgment
will be taken or writ of execution levied against any partner,
shareholder, director, employee, or agent of Landlord.
31.3 Each of the covenants and agreements of this Article
31 shall be applicable to any covenant or agreement either expressly
contained in this Lease or imposed by statute or by common law.
31.4 Notwithstanding the foregoing, the Landlord herein
named shall remain liable or responsible for (i) construction of the
work
required by Landlord under the Work Letter pursuant to Sections 4.1
hereof, (ii) damages in the event of completion delays to the extent of
Section 4.4 hereof, (iii) the warranties made by Landlord under Sections
14.4 and 14.5 to the extent thereof, (iv) covenants and representations
made by Landlord in Article 39, (v) the obligation to deliver the
Premises lien-free pursuant to Section 35.4, (vi) the completion of
punch
list items relating to the Building Shell and Land Improvements pursuant
to the provisions of the Work Letter, and (vii) any other duties or
obligations of Landlord arising under the provisions of this Lease and
applicable law.
32. [Intentionally Left Blank].
33. Quiet Enjoyment.
33.1 So long as Tenant is not in Default, Tenant may
peaceably and quietly have, hold, use, occupy and enjoy the Premises
during the term and any extended term of this Lease.
34. Quitclaim Deed.
34.1 Tenant shall execute and deliver to Landlord on the
expiration or termination of this Lease, immediately on Landlord's
request, a quitclaim deed to the Premises or other document in
recordable
form suitable to evidence of record termination of this Lease and the
right of first refusal and option contained herein.
35. Subordination and Attornment.
35.1 Unless the mortgagee or beneficiary elects otherwise
at any time prior to or following a default by Tenant, this Lease shall
be subject to and subordinate to the lien of any mortgage or deed of
trust now or hereafter in force against the Premises or any portion
thereof, and to all advances made or hereafter to be made upon the
security thereof without the necessity of the execution and delivery of
any further instruments on the part of Tenant to effectuate such
subordination, provided that the lienholder, beneficiary, or mortgagee
executes and delivers to Tenant a non-disturbance, attornment, and
subordination agreement ("Non-Disturbance Agreement") in recordable
form,
in the form as the lienholder, beneficiary, or mortgagee may reasonably
request and is approved by Tenant, which approval will not be
unreasonably withheld, setting forth that so long as Tenant is not in
Default hereunder, Landlord's and Tenant's rights and obligations
hereunder (including the use of insurance proceeds as set forth herein)
shall remain in force and Tenant's right to possession shall be upheld.
Each Non-Disturbance Agreement shall provide for use of insurance
proceeds as set forth in Article 21 of this Lease.
35.2 Notwithstanding the foregoing, Tenant shall upon
request of Landlord promptly execute and deliver such further instrument
or instruments reasonably required by Landlord and reasonably acceptable
to Tenant evidencing such subordination of this Lease to the lien of any
such mortgage or deed of trust as may be required by Landlord, provided
that the lienholder, beneficiary, or mortgagee has previously executed
and delivered to Tenant a Non-Disturbance Agreement in recordable form.
However, if any such mortgagee or beneficiary so elects at any time
prior
to or following a default by Tenant, this Lease shall be deemed prior in
lien to any such mortgage or deed of trust regardless of date and Tenant
will execute a statement in writing to such effect at Landlord's
request.
35.3 In the event any proceedings are brought for
foreclosure, or in the event of the exercise of the power of sale under
any mortgage or deed of trust made by the Landlord covering the
Premises,
the Tenant shall at the election of the purchaser at such foreclosure or
sale attorn to the purchaser upon any such foreclosure or sale and
recognize such purchaser as the Landlord under this Lease in accordance
with the terms of the Non-Disturbance Agreement.
35.4 Landlord represents that there are no mortgages or
deeds of trust encumbering the Premises, nor will there be any mortgages
or deeds of trust encumbering the Premises, with interests which will be
superior to Tenant's leasehold, on the date a memorandum of the Lease is
duly recorded in the Official Records of Santa Clara County, other than
those interests for which Tenant has been provided a Non-Disturbance
Agreement. Notwithstanding the foregoing, Landlord shall use
commercially reasonable efforts to insure that the Premises are free of
material and mechanics' liens on account of the work required of
Landlord
under the Work Letter as soon as is reasonably practical after Tenant
occupies the Premises. At the request of Tenant, Landlord shall provide
such documentation as may be reasonably requested by a title company for
the purpose of allowing the leasehold policy to be issued without
listing
any such liens as exceptions, so long as Landlord incurs no expense
therefor. In any event, however, Landlord shall insure such a policy
without exceptions for such liens may be issued no later than six (6)
months from the Substantial Completion of the Premises.
36. Surrender.
36.1 No surrender of possession of any part of the
Premises shall release Tenant from any of its obligations hereunder
unless accepted by Landlord.
36.2 The voluntary or other surrender of this Lease by
Tenant shall not work a merger, unless Landlord consents, and shall, at
the option of Landlord, operate as an assignment to it of any or all
subleases or subtenancies.
37. Waiver and Modification.
37.1 No provision of this Lease may be waived, modified,
amended or added to except by an agreement in writing. The waiver by
either party hereto of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition herein
contained.
38. Waiver of Jury Trial and Counterclaims.
38.1 The parties hereto shall and they hereby do waive
trial by jury in any action, proceeding or counterclaim brought by
either
of the parties hereto against the other on any matters whatsoever
arising
out of or in any way connected with this Lease, the relationship of
Landlord and Tenant, Tenant's use or occupancy of the Premises, and/or
any claim of injury or damage.
39. Hazardous Material.
39.1 Tenant, at its sole cost, shall comply with all
federal, state and local laws, statutes, ordinances, codes, regulations
and orders relating to Tenant's receiving, handling, use, storage,
accumulation, transportation, generation, spillage, migration,
discharge,
release and disposal of Hazardous Material (as hereinafter defined in
Section 39.12 hereof) in or about the Premises. Tenant shall not cause
or permit any Hazardous Material to be brought upon, kept or used in or
about the Premises by Tenant, its agents, employees, contractors,
invitees or subtenants, in a manner or for a purpose prohibited by any
federal, state or local agency or authority. The accumulation of
Hazardous Material shall be in approved containers and removed from the
Premises by duly licensed carriers.
39.2 Tenant shall promptly provide Landlord with
telephonic notice, which shall promptly be confirmed by written notice,
of any and all spillage, discharge, release and disposal of Hazardous
Material onto or within the Premises, including the soils and subsurface
waters thereof, which by law must be reported to any federal, state or
local agency, and any injuries or damages resulting directly or
indirectly therefrom. Further, Tenant shall deliver to Landlord each
and
every notice or order, when said order or notice identifies a violation
which may have the potential to adversely impact the Premises, received
from any federal, state or local agency concerning Hazardous Material
and
the possession, use and/or accumulation thereof promptly upon receipt of
each such notice or order by Tenant. Landlord shall have the right,
upon
reasonable notice, to inspect and copy each and every notice or order
received from any federal, state or local agency concerning Hazardous
Material and the possession, use and/or accumulation thereof.
39.3 Tenant shall be responsible for and shall indemnify,
protect, defend and hold harmless Landlord and Landlord's Agents from
any
and all liability, damages, injuries, causes of action, claims,
judgments, costs, penalties, fines, losses, and expenses which arise
during or after the term of this Lease and which result from Tenant's
(or
from Tenant's Agents, assignees, subtenants, employees, agents,
contractors, licensees, or invitees) receiving, handling, use, storage,
accumulation, transportation, generation, spillage, discharge, release,
disposal of Hazardous Material in, upon or about the Premises, including
without limitation (i) damages for the loss or restriction on use of any
portion or amenity of the Premises, (ii) damages arising from any
adverse
impact on marketing of space in the Building, and (iii) reasonable
consultant fees, expert fees, and attorneys' fees. Landlord shall be
responsible for and shall indemnify, protect, defend and hold harmless
Tenant on the same basis as above for all other claims which arise from
receiving, handling, use, storage, accumulation, transportation,
generation, spillage, migration, discharge, release or disposal of
Hazardous Material in, upon or about the Premises (subject to applicable
insurance, if any, required to be maintained by Tenant under this
Lease).
39.4 The indemnification pursuant to the preceding Section
39.3 includes, without limiting the generality of Section 39.3,
reasonable costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal or restoration work
required
by any federal, state or local governmental agency or political
subdivision because of Hazardous Material present in the soil, subsoil,
ground water, or elsewhere on, under or about the Premises. Without
limiting the foregoing, if the presence of any Hazardous Material on the
Premises results in any contamination of the Premises, or underlying
soil
or groundwater, the party responsible therefore under Section 39.3 shall
promptly take all actions at its sole expense as are necessary to return
the Premises to the condition existing prior to the introduction of any
such Hazardous Material, provided that the other party's approval of
such
action shall first be obtained, which approval shall not be unreasonably
withheld so long as such actions would not potentially have any material
adverse long-term or short-term effect on the Premises, except that the
responsible party shall not be required to obtain the other party's
prior
approval of any action of an emergency nature reasonably required or any
action mandated by a governmental authority.
39.5 Landlord acknowledges that it is not the intent of
this Article 39 to prohibit Tenant from operating its business as
described in Article 10 or to unreasonably interfere with the operation
of Tenant's business. Tenant may operate its business according to the
custom of the industry so long as the use or presence of Hazardous
Material is strictly and properly monitored according to all applicable
governmental requirements. As a material inducement to Landlord to
allow
Tenant to use Hazardous Material in connection with its business, Tenant
agrees to deliver to Landlord prior to the Term Commencement Date a list
identifying each type of Hazardous Material to be present in or upon the
Premises and setting forth any and all governmental approvals or permits
required in connection with the presence of Hazardous Material on the
Premises ("Hazardous Material Summary") and a copy of the Hazardous
Material business plan prepared pursuant to Health and Safety Code
Section 25500 et seq. At Landlord's request, and at reasonable times,
Tenant shall make available to Landlord the latest available Hazardous
Materials Summary and true and correct copies of the following documents
(hereinafter referred to as the "Hazardous Material Documents") relating
to the handling, storage, disposal and emission of Hazardous Material:
permits; approvals; reports and correspondence; storage and management
plans; notice of violations of any laws; plans relating to the
installation of any storage tanks to be installed in or under the
Premises (provided said installation of tanks shall be permitted only
after Landlord has given Tenant its written consent to do so, which
consent may not be unreasonably withheld); and all closure plans or any
other documents required by any and all federal, state and local
governmental agencies and authorities for any storage tanks installed
in,
on or about the Premises for the closure of any such tanks. Tenant
shall
not be required, however, to provide Landlord with that portion of any
document which contains information of a proprietary nature and which,
in
and of itself, does not contain a reference to any Hazardous Material
which are not otherwise identified to Landlord in such documentation,
unless any such Hazardous Material Document names Landlord as an "owner"
or "operator" of the facility in which Tenant is conducting its
business.
It is not the intent of this subsection to provide Landlord with
information which could be detrimental to Tenant's business should such
information become possessed by Tenant's competitors. Landlord shall
treat all information furnished by Tenant to Landlord pursuant to this
Section 39.5 as confidential and shall not disclose such information to
any person or entity without Tenant's prior written consent, which
consent shall not be unreasonably withheld or delayed, except as
required
by law.
39.6 Notwithstanding other provisions of this Article 39,
it shall be a default under this Lease, and Landlord shall have the
right
to terminate the Lease and/or pursue its other remedies under Article
24,
in the event that (i) Tenant's use of the Premises for the generation,
storage, use, treatment or disposal of Hazardous Material is in a manner
or for a purpose prohibited by applicable law unless Tenant is
diligently
pursuing compliance with such law, (ii) Tenant has been required by any
governmental authority to take remedial action in connection with
Hazardous Material contaminating the Premises if the contamination
resulted from Tenant's action or use of the Premises, unless Tenant is
diligently pursuing compliance with such requirement, or (iii) Tenant is
subject to an enforcement order issued by any governmental authority in
connection with the use, disposal or storage of a Hazardous Material on
the Premises, unless Tenant is diligently seeking compliance with such
enforcement order.
39.7 Notwithstanding the provisions of Article 25, if any
anticipated use of the Premises by a proposed assignee or subtenant
involves the generation or storage, use, treatment or disposal of
Hazardous Material in any manner or for a purpose prohibited by any
applicable law, it shall not be unreasonable for Landlord to withhold
its
consent to an assignment or subletting to such proposed assignee or
sublessee.
39.8 Landlord represents that, to the best of its
knowledge, as of the date of this Lease and as of the Term Commencement
Date, there is no Hazardous Material on the Premises, and will deliver
to
Tenant a certification to that effect promptly upon the Term
Commencement
Date. Landlord shall at its expense provide Tenant with a Phase I
Environmental Site Assessment as of the Term Commencement Date. In
addition, Landlord may at its expense also provide Tenant with a Phase
II
Environmental Site Assessment as of the Term Commencement Date. Should
either assessment disclose the presence of Hazardous Material, Landlord
shall remedy the problems to Tenant's reasonable satisfaction, and shall
cause a further update of the Phase I and any Phase II Environmental
Site
Assessment to be issued reflecting the remedy therein. The Phase I and
any Phase II Environmental Site Assessments and all updates thereto are
hereinafter referred to as the "Base Line Report."
39.9 At any time prior to the expiration or earlier
termination of the term of the Lease, Landlord shall have the right to
enter upon the Premises at all reasonable times and at reasonable
intervals in order to conduct appropriate tests regarding the presence,
use and storage of Hazardous Material, and to inspect Tenant's records
with regard thereto. Tenant will pay the reasonable costs of any such
test which demonstrates that contamination in excess of permissible
levels has occurred and such contamination is the responsibility of
Tenant under Section 39.3. Tenant shall correct any deficiencies
identified in any such tests in accordance with its obligations under
this Article 39.
39.10 Tenant shall at its own expense cause a Phase I
environmental site assessment of the Premises to be conducted and a
report thereof delivered to Landlord upon the expiration or earlier
termination of the Lease, such report to be as complete and broad in
scope as the Base Line Report as is necessary to identify any impact on
the Premises Tenant's operations might have had. Should the assessment
disclose the presence of Hazardous Material, Tenant shall, prior to the
expiration of this Lease, remedy the problems for which it is
responsible
under Section 39.3 to the extent required by applicable law, and shall
cause a further update of the environmental site assessment to be issued
reflecting the remedy therein. The assessment and all updates thereto
are hereinafter referred to as the "Exit Report." This Article 39 is
the
exclusive provision in this Lease regarding clean-up, repairs or
maintenance arising from receiving, handling, use, storage,
accumulation,
transportation, generation, spillage, migration, discharge, release or
disposal of Hazardous Material in, upon or about the Premises, and the
provisions of Article 18 (Repairs and Maintenance) shall not apply
thereto.
39.11 Landlord's and Tenant's obligations under this
Article 39 shall survive the termination of the Lease.
39.12 As used herein, the term "Hazardous Material" means
any hazardous or toxic 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 Material" includes,
without limitation, any material or substance which is (i) defined as a
"hazardous waste," "extremely hazardous waste" or "restricted hazardous
waste" under Sections 25515, 25117 or 25122.7, or listed pursuant to
Section 25140, of the California Health and Safety Code, Division 20,
Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a "hazardous
substance" under Section 25316 of the California Health and Safety Code,
Division 2, Chapter 6.8 (Carpenter-Presly-Tanner Hazardous Substance
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
Substances),
(v) petroleum, (vi) asbestos, (vii) listed under Article 9 and defined
as
hazardous or extremely hazardous pursuant to Article 11 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. Section 1317), (ix)
defined as a "hazardous waste" pursuant to Section 1004 of the Federal
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et. seq.
(42 U.S.C. Section 6903), or (x) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42
U.S.C. Section 9601).
40. Options to Extend.
40.1 Landlord grants to Tenant two (2) options to extend
the term of this Lease for (5) years each under the same terms and
conditions existing in the original Lease except as set forth in this
Article 40. Basic Annual Rent shall be adjusted on the first day of the
first extension term to an amount equal to the fair market rental value
of the Premises as if in shell condition only (as more particularly
described in Section 40.4) as of the commencement of the first extension
term, but in no event less than the average Basic Annual Rent payable
during the initial term. Basic Annual Rent shall be adjusted on the
first day of the second extension term to an amount equal to the fair
market rental value of the Premises as if in shell condition only (as
more particularly described in Section 40.4) as of the commencement of
the second extension term, but in no event less than the average Basic
Annual Rent payable during the first extension term. Tenant shall
exercise such right to extend the term of this Lease by written notice
to
Landlord no later than eight (8) months prior to the end of the original
term or the first extension term, as the case may be. The second
extension option shall lapse and have no further force or effect if the
first extension option is not exercised.
40.2 Landlord shall obtain at its expense and deliver to
Tenant an independent appraisal of the fair market rental value of the
Premises as if in shell condition only as of the commencement of each
extension term. Following its receipt of Landlord's appraisal, Tenant
may elect to obtain at its expense and deliver to Landlord a second
independent appraisal of the fair market rental value of the Premises as
if in shell condition only as of the commencement of the extension term.
If Tenant elects not to obtain a second appraisal, Landlord's appraisal
shall be conclusive. If Tenant's appraisal is no more than five percent
(5%) less than Landlord's appraisal, the fair market rental value of the
Premises as if in shell condition only shall be the arithmetic average
of
the two appraisals. If Tenant's appraisal is more than five percent
(5%)
less than Landlord's appraisal, the two appraisers shall appoint a third
appraiser to appraise the fair market rental value of the Premises as if
in shell condition only as of the commencement of the extension term,
and
the fair market rental value of the Premises as if in shell condition
only shall be the arithmetic average of the two appraisals closest in
their determination of fair market rental value. Landlord and Tenant
shall bear equally the expense of the third appraiser.
40.3 All appraisers appointed hereunder shall have at
least ten (10) years' experience in the appraisal of
commercial/industrial real property in the San Jose area and shall be
members of professional organizations such as the American Appraisal
Institute with a designation of MAI or equivalent.
40.4 The parties acknowledge that Landlord will construct
at its expense the Building Shell and Land Improvements only (as
described in the Work Letter and Exhibits "A-1" and "A-2" attached
thereto) and that Tenant, at its sole cost and expense, will construct
Tenant's Improvements (as described in the Work Letter) which consist of
all mechanical equipment, interior partitions, floor and wall coverings,
lighting fixtures, and all other improvements in the Premises other than
the Building Shell and Land Improvements. The initial Basic Annual Rent
payable as of the initial Term Commencement Date was based only upon
Landlord's investment in the Building Shell and Land Improvements (and
the Land itself), and did not, nor was it intended, to provide Landlord
with a return based upon the cost or value added by Tenant's
Improvements. It is the intention of the parties that Basic Annual Rent
for the extended terms shall be based only upon Landlord's investment in
the Building Shell and Land Improvements (and the Land itself), and
shall
not reflect a return for or investment in Tenant's Improvements.
Accordingly, as used herein, the term "fair market rental value of the
Premises as if in shell condition only" shall mean the price that a
ready
and willing tenant would pay, as of the commencement of the extension
term in question, as Basic Annual Rent, to a ready and willing landlord,
for the Building Shell and Land Improvements only, assuming that
Tenant's
Improvements did not exist in the Premises, that the landlord would
provide no tenant improvement allowance for the improvement of the
Building Shell, and that the tenant would be solely responsible for
constructing at its cost all mechanical equipment, interior partitions,
and other tenant improvements necessary to operate the Premises for the
uses being conducted by Tenant as of the commencement of the extension
term in question. In addition, such fair market rental value shall be
based upon the assumption that the term of the extension is for five (5)
years and shall be on all other terms set forth in the Lease (other than
the amount of Basic Annual Rent and annual rental adjustments),
determined as if such property were exposed for lease on the open market
for a reasonable period of time and taking into account all of the
purposes for which such property is then being used.
40.5 Any increase or decrease in Basic Annual Rent under
this Article 40 which is not determined until after the effective date
of
the increase shall nevertheless be retroactive to the effective date;
Tenant shall pay any such retroactive increase with the installment of
Rent next due, and Landlord shall promptly reimburse Tenant an amount
equal to any such retroactive decrease. The parties hereto understand
that any increase or decrease in Basic Annual Rent shall necessarily
increase or decrease the management fee payable under Section 7.1(ii)
which is calculated as a percentage of Basic Annual Rent.
40.6 Basic Annual Rent as of the commencement of each
extension term as determined under this Article 40 shall be increased on
each annual anniversary of the first day of the extension term in
question (each an "Adjustment Date") as follows:
(a) With regard to each extension term, the "Base
Month" for purposes of each adjustment of Basic Annual Rent shall be
that
month immediately preceding the month during which the first day of the
extension term in question occurs, and the "Comparison Month" shall be
that month immediately preceding the month in which the Adjustment Date
in question occurs. By way of example only, with regard to the first
extension term, assuming the first extension term commences on April 15,
2009, the Base Month would be March 2009.
(b) As used in this subsection, the term "Consumer
Price Index" means the All Urban Consumers (All Items) for the San
Francisco-Oakland-San Jose Metropolitan Area (1982-1984 = 100) as
published by the United States Department of Labor, Bureau of Labor
Statistics. If the 1982-84 base of the Consumer Price Index is
hereafter
changed, then the new base will be converted to the 1982-84 base and the
base as so converted shall be used. In the event that the Bureau ceases
to publish the Consumer Price Index once every month, then the successor
or most nearly comparable index thereto selected by Landlord subject to
Tenant's reasonable approval shall be used.
(c) In the event that the Consumer Price Index for
the Comparison Month exceeds the Consumer Price Index for the Base
Month,
the Basic Annual Rent payable on the first day of the extension term in
question shall be multiplied by a fraction, the numerator of which is
the
Consumer Price Index figure for the Comparison Month, and the
denominator
of which is the Consumer Price Index figure for the Base Month. Such
amount as calculated shall be the Basic Annual Rent to be paid until the
next Adjustment Date. Any of the foregoing notwithstanding, in no event
shall the Basic Annual Rent as previously adjusted increase less than
two
percent (2%) or more than six percent (6%) each year.
(d) Prior to each Adjustment Date, or as soon as
reasonably practical thereafter, Landlord will calculate and give Tenant
notice of any increase in Basic Annual Rent under this Article 40.
Delivery of such notice after the effective date of any such increase
shall not waive Landlord's right to collect such increase, and Tenant
shall pay to Landlord, upon receipt of such notice, any such increase
due
from the last anniversary of the Term Commencement Date.
40.7 Tenant shall not have the right to exercise either
option to extend the term, notwithstanding anything set forth above to
the contrary, (a) during the time commencing from the date Landlord
gives
to Tenant a written notice that Tenant is in Default under any provision
of this Lease and continuing until the default alleged in said notice is
cured, or (b) after the expiration or earlier termination of the initial
or first extension term, as the case may be. The period of time within
which either option to extend may be exercised shall not be extended or
enlarged by reason of the Tenant's inability to exercise the option
because of the foregoing provisions. At the election of Landlord, all
rights of Tenant under the provisions of this Article 40 shall terminate
and be of no further force or effect even after Tenant's due and timely
exercise of an option to extend if, after such exercise, but prior to
the
commencement of the extension term, (1) Tenant fails to cure a monetary
Default for a period of thirty (30) days after the date Landlord gives
notice to Tenant of such default, or (2) Tenant fails to commence to
cure
any other default within thirty (30) days after the date Landlord gives
notice to Tenant of such default.
41. Right of First Refusal to Purchase. Tenant shall have
the right of first refusal to purchase the Premises ("Right of First
Refusal") upon the following terms and conditions:
41.1 If at any time during the initial or any extended
term of this Lease Landlord determines to sell the Premises, Landlord
shall give written notice to Tenant ("Right of First Refusal Notice") of
the economic terms and conditions on which Landlord would be willing to
sell the Premises. If Tenant, within thirty (30) days after receipt of
Landlord's Right of First Refusal Notice, agrees in writing to purchase
the Premises on the terms and conditions stated in the notice, Landlord
shall sell and convey the Premises to Tenant on the economic terms and
conditions stated in the notice.
41.2 If Tenant does not agree in writing to purchase the
Premises within thirty (30) days after receipt of Landlord's Right of
First Refusal Notice, or if Landlord and Tenant have not entered into a
purchase and sale agreement within thirty (30) days thereafter, Landlord
shall have the right to sell and convey the Premises to a third party on
economic terms and conditions no more favorable than the economic terms
and conditions stated in the Right of First Refusal Notice, except that
the purchase price may be two and one half percent (2.5%) less than that
stated in the Right of First Refusal Notice, and, upon any such sale,
the
Right of First Refusal shall terminate. If Landlord does not sell and
convey the Premises within one hundred eighty (180) days after the Right
of First Refusal Notice, any sale transaction thereafter shall be deemed
a new determination by Landlord to sell and convey the Premises and the
provisions of this Section shall again be applicable.
41.3 If Tenant purchases the Premises pursuant to the
Right of First Refusal, this Lease shall terminate on the date title
vests in Tenant, and Landlord shall remit to Tenant any security deposit
and all prepaid and unearned Rent. Notwithstanding the foregoing, if
Tenant, at its option, should determine to take title to the Premises in
the name of an affiliate of Tenant, this Lease shall not terminate on
the
date title vests in any such affiliate of Tenant unless Tenant and such
affiliate agree otherwise.
41.4 The Right of First Refusal herein granted to Tenant
is not assignable separate and apart from this Lease, and shall expire
upon the expiration or earlier termination of the term.
41.5 Tenant shall not have the right to exercise the Right
of First Refusal, notwithstanding anything set forth above to the
contrary, (a) during the time commencing from the date Landlord gives to
Tenant a written notice that Tenant is in Default under any provision of
this Lease and continuing until the default alleged in said notice is
cured, or (b) after the expiration or earlier termination of this Lease.
The period of time within which the Right of First Refusal may be
exercised shall not be extended or enlarged by reason of the Tenant's
inability to exercise the Right of First Refusal because of the
foregoing
provisions. At the election of Landlord, all rights of Tenant under the
provisions of this Article 41 shall terminate and be of no further force
or effect even after Tenant's due and timely exercise of the Right of
First Refusal, if, after such exercise, but prior to the transfer of
title, (1) Tenant fails to cure a monetary Default for a period of
thirty
(30) days after the date Landlord gives notice to Tenant of such
default,
or (2) Tenant fails to commence to cure any other default within thirty
(30) days after the date Landlord gives notice to Tenant of such
default.
41.6 Notwithstanding the foregoing, the Right of First
Refusal shall not be applicable to a sale or other transfer of the
Premises to an affiliate of which more than fifty percent (50%) is owned
or controlled by Landlord or the partners or members of Landlord, so
long
as such sale or other transfer to such affiliate of Landlord is not
primarily intended as a means of ultimately transferring substantially
all of the ownership of the Premises to an entity or entities not more
than fifty percent (50%) owned or controlled by Landlord or its partners
or members without first complying with this Right of First Refusal.
42. Miscellaneous.
42.1 Terms and Headings. Where applicable in this
Lease, the singular includes the plural and the masculine or neuter
includes the masculine, feminine and neuter. The section headings of
this Lease are not a part of this Lease and shall have no effect upon
the
construction or interpretation of any part hereof.
42.2 Examination of Lease. Submission of this
instrument for examination or signature by Tenant does not constitute a
reservation of or option for lease, and it is not effective as a lease
or
otherwise until execution by and delivery to both Landlord and Tenant.
42.3 Time. Time is of the essence with respect to the
performance of every provision of this Lease in which time of
performance
is a factor.
42.4 Covenants and Conditions.. Each provision of
this Lease performable by Landlord, and each provision of this Lease
performable by Tenant, shall be deemed both a covenant and a condition.
42.5 Consents. Whenever consent or approval of either
party is required, that party shall not unreasonably withhold or delay
such consent or approval, except as may be expressly set forth to the
contrary.
42.6 Entire Agreement. The terms of this Lease and the
Work Letter attached hereto are intended by the parties as a final
expression of their agreement with respect to the terms as are included
herein, and may not be contradicted by evidence of any prior or
contemporaneous agreement.
42.7 Severability. Any provision of this Lease which
shall prove to be invalid, void, or illegal in no way affects, impairs
or
invalidates any other provision hereof, and such other provisions shall
remain in full force and effect.
42.8 Recording. Within thirty (30) days from the
execution of this Lease, Landlord and Tenant shall record a short form
memorandum hereof in the form attached hereto as Exhibit "D", subject to
the requirement to execute and deliver a quitclaim deed pursuant to the
provisions of Section 34.1 hereof.
42.9 Impartial Construction. The language in all
parts of this Lease shall be in all cases construed as a whole according
to its fair meaning and not strictly for or against either Landlord or
Tenant.
42.10 Inurement. Each of the covenants, conditions, and
agreements herein contained shall inure to the benefit of and shall
apply
to and be binding upon the parties hereto and their respective heirs,
legatees, devisees, executors, administrators, successors, assigns,
sublessees, or any person who may come into possession of said Premises
or any part thereof in any manner whatsoever. Nothing in this section
shall in any way alter the provisions against assignment or subletting
in
this Lease provided.
42.11 Force Majeure. The definition of Force-Majeure
Delay in Section 1.6 of the Work Letter is incorporated herein by this
reference.
42.12 Notices. Any notice, consent, demand, bill,
statement, or other communication required or permitted to be given
hereunder must be in writing and may be given by personal delivery or by
mail, and if given by personal delivery shall be deemed given on the
date
of delivery, and if given by mail shall be deemed given on the date of
delivery or refusal of delivery, to Landlord or Tenant at the addresses
shown in Section 2.1.7 hereof, or to such other address as either party
may specify by notice to the other given pursuant to this Section.
42.13 Authority to Execute Lease. Landlord and Tenant
each acknowledge that it has all necessary right, title and authority to
enter into and perform its obligations under this Lease, that this Lease
is a binding obligation of such party and has been authorized by all
requisite action under the party's governing instruments, that the
individuals executing this Lease on behalf of such party are duly
authorized and designated to do so, and that no other signatories are
required to bind such party.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as
of the date first above written.
LANDLORD:
NEXUS EQUITY, INC.
A California corporation
By: /s/ R. Darrell Gary
_____________
Authorized Officer
TENANT:
SymmetriCom, Inc.
A California corporation
By: /s/Paul N. Risinger
________________
Authorized Officer
WORK LETTER
EXHIBIT "A" TO LEASE BETWEEN
NEXUS EQUITY, INC.
"Landlord"
AND
SYMMETRICOM, INC.
"Tenant"
Orchard Parkway at Guadalupe Parkway
SAN JOSE, CALIFORNIA
WORK LETTER
Provisions Relating to the Design and Construction
of Project
This Work Letter ("Work Letter") dated June 10, 1996, is made by
and between NEXUS EQUITY, INC., a California corporation ("Landlord"),
and SYMMETRICOM, INC., a California corporation ("Tenant"), and is
attached to and made a part of the Lease of the same date by and between
such parties ("Lease").
ARTICLE 1
DEFINITIONS
Capitalized terms not otherwise defined in the Lease shall have
the
meaning set forth below. Except as defined in this Work Letter to the
contrary, all terms utilized in this Work Letter shall have the same
meaning ascribed to them in the Lease. When consents or approvals are
to
be provided by or on behalf of either party, the term "Landlord" or
"Tenant", as the case may be, shall include Landlord's Representative
and
Tenant's Representative, as the case may be. The provisions of the
Lease, except where clearly inconsistent or inapplicable to this Work
Letter, are incorporated into this Work Letter.
1.1 "BUILDING." That certain concrete tilt-up two-story
building to be constructed by Landlord on the Real Property described in
the Lease.
1.2 "BUILDING SHELL." The basic shell of the Building,
consisting of concrete panel exterior and other structural walls, steel
columns, footings, foundations, concrete slab first floor, concrete-
filled metal deck second floor, and panelized wood sub-roof with four-
ply
cover, with electrical service, natural gas, telephone, water, plumbing
and other utilities necessary for Tenant's Improvements extended from
the
street and stubbed to the Building. A more complete description of the
components of the Building Shell is attached hereto as Exhibit "A-1",
and
a schematic drawing of the Building is attached hereto as Exhibit "A-2",
both of which are incorporated herein by this reference.
1.3 "CITY." The City of San Jose, and any other governmental
agencies and entities involved in the permit and approval process for
Landlord's Plans or Tenant's Improvement Plans.
1.4 "CONSTRUCTION PANEL." A panel consisting of one of
Landlord's Representatives, one of Tenant's Representatives, the Project
Architects, and the Project Contractor.
1.5 "FORCE-MAJEURE DELAY." Any delay which is attributable
to any: (1) event or condition beyond the reasonable control of Landlord
and Tenant including, without limitation, defective supplies, equipment
and/or materials; the failure of the Project Contractor to timely and
fully perform its duties and obligations under its construction
contracts
with Landlord and Tenant; failure to obtain customary materials,
supplies
or labor through ordinary sources by reason of regulation or order of
any
government or regulatory body or any other governmental entity with
jurisdiction, provided any such failure is not the result of an act or
omission of the party who seeks to raise Force-Majeure as the reason for
failing to perform its obligation hereunder; strike, lockout or other
labor or industrial disturbance (whether or not on the part of the
employees of either party hereto or their contractors or other
representatives); and civil disturbance, act of a public enemy, war,
riot, sabotage, blockade, or embargo; (2) failure to secure permits and
approvals within the time periods set forth in the Project Schedule due
to action or inaction of the City, provided any such failure is not the
result of an act or omission of the party who seeks to raise Force-
Majeure as the reason for failing to perform its obligation hereunder;
(3) delay in completing plans and specifications because of changes in
any laws (including, without limitation, the Americans with Disabilities
Act of 1990, Pub. L. 101-336 (the "ADA")) or building requirements, or
the interpretation thereof; or (4) delay attributable to lightning,
earthquake, fire, rain, storm, hurricane, tornado, flood, washout,
explosion, or other similar acts of God.
1.6 "LAND IMPROVEMENTS." Surface parking areas, landscaping,
drainage, irrigation, gutters, sidewalks, lighting, walkways, driveways
and other improvements and appurtenances relating to ingress and egress,
and preparation of sites for Tenant's exterior enclosures and
structures.
A more complete description of the components of the Land Improvements
is included on Exhibit "A-1".
1.7 "LANDLORD'S CHANGE." Any change requested by Landlord to
Landlord's Plans, Landlord's Work, Tenant's Improvement Plans or
Tenant's
Improvement work after the plans are approved by Tenant, but excluding
any change required by the City.
1.8 "LANDLORD'S PLANS." Final calculations, designs, drawings
and specifications prepared by the Project Architect and its engineers
and other consultants for the Land Improvements and Building Shell as
approved by Landlord and Tenant.
1.9 "LANDLORD'S REPRESENTATIVE." R. Darrell Gary, Michael
J. Reidy, or such other individual as may be designated by Landlord from
time to time.
1.10 "LANDLORD'S WORK." The construction, purchase and/or
installation of the Building Shell and Land Improvements (including the
plans, specifications and permits relating thereto).
1.11 "LANDLORD-CAUSED DELAY." Any delay caused by the failure
of Landlord to act within the time limits set forth in the Project
Schedule and this Work Letter other than a delay described as a Force-
Majeure Delay or Tenant-Caused Delay, and any interference with the
construction of Tenant's Improvements by Landlord, Landlord's Architect
or any employee, agent or contractor of Landlord, and any act or
omission
of Landlord in breach of this Agreement or the Lease.
1.12 "PROJECT." The real property upon which the Building is
located, the Building, and the Land Improvements.
1.13 "PROJECT ARCHITECT." The architect selected by Landlord
and Tenant and retained by Landlord for the design of the Land
Improvements and Building Shell, and retained by Tenant for the design
of
Tenant's Improvements, and civil engineers, structural engineers,
landscaping architects and other consultants retained by the Project
Architect.
1.14 "PROJECT CONTRACTOR." The contractor selected by Landlord
and Tenant and retained by Landlord for the construction of Landlord's
Work and retained by Tenant for the construction of Tenant's Improvement
Work.
1.15 "PROJECT SCHEDULE." The time and responsibility schedule
for development, design and construction of the Land Improvements,
Building Shell and Tenant's Improvements, including time periods for
preparation and review of construction documents, obtaining necessary
approvals, construction of Landlord's Work and Tenant's Improvements,
and
other performances required by this Work Letter, whether by Landlord or
by Tenant, as such schedule may be adjusted from time to time by mutual
written agreement of Landlord and Tenant or as otherwise set forth in
this Work Letter. The initial Project Schedule is attached hereto as
Exhibit "A-3" and incorporated herein by this reference.
1.16 "SOFT COSTS." The indirect costs of development and
construction of the Project described on Exhibit "A-4" and incorporated
herein by this reference.
1.17 "SUBSTANTIALLY COMPLETE," "SUBSTANTIALLY COMPLETED,"
and "SUBSTANTIAL COMPLETION" shall have the meaning ascribed to them
in Section 4.2 of the Lease.
1.18 "TENANT'S CHANGE." Any change requested by Tenant to
Landlord's Plans, Landlord's Work, Tenant's Improvement Plans or
Tenant's
Improvement Work after the plans are approved by Tenant, but excluding
any change required by the City.
1.19 "TENANT'S REPRESENTATIVES." An individual selected from
time to time by Tenant.
1.20 "TENANT'S EQUIPMENT." Equipment and other personal
property required by Tenant in the operation of its business, including
equipment and other installations necessary for obtaining a "right to
occupy" from the City, and including installation of necessary utility
meters, but excluding any such personal property installed as a part of
Tenant's Improvement Plans.
1.21 "TENANT'S IMPROVEMENTS." The improvements within the
Building Shell necessary to the operation of Tenant's business described
in Tenant's Improvement Plans except to the extent defined as Landlord's
Work, including but not limited to interior partitions; insulation;
ceilings; flooring; interior doors; frames; hardware; central
electrical,
telephone, elevator, and other equipment and storage rooms; fire
sprinkler system; security system; interior and exterior trash and
equipment enclosures; fire exit and other corridors; elevator; lobbies;
rest rooms; mechanical (HVAC) system, including central plant and
controls, and including equipment, screens and enclosures; electrical,
telephone, and plumbing systems; all other interior and exterior
equipment and storage facilities; and necessary utility facilities.
1.22 "TENANT'S IMPROVEMENT PLANS." Final calculations,
designs, drawings and specifications prepared by the Project Architect
and its engineers and other consultants for Tenant's Improvements (as
modified by changes required by the City and otherwise required or
permitted under this Work Letter), including (i) fully detailed and
dimensioned 1/4" and 1/8" scale construction drawings, including all
architectural, plumbing, mechanical, and electrical drawings, and
identification of built-in furnishings and equipment, (ii) a schedule of
construction specifications, and (iii) all structural calculations,
energy calculations and other engineering calculations necessary to
acquire a building permit.
1.23 "TENANT'S IMPROVEMENT WORK." The construction,
purchase and/or installation of Tenant's Improvements shown on the
approved Tenant's Improvement Plans (including plans, specifications and
permits related thereto).
1.24 "TENANT-CAUSED DELAY." Any delay, unless attributable to
a condition or event described as a Force-Majeure Delay or a Landlord-
Caused Delay, (i) caused by the failure of Tenant to act within the time
limits set forth in the Project Schedule and this Work Letter; (ii)
resulting from Tenant's request for materials, finishes or installations
which are unavailable at the time or such request or nonstandard; (iii)
resulting from the untimely delivery of any of Tenant's Equipment;
(iv) defined as a Tenant-Caused Delay in this Work Letter; and (v)
attributable to any interference with the construction of Landlord's
Work
by Tenant, the Project Architect or any employee, agent or contractor of
Tenant and any act or omission of Tenant in breach of this Agreement or
the Lease.
ARTICLE 2
GENERAL REQUIREMENTS
2.1 Project Schedule. Landlord agrees to design and construct
the Land Improvements and Building Shell, and Tenant agrees to design
and
construct Tenant's Improvements, in a good and workmanlike manner, in
accordance with this Work Letter and the time and responsibility
criteria
set forth in the Project Schedule, and in compliance with all applicable
laws, regulations and other governmental requirements. Landlord and
Tenant shall use diligent good faith efforts to continuously prosecute
the construction of the Building Shell, Land Improvements and Tenant's
Improvements to completion.
2.2 Consents and Approvals. Any consents or approvals
required or allowed by this Work Letter shall not be unreasonably
withheld or delayed.
2.3 Time of the Essence. Landlord and Tenant agree that time
and strict punctual performance are of the essence with respect to this
Work Letter and the Project Schedule.
ARTICLE 3
LANDLORD'S AND TENANT'S PLANS
3.1 Familiarization with Documents by Architects. The
Project Architect, and each engineer, consultant and other professional
retained by the Project Architect, shall thoroughly familiarize
themselves with this Work Letter, all applicable building codes, and all
other applicable city, county, state and federal ordinances, rules and
regulations, including, without limitation, the energy conservation and
handicap access requirements of Title 24 of the California
Administrative
Code and the Americans With Disabilities Act, and shall prepare
Landlord's Plans and Tenant's Improvement Plans with full knowledge and
compliance therewith. The Project Architect and each engineer retained
by the Project Architect shall be fully qualified and licensed by the
State of California to prepare the plans they are responsible for.
However, notwithstanding the foregoing, or any other provisions in the
Lease or this Work Letter, Landlord shall be allowed to construct
Landlord's Work and Tenant shall be allowed to construct Tenant's
Improvement Work in conformity with City building codes even if they are
less restrictive than the requirements of ADA or Title 24.
3.2 Preparation and Approval of Landlord's Plans.
3.2.1 Landlord and Tenant acknowledge that Tenant has
approved the conceptual plans for Landlord's Work. Within the time
period set forth in the Project Schedule, Landlord shall cause final
Landlord's Plans to be prepared by the Project Architect and delivered
to
Tenant for Tenant's approval.
3.2.2 Tenant shall review and approve or disapprove
Landlord's Plans in writing within seven (7) business days after receipt
of the plans. If Tenant disapproves any portion of the plans, Tenant
shall specifically (a) approve those portions which are acceptable and
(b) disapprove those portions which are not acceptable, specifying the
reasons for such disapproval and describing in detail any change
requested for each item disapproved. If Landlord agrees with the
changes, it shall cause the changes to be made; otherwise, the parties
shall meet and confer and in good faith attempt to reach agreement on
the
plans, and if they fail to agree, the issue shall be resolved pursuant
to
Article 6.
3.2.3 Provided that the parties are acting reasonably, each
day of delay incurred as a result of making material changes requested
by
Tenant to Landlord's Plans and any proceedings associated therewith
under
Article 6 shall be a Force-Majeure Delay.
3.2.4 Fees of the Project Architect in preparing Landlord's
Plans shall be at Landlord's expense.
3.2.5 To the extent Landlord and Tenant agree it would be
convenient to include a portion of Tenant's Improvement Work on
Landlord's Plans in order to effect cost savings or speed completion of
the Project, Landlord will cooperate with Tenant in making the
adjustment
and arranging for appropriate payment or reimbursement for the work by
Tenant.
3.3 Preparation and Approval of Tenant's Improvement
Plans.
3.3.1 Approval of Conceptual Plans.
3.3.1.1 Within the time period set forth in
the Project Schedule, Tenant shall cause conceptual plans of Tenant's
Improvements to be prepared by the Project Architect and delivered to
Landlord for Landlord's approval.
3.3.1.2 Landlord shall review and approve or
disapprove the conceptual plans in writing within two (2) business days
after receipt of the plans. If Landlord disapproves any portion of the
plans, Landlord shall specifically (a) approve those portions which are
acceptable and (b) disapprove those portions which are not acceptable,
specifying the reasons for such disapproval and describing in detail any
change requested for each item disapproved. If Tenant agrees with the
changes, it shall cause the changes to be made; otherwise, the parties
shall meet and confer and in good faith attempt to reach agreement on
the
plans, and if they fail to agree, the issue shall be resolved pursuant
to
Article 6.
3.3.1.3 Provided that the parties are acting
reasonably, each day of delay incurred as a result of making material
changes requested by Landlord to conceptual plans of Tenant's
Improvements and any proceedings associated therewith under Article 6
shall be a Force-Majeure Delay.
3.3.1.4 Fees of the Project Architect in
preparing conceptual plans of Tenant's Improvements shall be at Tenant's
expense.
3.3.2 Approval of Tenant's Improvement Plans.
3.3.2.1 Within the time period set forth in
the Project Schedule, Tenant shall cause Tenant's Improvement Plans to
be
prepared by the Project Architect and delivered to Landlord for
Landlord's approval.
3.3.2.2 Landlord shall review and approve or
disapprove Tenant's Improvement Plans in writing within seven (7)
business days after receipt of the plans. If Landlord disapproves any
portion of the plans, Landlord shall specifically (a) approve those
portions which are acceptable and (b) disapprove those portions which
are
not acceptable, specifying the reasons for such disapproval and
describing in detail any change requested for each item disapproved. If
Tenant agrees with the changes, it shall cause the changes to be made;
otherwise, the parties shall meet and confer and in good faith attempt
to
reach agreement on the plans, and if they fail to agree, the issue shall
be resolved pursuant to Article 6.
3.3.2.1 Provided that the parties are acting
reasonably, each day of delay incurred as a result of making material
changes requested by Landlord to Tenant's Improvement Plans and any
proceedings associated therewith under Article 6 shall be a Force-
Majeure
Delay.
3.3.2.4 Fees of the Project Architect in
preparing Tenant's Improvement Plans shall be at Tenant's expense.
3.3.2.5 To the extent Landlord and Tenant agree
it would be convenient to include a portion of Landlord's Work on
Tenant's Improvement Plans in order to effect cost savings or speed
completion of the Project, Tenant will cooperate with Landlord in making
the adjustment and arranging for appropriate payment or reimbursement
for
the work by Landlord.
3.4 Building Permits for Landlord's Work.
3.4.1 Landlord shall cause the Project Architect to obtain
any permits required for construction of Landlord's Work from the City
on
or before the dates set forth in the Project Schedule. If the City
rejects any of the plans and thereby prevents the issuance of a building
permit, Landlord shall cause Landlord's Architect to immediately make
all
necessary changes required by the City subject to Tenant's approval.
3.4.2 Any delay incurred as a result of a change to
Landlord's Plans required by the City shall be a Force-Majeure Delay.
3.5 Building Permits for Tenant's Improvement Work.
3.5.1 Tenant shall cause the Project Architect to obtain
any permits required for construction of Tenant's Improvement Work from
the City on or before the dates set forth in the Project Schedule. If
the City rejects any of the plans and thereby prevents the issuance of a
building permit, Tenant shall cause the Project Architect to immediately
make all necessary changes required by the City subject to Landlord's
approval. Notwithstanding the foregoing, Tenant shall have the right to
challenge any changes required by the City so long as Tenant is acting
reasonably in doing so, and any delay incurred as a result thereof shall
be a Force-Majeure Delay.
3.5.2 Any delay incurred as a result of a change to
Tenant's Improvement Plans required by the City shall be a Force-Majeure
Delay.
3.6 Subsequent Landlord or Tenant Changes. From time to
time after the plans are approved, either party may request a change in
the plans caused to be prepared by the other party, subject to the
approval of the other party. Notwithstanding the foregoing, Landlord
shall not have the right to request any changes to Tenant's Improvement
Plans unless the change is required by applicable Law. Each day of
delay
caused by the change shall be attributed to the party requesting the
change (a Landlord-Caused Delay or a Tenant-Caused Delay, as the case
may
be), and all architectural and engineering fees and costs incurred in
connection with the change shall be paid by the party requesting the
change.
3.7 Subsequent City-Required Changes. Any delay incurred as
a result of a change required by the City after the issuance of the
building permit shall be a Force-Majeure Delay. If the change is to
Landlord's Plans, it shall be at Landlord's expense, and if to Tenant's
Improvement Plans, it shall be paid by Tenant.
3.8 Allocation of Soft Costs. Soft Costs shall be allocated
between Landlord and Tenant, and shall be paid by Landlord and Tenant,
in
accordance with the Schedule of Soft Costs attached hereto as Exhibit
"A-
4".
ARTICLE 4
CONSTRUCTION
4.1 Construction of Landlord's Work. Landlord agrees, as
soon as practical after Landlord's Plans have been approved by the City,
and after grading, foundation and building permits have been issued, to
construct Landlord's Work, within the time period set forth in the
Project Schedule, in accordance with Landlord's Plans (as the same may
have been subsequently amended by Landlord and Tenant). All costs and
expenses incurred by Landlord in connection with the design and
construction of Landlord's Work shall be paid by Landlord without
reimbursement by Tenant.
4.2 Construction of Tenant's Improvement Work. Tenant
agrees, after receipt of the building permit for Tenant's Improvement
Work, to cause the Project Contractor to construct, within the time
period set forth in the Project Schedule, Tenant's Improvement Work in
accordance with the approved Tenant's Improvement Plans. The costs and
expenses incurred in connection with the design and construction of
Tenant's Improvement Work shall be paid by Tenant.
4.3 Installation of Tenant's Equipment. Tenant agrees, at
its own expense, to install Tenant's Equipment within the time period
set
forth in the Project Schedule. Tenant's Equipment shall be installed in
compliance with all governmental ordinances, rules and regulations
relating thereto and shall not be constructed in a manner inconsistent
with the approved Tenant's Improvement Plans. Any costs, expenses or
damages incurred by Landlord arising out of or related to the
installation of Tenant's Equipment by Tenant, its contractors,
subcontractors or other agents, shall be paid by Tenant to Landlord.
4.4 Landlord's and Tenant's Representatives. Any one of
Landlord's Representatives is authorized to approve a Landlord's Change,
and any one of Tenant's Representatives is authorized to approve a
Tenant's Change. Any questions arising during construction requiring
the
attention of Landlord or Tenant shall be directed to one of Landlord's
Representatives or one of Tenant's Representatives, as the case may be.
4.5 Construction Period Insurance.
4.5.1 From the commencement of Landlord's Work until the
completion of the Premises, Landlord shall obtain and maintain, or shall
cause to be obtained and maintained, comprehensive general liability
insurance, on an occurrence basis with limits of liability of not less
than $2,000,000 to protect Landlord and Tenant from and against
liability
for death or injury to persons and for damage to property caused by or
arising from the performance of Landlord's Work. All such insurance
shall name Tenant and as an additional insured. In addition, from the
commencement of Landlord's Work until the completion of the Premises,
Landlord shall obtain and maintain, or shall cause to be obtained and
maintained, "all risk" builder's risk insurance covering Landlord's
Work,
including, but not limited to, coverage against loss of damage by fire,
vandalism and malicious mischief, covering improvements in place and all
material and equipment at the job site furnished under contract, in an
amount equal to one hundred percent (100%) of the full replacement value
thereof. All of the policies of insurance referred to in this section
shall be written by companies authorized to do business in California
and
rated A VII or better in Best's Insurance Guide. Each insurer referred
to in this article shall agree, by endorsement on the applicable policy
or by independent instrument furnished to Landlord, that it will give
Landlord, and Landlord's lenders if required by such lenders, and
Tenant,
at least thirty (30) days' prior written notice by registered mail
before
the applicable policy shall be cancelled or altered in coverage, scope,
amount or other material term, except in the case of non-payment of
premium, in which event the policy may be cancelled on ten (10) days'
prior written notice. The cost of such insurance shall be paid by
Landlord.
4.5.2 From the commencement of Tenant's Improvement Work
until the completion of the Premises, Tenant shall obtain and maintain,
or shall cause to be obtained and maintained, comprehensive general
liability insurance, on an occurrence basis with limits of liability of
not less than $2,000,000 to protect Tenant and Landlord from and against
liability for death or injury to persons and for damage to property
caused by or arising from the performance of Tenant's Improvement Work.
All such insurance shall name Landlord as an additional insured. In
addition, from the commencement of Tenant's Improvement Work until the
completion of the Premises, Tenant shall obtain and maintain, or shall
cause to be obtained and maintained, "all risk" builder's risk insurance
covering Tenant's Improvement Work, including, but not limited to,
coverage against loss of damage by fire, vandalism and malicious
mischief, covering improvements in place and all material and equipment
at the job site furnished under contract, in an amount equal to one
hundred percent (100%) of the full replacement value thereof. All of
the
policies of insurance referred to in this section shall be written by
companies authorized to do business in California and rated A VII or
better in Best's Insurance Guide. Each insurer referred to in this
article shall agree, by endorsement on the applicable policy or by
independent instrument furnished to Landlord, that it will give Tenant,
Landlord, and Landlord's lenders if required by such lenders at least
thirty (30) days' prior written notice by registered mail before the
applicable policy shall be cancelled or altered in coverage, scope,
amount or other material term, except in the case of non-payment of
premium, in which event the policy may be cancelled on ten (10) days'
prior written notice. The cost of the insurance required to be carried
by Tenant shall be paid by Tenant.
4.6 Contractor and Subcontractor Insurance. The Project
Contractor and all other contractors and subcontractors shall carry
worker's compensation insurance covering all of their respective
employees as more particularly specified below; and shall also carry
public liability insurance, including property damage, with limits and
in
the same form and with the same companies as required to be carried by
Tenant under the Lease except as stated otherwise below; and the
policies
therefor shall insure Landlord and Tenant as their interests may appear,
as well as the contractor or subcontractor. Such policies shall name
Landlord and Tenant, and, if requested by Landlord, Landlord's
mortgagees
or beneficiaries, as additional loss payees and shall be for the mutual
and joint benefit and protection of Landlord, Tenant, and Landlord's
mortgagees or beneficiaries, as their interests may appear. The Project
Contractor's and all other contractor's and subcontractor's required
minimum coverages and limits of liability are as follows:
(a) Worker's compensation, including employer's liability
insurance, with limits required by applicable Law, with the policy in
full compliance with all current laws governing workers' compensation
insurance in California.
(b) Comprehensive general liability insurance (including
contractor's protective liability) in an amount not less than One
Million
Dollars ($1,000,000.00) combined single limit (CSL) bodily injury and
property damage, provided however, that subcontractors shall only be
required to carry an amount that is commercially reasonable. Such
insurance shall provide for explosion, collapse, underground hazards
(X.C.U.) coverage and broad form contractual liability coverage and
shall
insure the general contractor and/or subcontractors against any and all
claims for personal injury, including death resulting therefrom, and
damage to the property of others and arising from its operations under
the contract and whether such operations are performed by the general
contractor, subcontractor or any of their subcontractors, or by anyone
directly or indirectly employed by any of them. Fire liability shall be
maintained in the amount of the costs of construction or an appropriate
amount deemed reasonable by the Landlord.
(c) Comprehensive automobile liability insurance,
including the ownership, maintenance and operation of any automotive
equipment owned, hired and non-owned in the following minimum amounts:
Bodily Injury and Property Damage, each occurrence, Combined Single
Limit
of One Million Dollars ($1,000,000.00).
4.6 As-Built Drawings. Landlord shall cause the Project
Contractor to maintain a set of "as-built" drawings of Landlord's Work,
and Tenant shall cause the Project Architect to maintain a set of "as-
built" drawings of Tenant's Improvement Work, which shall be available
for inspection by the parties during normal business hours.
4.7 Reliance on Construction Warranties. Landlord and
Tenant acknowledge that, under Article 14 and other provisions of the
Lease and this Work Letter, each may have the non-exclusive benefit of
any applicable warranties from design professionals, contractors,
materialmen, manufacturers, or other responsible parties. Landlord
shall
make commercially reasonable efforts to obtain, or to insure the Project
Contractor obtains, the warranties described in Section 6.6 hereof.
4.8 Soils. All contaminated soils, if any, including any fill
imported to the property, shall, as part of Landlord's Work and at
Landlord's expense, be treated, removed or otherwise remediated if and
to
the extent required by applicable law.
ARTICLE 5
COMPLETION AND RENT COMMENCEMENT
5.1 Completion of Landlord's Work.
5.1.1 Landlord shall use commercially reasonable efforts to
Substantially Complete Landlord's Work within the time periods indicated
in the Project Schedule and on or before the estimated Term Commencement
Date set forth in Section 2.1.4(a) of the Lease as such time is extended
one day for each day of delay resulting from a Force-Majeure Delay or
Tenant-Caused Delay.
5.1.2 The estimated Term Commencement Date shall be
extended one day for each day of delay in Substantial Completion of
Landlord's Work which results from a Force-Majeure Delay or Tenant-
Caused
Delay.
5.2 Completion of Tenant's Improvement Work.
5.2.1 Tenant shall use commercially reasonable efforts to
substantially complete Tenant's Improvement Work within the time periods
indicated in the Project Schedule and on or before the estimated Term
Commencement Date set forth in Section 2.1.4(a) of the Lease as such
time
is extended one day for each day of delay resulting from a Force-Majeure
Delay or Landlord-Caused Delay.
5.2.2 The Term Commencement Date shall be extended one day
for each day of delay in Substantial Completion of Tenant's Improvement
Work which results from a Force-Majeure Delay or Landlord-Caused Delay.
Tenant's obligation to pay Basic Annual Rent and Additional Rent under
the Lease shall be extended one day for each day of delay in Substantial
Completion of Tenant's Improvement Work which results from a Force-
Majeure Delay or Landlord-Caused Delay.
5.3 Calculations of Delays/Update of Project Schedule.
Any delay in Landlord's or Tenant's performance beyond the date and time
for such performance set forth in the Project Schedule shall be a Force-
Majeure Delay, a Tenant-Caused Delay or a Landlord-Caused Delay.
Landlord and Tenant, through their designated construction
representatives, shall periodically update the Project Schedule and
account for and allocate all Force-Majeure Delays, Landlord-Caused
Delays
and Tenant-Caused Delays. If Landlord and Tenant through their
designated construction representatives are unable to agree on the
allocation of Force-Majeure Delays, Landlord-Caused Delays and
Tenant-Caused Delays, then such dispute shall be resolved in accordance
with Article 6. If a Force-Majeure Delay, a Landlord-Caused Delay, or a
Tenant-Caused Delay is deemed to have occurred but such delay has no
effect on the Project Schedule, then such delay shall be waived; if more
than one type of delay contributed to a delay, the delay shall be fairly
apportioned between or among the contributing types of delay. The
parties will make reasonable efforts to resolve all delays at periodic
on-site meetings. A Landlord-Caused Delay shall not commence until
written notice of the events giving rise to such Landlord-Caused Delay
has been given by Tenant to Landlord. A Tenant-Caused Delay shall not
commence until written notice of the events giving rise to such Tenant-
Caused Delay has been given by Landlord to Tenant. With regard to
Force-
Majeure Delays, the party who seeks to claim that the time for
performance of its obligations should be delayed as a result of a Force-
Majeure Delay shall give written notice to the other of the event
constituting Force-Majeure Delay within a reasonable period of time
after
such party discovers the existence of such event, but if such notice is
given more than five (5) days after such party discovers such event and
the other party was not otherwise aware that the event was causing a
Force-Majeure Delay, then the period of Force-Majeure Delay attributable
to such event shall not commence until the date the other party receives
such notice.
5.4 Walk-Through. On or before the date Tenant occupies the
Premises for the purpose of conducting its business therein, Landlord
and
Tenant shall conduct a walk-through inspection of the Premises and shall
jointly prepare a list of initial construction items that need to be
corrected. Landlord and Tenant shall cause the Project Contractor to
correct such items within thirty (30) days thereafter, provided,
however,
if by the nature of such correction more than thirty (30) days is
required to effect such correction, neither Landlord nor Tenant shall
not
be in default hereunder if such correction is commenced within such
thirty (30) day period and is diligently pursued to completion.
5.5 Warranties and Guarantees. Each contractor and
subcontractor participating in the Landlord's Work and Tenant's
Improvement Work shall guarantee that the portion thereof for which he
is
responsible shall be free from any defects in workmanship and materials
for a period of not less than one (1) year from the date of the
recording
of the certificate of completion of the Premises. Every such contractor
or subcontractor shall be responsible for the replacement or repair,
without additional charge, of all work done or furnished in accordance
with its contract which shall become defective within one (1) year after
the date of the recording of the certificate of completion. The
correction of such work shall include, without additional charge, all
additional expenses and damages in connection with such removal or
replacement of all or any part of the Land Improvements, Building Shell
and Tenant's Improvements which may be damaged or disturbed thereby.
All
such warranties or guarantees as to materials or workmanship of or with
respect to any work shall be contained in the contract or subcontract
which shall be so written that such guarantees or warranties shall inure
to the benefit of both Landlord and Tenant, as their respective interest
may appear, and can be directly enforced by either. Landlord covenants
to give to Tenant any assignment or other assurances necessary to effect
such right of direct enforcement.
ARTICLE 6
CONSTRUCTION DISPUTE RESOLUTION
6.1 Dispute Resolution. If any dispute arises in connection
with this Work Letter, such dispute shall be resolved in accordance with
this Article. All proceedings contemplated by this Article shall take
place at the location for all job-site meetings, unless the Construction
Panel unanimously agrees to another location, or unless any Arbitrator
appointed hereunder selects another location.
6.2 Notice. All disputes to be determined in accordance with
this Article shall be raised by Landlord or Tenant by written notice to
the other party. Notice of any dispute with an issue resolved in any
minutes of a periodic on-site review meeting must be given within thirty
(30) days of receipt of the minutes, or the resolution of the issue as
reflected in the minutes shall be deemed conclusive.
6.3 Resolution by Construction Panel. The Construction
Panel shall meet within two (2) business days of receipt of the notice
and attempt in good faith to resolve the dispute by unanimous agreement,
and no resolution shall be binding on the parties unless resolved by
unanimous agreement.
6.4 Resolution by Arbitrator. If the Construction Panel has
not resolved the dispute for any reason within four (4) business days of
receipt of the notice, it shall promptly select by unanimous agreement a
disinterested arbitrator ("Arbitrator") with extensive development and
construction experience to resolve the dispute. In the event a
selection
is not made within six (6) business days after the written notice, the
Arbitrator shall, upon the request of Landlord or Tenant, be appointed
by
the American Arbitration Association. Once an Arbitrator is appointed
hereunder, such Arbitrator shall serve as Arbitrator for all subsequent
disputes arising in connection with this Work Letter unless the
Construction Panel unanimously agrees otherwise. The Arbitrator shall
resolve the dispute as soon as is reasonably practical in accordance
with
the provisions of Section 1280 et seq. of the Code of Civil Procedure.
The cost for the Arbitrator's services shall be paid by the
non-prevailing party in the dispute being determined by the Arbitrator,
unless the Arbitrator determines otherwise.
6.5 Interpretation and Resolution. In determining any
dispute, the Construction Panel and the Arbitrator shall apply the
pertinent provisions of this Work Letter and the Lease. As part of
resolving a dispute, the Construction Panel or the Arbitrator, as the
case may be, shall determine the days of delay, if any, in completing
Landlord's Work and Tenant's Improvement Work which directly result from
the dispute being considered by the Construction Panel or the
Arbitrator,
and from the proceedings pursuant to this Article 6. The days of delay
shall be designated as either Tenant-Caused Delays, Landlord-Caused
Delays or Force-Majeure Delays or any combination thereof as determined
by the Construction Panel or the Arbitrator, as the case may be.
6.6 Continued Performance. During any proceedings pursuant
to this Article, Landlord and Tenant shall, to the extent possible,
continue to perform and discharge all of their respective obligations
under this Work Letter and the Lease.
6.7 Binding Resolution. Any and all decisions of the
Construction Panel made by unanimous agreement as to the matter in
dispute shall be binding upon both Landlord and Tenant. In the absence
of such unanimous agreement, any and all decisions by the Arbitrator
shall be binding upon both Landlord and Tenant. The provisions of this
Article 6 is an arbitration agreement enforceable under Section 1280 et
seq. of the Code of Civil Procedure.
IN WITNESS WHEREOF, the parties hereto have executed this Work
Letter to be effective on the date first above written.
LANDLORD:
Nexus Equity, Inc.
A California corporation
By: /s/ Michael J. Reidy
________________
Michael J. Reidy, President
By: /s/R. Darrell Gary
______________
R. Darrell Gary, Vice President
TENANT:
SYMMETRICOM, INC.
A California corporation
By: /s/ Paul N. Risinger
_______________
Title: Vice Chairman
ATTACHMENT A-1 TO EXHIBIT "A"
COMPONENTS OF LAND IMPROVEMENTS AND BUILDING SHELL
ATTACHMENT A-2 TO EXHIBIT "A"
SCHEMATIC DRAWING OF BUILDING
Those certain schematic plans consisting of eleven pages
prepared by Dennis Kobza AIA and dated and submitted to the
City of San Jose on May 29, 1996, are incorporated herein by
this reference.
ATTACHMENT A-3 TO EXHIBIT "A"
PROJECT SCHEDULE
ATTACHMENT A-4 TO EXHIBIT "A"
ALLOCATION OF SOFT COSTS
EXHIBIT "B"
FORM OF ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE
ACKNOWLEDGEMENT OF TERM COMMENCEMENT DATE
Pursuant to Section 4.5 of that certain Lease dated __________,
1996, by and between NEXUS EQUITY, INC., Landlord, and SYMMETRICOM INC.,
Tenant, for the Premises located on Orchard Parkway in San Jose,
California, legally described as Parcel 2 of Parcel Map filed with the
Santa Clara County Recorder on December 6, 1995, in Book 671 of Maps,
Pages 40 and 41, we hereby acknowledge that the Term Commencement Date
of
the Lease, as defined therein, is __________, 1997, and the Term
Expiration Date of the Lease, as defined therein, is __________, 2009.
IN WITNESS WHEREOF, the parties hereto have executed this
Acknowledgment of Term Commencement Date as of __________, 1997.
LANDLORD:
Nexus Equity, Inc.
A California corporation
By: _________________________
Authorized Office
TENANT:
SymmetriCom, Inc.
A California corporation
By: _________________________
Authorized Officer
EXHIBIT "C"
FORM OF MEMORANDUM OF LEASE
RECORDING REQUESTED BY:
Nexus Equity, Inc.
WHEN RECORDED, RETURN TO:
Nexus Equity, Inc.
Attn: R. Darrell Gary
1740 Technology Drive, Suite 315
San Jose, CA 95110
________________________________________________________________________
_
______
(Space Above for Recorder's
Use)
MEMORANDUM OF LEASE
This MEMORANDUM OF LEASE ("Memorandum") is effective as of
__________, 1996, by and between NEXUS EQUITY, INC., a California
corporation ("Landlord"), and SYMMETRICOM INC., a California corporation
("Tenant").
NOW, THEREFORE, the parties hereto agree as follows:
1. Lease of Premises. Pursuant to that certain Lease of even
date herewith ("Lease"), Landlord hereby leases to Tenant for a term of
twelve (12) years commencing on the Term Commencement Date as defined in
the Lease, on the terms and conditions set forth in the Lease, all of
which are made a part of this Memorandum as though fully set forth
herein, those certain premises located on and including real property
("Real Property") located in the City of San Jose, County of Santa
Clara,
State of California, more particularly described as follows:
Parcel 2 of Parcel Map filed with the Santa Clara County
Recorder on December 6, 1995, in Book 671 of Maps, Pages 40
and 41
2. Options to Extend Term. Pursuant to Article 40 of the
Lease,
Landlord hereby grants to Tenant two (2) options to extend the term of
the Lease, which may be exercised prior to the expiration or earlier
termination of the term or extended term of the Lease, as the case may
be, on the terms and conditions set forth therein.
3. Right of First Refusal to Purchase. Pursuant to Article 41
of the Lease, Landlord hereby grants to Tenant the right to acquire the
Real Property, which may be exercised prior to the expiration or earlier
termination of the term of the Lease on the terms and conditions set
forth therein.
4. Purpose of This Memorandum. This Memorandum is executed for
the purpose of being recorded, in order to give notice of the Lease, the
Options to Extend Term, and the Right of First Refusal to Purchase.
This
Memorandum is not a complete summary of the terms and conditions of the
Lease, and is subject to, and shall not be used to interpret or modify,
the Lease.
The parties hereto have entered into this Memorandum of Lease as
of
the date first written above.
LANDLORD:
Nexus Equity, Inc.
A California corporation
By: _________________________
Authorized Officer
TENANT:
SymmetriCom, Inc.
A California corporation
By: _________________________
Authorized Officer
STATE OF CALIFORNIA )
) ss.
COUNTY OF _________ )
On __________, 1996, before me, the undersigned Notary Public in
and for said County and State, personally appeared
_________________________________________________________________
_____ personally known to me
or
_____ proved to me on the basis of satisfactory evidence to be
the person(s) whose name(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf
of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
__________________________________
Signature of Notary
STATE OF CALIFORNIA )
) ss.
COUNTY OF _________ )
On __________, 1996, before me, the undersigned Notary Public in
and for said County and State, personally appeared
_________________________________________________________________
_____ personally known to me
or
_____ proved to me on the basis of satisfactory evidence to be
the person(s) whose name(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf
of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
__________________________________
Signature of Notary
SECOND AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT
This AMENDMENT, dated the 1st day of June, 1996 between SYMMETRICOM, INC., a
California corporation, (herein referred to as the "Borrower") and COMERICA
BANK-California (herein referred to as the "Bank").
WITNESSETH:
WHEREAS, the Bank and the Borrower on December 1, 1993 entered into a certain
Revolving Credit Loan Agreement (the "Agreement"), a certain Revolving Credit
Master Note (the "Revolving Credit Note"), a certain Guaranty, a certain
Corporate Resolution Authorizing Execution of Guaranty, a certain Loan
Disbursement Order, and a certain Advance & Repayment Agreement (collectively
the "Loan Documents"); and
WHEREAS, the Borrower desires to borrow up to Seven Million and 00/100 Dollars
($7,000,000.00) from the Bank from time to time for the working capital needs
of the Borrower; and
WHEREAS, the modifications to the Agreement and to the Revolving Credit Note
contemplated hereby are in the best interest of, and will mutually benefit,
the parties hereto; and
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, the Borrower and the Bank agree to amend the Agreement in
the manner and to the extent hereinafter set forth:
1. In Section 1.1 titled "Definitions", delete the following section:
"Termination Date".
2. In Section 1.1 titled "Definitions", add the following section:
"'Termination Date' shall mean December 1, 1997 (or such earlier date on which
the Borrower shall permanently terminate the Bank's commitment under Section
2.8.1 of this Agreement)".
3. Replace Section 6.5 with the following: "Maintain Tangible Net Worth.
On a consolidated basis, maintain a Tangible Net Worth of not less than the
amount specified during the period specified below:
(a) $45,000,000.00 from the date of this Amendment to increase
on March 30, 1997 by seventy percent (70%) of Borrowers fiscal 1996 net profit
after tax.
4. Replace the first paragraph of the Revolving Credit Master Note with the
following: FOR VALUE RECEIVED, the undersigned promises to pay to the order
of COMERICA BANK-CALIFORNIA (the "Bank") at 201 Spear Street, Suite 200, San
Francisco, California, on December 1 , 1997, the principal sum or so much of
the principal sum of Seven Million Dollars ($7,000,000.00) as may from time to
time have been advanced and be outstanding under that certain Revolving Credit
Loan Agreement dated December 1 , 1993, between the undersigned and the Bank
(the "Agreement") plus all accrued but unpaid interest thereon.
IN ADDITION, in consideration of the premises and the mutual promises herein
contained, the Borrower and the Bank agree to amend the Revolving Credit Note
and the Loan Documents in the manner and to the extent hereinafter set forth:
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
the Agreement and the Revolving Credit Note to be executed and delivered by
their duly authorized officers on the day and year first written above.
By: /s/ William D. Rasdal By: /s/ J. Scott Kamsler
______________________ ____________________
William D. Rasdal J. Scott Kamsler
Its: Chief Executive Officer Its: Chief Financial Officer
COMERICA BANK -CALIFORNIA
By: /s/ Tim Boothe
_______________
Tim Boothe
Its: Vice President
EXHIBIT 21.1
SYMMETRICOM, INC.
SUBSIDIARIES OF THE COMPANY
Analog Solutions, Inc., a California corporation
Telecom Solutions, Inc., a Delaware corporation
Telecom Solutions Puerto Rico, Inc., a Delaware corporation
Linfinity Microelectronics Inc., a Delaware corporation
Telecom Solutions (Europe) Limited, a United Kingdom
corporation
Navstar Systems Ltd., a United Kingdom Corporation
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the incorporation by reference in Registration Statement No.
33-38384 on Form S-8, Post-Effective Amendment No. 2 to Registration
Statement No. 33-3456 on Form S-8, Post-Effective Amendment No. 2 to
Registration Statement No. 33-11317 on Form S-8, Post-Effective
Amendment No. 3 to Registration Statement No. 2-70291 on Form
S-8, Registration Statement No. 33-56042 on Form S-8, Registration
Statement No. 33-57163 on Form S-8 and Registration Statement No. 333-00333
on Form S-8 of our report dated July 23, 1996, appearing in this Annual
Report on Form 10-K of SymmetriCom, Inc. for the year ended June 30, 1996.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule of SymmetriCom, Inc., listed in Item 14(a)2. This financial
statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set
forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
San Jose, California
September 16, 1996
[ARTICLE] 5
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUN-30-1996
[PERIOD-START] JUL-01-1995
[PERIOD-END] JUN-30-1996
[CASH] 31327
[SECURITIES] 2943
[RECEIVABLES] 14874
[ALLOWANCES] 330
[INVENTORY] 17847
[CURRENT-ASSETS] 70308
[PP&E] 51082
[DEPRECIATION] 29535
[TOTAL-ASSETS] 93531
[CURRENT-LIABILITIES] 14786
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 21862
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 93531
[SALES] 106038
[TOTAL-REVENUES] 106038
[CGS] 59824
[TOTAL-COSTS] 59824
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 594
[INCOME-PRETAX] 9476
[INCOME-TAX] 1998
[INCOME-CONTINUING] 7478
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 7478
[EPS-PRIMARY] .47
[EPS-DILUTED] .47
</TABLE>
