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, 1998 or
[ ] Transition report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________ to
_______________.
Commission file number: 0-27122
ADEPT TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
California 94-2900635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 Rose Orchard Way, San Jose, California 95134
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: (408) 432-0888
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------- -------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter 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 is not contained herein, and will not be contained,
to the best of the 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, based upon the closing sale price of the Common Stock on
September 21, 1998 as reported on the Nasdaq National Market, was approximately
$30,932,770. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of September 21, 1998, registrant had outstanding 8,533,824 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated by reference into Part III of this Form
10-K portions of its Proxy Statement for the Annual Meeting of Shareholders to
be held November 5, 1998. Portions of the Registrant's Annual Report to
Shareholders for the fiscal year ended June 30, 1998 are incorporated by
reference into Parts II and IV of this Form 10-K.
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PART I
Special Note Regarding Forward-Looking Statements
Certain statements in this Report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The following
discussion of the Company's business should be read in conjunction with the
Company's Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations, including the section
entitled "Factors Affecting Future Operating Results," which information is
incorporated by reference herein.
SILMA, SoftMachines and Adept Technology's logo are registered
trademarks of Adept Technology, Inc. Adept, AdeptModules, AdeptMotion, Adept
MV-5, Adept MV-10, AdeptWindows Controller, AdeptWindows PC, AdeptOne,
AdeptOne-XL, AdeptThree, AdeptThree-XL, AdeptVision VXL, Adept 1850, Adept Cobra
600, Adept Cobra 800, Adept FlexFeeder 250, Adept FlexFeedware, AIM, CimStation,
CimStation Inspection, CimStation Robotics, MotionWare, PalletWare, AdeptRAPID,
SoftAssembly, V+ and VisionWare are trademarks of Adept Technology, Inc. This
Report also includes trademarks of companies other than Adept Technology, Inc.
ITEM 1. BUSINESS
Introduction
Adept Technology, Inc. ("Adept" or the "Company") designs, manufactures
and markets intelligent automation software and hardware products for
manufacturers in the electronics, telecommunications, appliances,
pharmaceutical, food processing and automotive components industries. The
Company provides a broad, flexible line of software intensive, computer-driven,
automation products for assembly, material handling and packaging applications.
The Company's products include machine controllers for robot mechanisms and
other flexible automation equipment, machine vision systems, simulation software
and a family of mechanisms including robots, a vision-based flexible part feeder
and linear modules.
Adept's Rapid Deployment Automation ("RDA") approach addresses many of
the challenges facing manufacturers seeking to implement intelligent automation
systems. The goal of RDA is to reduce the total time required to conceptualize,
justify, quote, sell, implement and change over an intelligent automation
system, and thereby eliminate significant barriers to the broad deployment of
intelligent automation technology.
The Company sells, markets and supports its products on a worldwide
basis through more than 300 system integrators, its direct sales force and
original equipment manufacturers ("OEMs"). The system integrators, OEMs or end
users combine various components of Adept's standard product line with material
handling devices, peripheral equipment, application software and tooling into
flexible automation workcells or production lines.
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The Company was incorporated in California in 1983. Unless the context
otherwise requires, references in this report to "Adept" or the "Company" refer
to Adept Technology, Inc., a California corporation, and its subsidiaries. The
Company's principal executive offices are located at 150 Rose Orchard Way, San
Jose, California 95134, and its telephone number at that address is (408)
432-0888.
Industry Background
Industrial robots provided the foundation for the development of the
intelligent automation industry. In the 1970s, robots with simple controllers
that lacked sensing capabilities became widely used in the automotive industry
for technologically simple, low precision applications such as spot welding. By
the late 1970s, industrial robots with more advanced capabilities became
commercially available. These new capabilities included computer-based motion
controllers which enabled flexible, programmable motion, and machine vision
systems which enabled computer analysis of camera images. With these technical
advances, robots gained increased acceptance, but their use remained limited
because their rudimentary software and sensing capabilities were insufficient to
support more demanding tasks such as those required on flexible assembly lines.
During the early 1980s, technical advances enabled robots to perform a
wide range of functions in new applications such as assembly, material handling
and packaging. These advances included sophisticated sensing for robot guidance
that allowed robots to locate, correctly orient and pick up parts, conveyor
tracking that made it possible to handle parts from moving conveyors and
direct-drive robots that were faster and more accurate than gear-driven robots.
In addition, real-time multitasking software enabled the coordination of the
many asynchronous tasks required in assembly, material handling and packaging.
This greater functionality made robots viable in a broad range of production
environments. The development of advanced software and sensory products, coupled
with the availability of high-level programming languages and computer-based
controller architectures, contributed to the establishment of the intelligent
automation industry.
The ability of intelligent automation to address new applications such
as assembly, material handling and packaging is reflected in the growth of the
intelligent automation industry in the 1990s. According to the Robotic
Industries Association, shipments by U.S. robot suppliers grew from $455 million
in 1992 to $1.1 billion in 1997. In addition, according to the Automated Imaging
Association, shipments by North American machine vision suppliers grew from $638
million in 1992 to $1.5 billion in 1997.
Market Forces
Market forces in certain manufacturing industries have contributed to
the growth of the intelligent automation industry. These market forces include:
World class product quality. Manufacturers competing in global markets
must provide products that meet the highest quality standards of their
customers. Manufacturers across a wide range of industries have found that
replacing manual production lines with automated lines has resulted in a
significant reduction in product defects and has enabled volume production of
high quality, technologically advanced products.
Time-to-volume production. Rapid achievement of full volume production
is critical to increasing or simply retaining market share in most markets
today. As a result, the financial return a manufacturer achieves on a new
product depends in significant part on quickly achieving volume production.
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Miniaturization. Many products, such as camcorders, disk drives and
portable audio products, have been steadily shrinking in size and are now at an
advanced state of miniaturization. Human eyes and hands are inherently
inaccurate and can generate particles that destroy certain miniature parts and
circuits and, as a result, automation is often required to improve accuracy and
maintain a clean environment. In addition, because certain parts exhibit high
part-to-part variability, the assembly of these products can often only be
successfully performed with the aid of real-time sensory feedback to accurately
acquire, inspect and align parts.
Rising labor costs. The Company believes the price performance ratio of
automation products has improved over time, while labor costs have risen in most
industrial regions of the world. According to the U.S. Bureau of Labor
Statistics, total manufacturing compensation rates in the U.S., including wages,
salaries and employer costs for employee benefits, have increased an average of
approximately 3% per annum from 1990 to 1997. Moreover, the appeal of offshore
manufacturing is waning for some manufacturers who previously moved operations
offshore but have more recently increased their domestic manufacturing
operations.
Challenges Facing Manufacturers
Despite the expanding use and application of intelligent automation in
numerous industries, significant challenges nonetheless remain for manufacturers
who seek to implement intelligent automation systems.
Increasing need for flexibility. To achieve widespread deployment,
intelligent automation must become as flexible as traditional manual production
lines. Rapidly contracting product life cycles, shrinking batch sizes,
increasing miniaturization, product line proliferation and the high cost of
capital equipment are causing manufacturers to seek flexible manufacturing
techniques. These techniques must allow manufacturers to quickly and
cost-effectively change over production lines so that such production lines can
be used for multiple products and over multiple product life cycles. In
addition, these techniques must enable manufacturers to adapt to part and
process variability.
High risk custom engineering content. A significant amount of custom
content is engineered into most automated manufacturing lines. Custom content is
time consuming to develop and implement and makes it difficult for the
manufacturer to predict system throughput, yield and cost. Manufacturing
managers who are new to automation are reluctant to implement an automation line
when these key performance factors are at risk and often have automated their
production lines only after competitors have established a new manufacturing
standard and a proven approach. In addition, custom hardware and software
increase the cost and difficulty associated with training personnel and
supporting automated systems and require manufacturing engineers to implement
product changeovers.
Shortage of manufacturing engineers. The implementation of most
automation lines requires both mechanical engineering and advanced computer
programming skills. As a result, experience with software programming and
workcell architecture has been critical to the design of systems that perform to
expectations. However, within manufacturers' internal personnel and in the job
market in general, there is a shortage of manufacturing engineers who have the
combination of skills and experience needed to implement intelligent automation
systems. Due to costs and competition, many manufacturers are decreasing their
manufacturing engineering staff, thereby reducing the available pool of
experienced manufacturing engineers available to support manufacturing line
staff and discouraging others from entering the field due to lack of demand.
Long sales and implementation cycle. It can be several years from the
time a manufacturer first considers establishing an automated line to the time
the automation system is installed and operating
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satisfactorily. The sales and implementation cycle includes conceptualizing,
justifying, quoting, selling and implementing the automation line. This long
sales and implementation cycle increases the perceived risk of automation and
fails to address time-to-volume production requirements in industries with short
product life cycles. In addition, the Company believes that because users
typically purchase subsequent systems only after they are satisfied with their
initial systems, the long sales and implementation cycle has limited the growth
of the intelligent automation industry.
Each of the above challenges contributes to higher risks and costs in
implementing intelligent automation. Eliminating or significantly reducing these
potential problems improves the economic and technological justifications for
utilizing intelligent automation. The intelligent automation suppliers that are
best able to meet these challenges will be better positioned to achieve
significant competitive advantages.
The Adept Solution
The Company's RDA approach addresses many of the challenges faced today
by manufacturers seeking to implement intelligent automation systems. The goal
of RDA is to significantly reduce the total time required to conceptualize,
justify, quote, sell and implement an intelligent automation system, and thereby
eliminate significant barriers to the broad deployment of intelligent automation
technology. RDA is implemented through a line of hardware and software products,
including machine controllers for robot mechanisms and other flexible automation
equipment, machine vision systems, vision-based flexible part feeders,
simulation software, and a family of mechanisms including robots and linear
modules. The following diagram illustrates the Company's RDA approach:
[Depiction of Adept's Rapid Deployment Automation Approach which includes the
RDA System Design Layer, the RDA Process Knowledge Layer, the RDA Real-Time
Control Layer and the RDA Mechanical Component Layer.]
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The Company seeks to provide the following key benefits to
manufacturers through its RDA approach:
Increased flexibility. Adept believes that software and sensory
products are the key elements of flexible automation solutions. Through its
software intensive, computer-driven approach to intelligent automation, the
Company distinguishes itself from companies that attempt to address the
challenges of automation solely with hardware solutions. Software and sensory
products provide the flexibility to quickly reconfigure production lines for
product changeovers and to respond to product or process variations. For
example, the Company's machine vision products minimize the need for time
consuming set ups and enable inspection of critical part dimensions. In
addition, the Company's scalable controller hardware is highly configurable,
includes local area networking capability and can control a simple, stand alone
robot or be expanded to control multiple robots.
Reduced custom engineering. Adept provides a broad range of modular
components which are designed to significantly reduce the custom engineering
required to implement intelligent automation. The Company's scalable controller
is the foundation of this architecture, allowing these modular components to be
quickly configured into complex systems and reconfigured as needs change. In
addition, Adept has established relationships with automation vendors who offer
components which complement the Company's RDA product line. Adept believes that
the combination of its modular scalable product line and relationships with
other automation vendors significantly reduces custom engineering and its
associated support risks.
Reduced dependence on manufacturing engineers. Adept believes that
programming an automation workcell should not require extensive software
programming expertise. The Company has developed smart application software
products which utilize icon-based programming and are based on its Assembly and
Information Management ("AIM") software technology. In addition, the Company
works closely with over 300 system integrators worldwide which provide end users
with outside engineering resources to deliver application specific solutions
incorporating the Company's products.
Shortened implementation cycle. The combination of flexibility, ease of
implementation and modularity allows Adept products to be quickly integrated
into standard workcells or production lines. Ease of integration is further
enhanced by providing industry standard networking and communication interfaces.
The Company's simulation software products further shorten the implementation
cycle by reducing the time required to design and test automation concepts. In
fiscal 1998, the Company introduced new software interfaces for use with SDRC's
and Unigraphics Solution's products. The Company believes these new products,
among others, will further enhance application of these technological advantages
to a broader group of customers including automotive and automotive parts
manufacturers. Adept believes that its RDA approach combined with the expertise
of system integrators and customer support and training can significantly reduce
implementation time.
Strategy
The Company's objective is to become the leading supplier worldwide of
a broad line of intelligent automation products for assembly, material handling
and packaging applications. The Company's strategy to achieve this objective
includes the following elements:
Expand Rapid Deployment Automation. Adept's goal is to compress the
sales and implementation cycle of intelligent automation systems through the
expansion of its RDA approach. Adept is pursuing this goal through new
developments including simulation software, AIM software technology, robot
mechanisms
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and unique flexible feeding products. The Company believes that a shorter sales
and implementation cycle will contribute to increased demand for intelligent
automation as the Company's products enable manufacturers to meet time-to-volume
requirements using the Company's RDA products.
Extend technology leadership. Adept's expertise in machine controllers
for robots and other flexible automation equipment, machine vision systems and
simulation software has enabled it to be a leading innovator in the development
of intelligent automation products. Adept seeks to leverage its existing
technology base to accelerate the development of new and enhanced products and
to lower costs. The Company intends to continue to make significant investments
in research and development in order to broaden its technology.
Continue to focus on higher growth application segments. Adept's
strategy is to continue to target the higher growth segments of the intelligent
automation market, such as assembly, material handling and packaging
applications. These applications are used in a broad range of industries,
including electronics, telecommunications, appliances, pharmaceuticals, food
processing and automotive components. The Company believes that diversification
across a broad range of industries should maximize the Company's opportunities
for growth and should reduce Adept's dependence on the capital spending cycles
of any one industry.
Maximize sales through complementary channels. Adept's strategy is to
build end user demand for its products through its direct sales force while
utilizing a network of experienced system integrators and OEMs to provide
turnkey intelligent automation systems. The Company's direct sales force
provides a strong ongoing presence at the end user level by providing product
information, assistance in designing solutions to production issues and
referrals to application-specific system integrators. Adept seeks to continually
strengthen its important channel relationships by providing certain system
integrators with qualified leads and by working with its system integrators to
jointly build demand for the Company's products rather than competing with them
in their systems business.
Increase global market presence. A key element of Adept's strategy is
to increase its presence in the global intelligent automation market by further
expansion in markets which the Company believes represent substantial current or
future opportunities, including Europe, Japan and the Asian-Pacific region. The
Company seeks to increase its market share in these areas by emphasizing its
advanced software and sensing technology and broad, flexible product line. In
addition, Adept intends to continue to make significant investments in
marketing, sales and support in international markets. As an example, the
Company has established a joint venture arrangement in Japan to provide sales
and customer support in that market while reducing its direct costs as a result
of closing its branch operation in Japan. Additionally, in February 1998, the
Company acquired RoboElektronik GmbH, a robotics consulting company based in
Munich, Germany.
Leverage manufacturing strength. Adept seeks to focus its manufacturing
resources on activities which enable the Company to differentiate its product
line and add distinctive value. Adept's manufacturing activities include the
assembly, test and configuration of its products. This strategy enables the
Company to leverage product development, manufacturing and management resources
while retaining greater control over product delivery, final product
configuration and the timing of new product introductions, all of which are
critical to meeting customer expectations.
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Technology
The Company's technology integrates the following key elements of RDA:
mechanical design, machine controller design, advanced servo systems, motion
control software, machine vision software, real-time database management
software and simulation software. The following table lists the Company's
technology by RDA layer:
[Chart illustrating Adept's technology with respect to the
four levels of RDA approach]
Hardware
Direct-drive robot technology. The Company was the first to develop and
market a robot incorporating direct-drive motor technology. Direct-drive
technology eliminates gears and linkages from the drive train of the mechanism,
thereby significantly increasing robot speed and improving the robot's product
life, reliability and accuracy.
Controller technology. The Company has applied its expertise in high
performance motion control to the design of an open architecture, VME bus-based
scalable machine controller. The scalability of this architecture allows the
same basic components to be combined into a number of controller configurations
that cost-effectively address a range of requirements from low end systems which
control a single robot to high end, complex systems which control multiple
mechanisms and incorporate machine vision. Additionally, the Company has
enhanced its controller technology with the introduction of its new AdeptWindows
Controller. This next-generation controller offers seamless plug-and-play
integration of personal computer hardware and software for users of the Windows
platform. Specifically, this new technology allows customers to do all
development work, including vision applications, on personal computers using
Windows 95 and NT operating systems. This open architecture product allows
customers to combine the features of the Company's AIM and V+ software products
with other personal computer-based software products. Finally, all of the
Company's controller products support the same Windows NT-based graphical user
interface and can execute the same
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application programs, thereby allowing software development investments to be
leveraged across a number of applications.
The controller includes a number of technologically advanced
capabilities designed specifically to address the intelligent automation market,
including: special ASICs for controlling direct-drive motors, reading encoders
and controlling power up sequencing of complex high power systems; safety
circuits that meet domestic and international specifications; technology to
protect the controller from voltage spikes, electrical noise and power
brownouts; high wattage (6000 watt) switching power amplifiers; and networking
circuitry for LAN and field buses.
Software
Servo software. The most basic level in Adept's software architecture
is the servo software which directs individual motors to follow motion commands
generated from the higher V+ software level. This software has been designed to
provide closed-loop control for the Company's robots as well as other vendors'
robots. The servo software layer includes algorithms for adaptive feed-forward
control, direct-drive motor control, force control, position control and a
number of safety and diagnostic features.
Real-time programming language and operating system software. The next
level in the software architecture is the V+ programming language and operating
system layer. V+ allows software developers to create automation software
systems and is the key enabling technology for the Company's intelligent
automation approach. This automation programming environment provides a high
level language coupled with a multitasking operating system and built in
capability for integrating robots, machine vision, sensors, workcell control and
general communications. These capabilities enable the development of
sophisticated application software that can adoptively control mechanical
systems based upon real-time sensory input while simultaneously maintaining
communication with other factory equipment.
V+ offers the user approximately 300 instructions for programming an
intelligent automation workcell. It includes a trajectory generator and
continuous path planner which compute the path of the robot's tool in real time
based upon predefined data or sensory input. V+ also includes a number of
network communication facilities and supports the RS232, RS422, Ethernet,
TCP/IP, FTP, NFS and DeviceNet communication protocols. In addition, this
software includes a multitasking, multiprocessor, time-sliced, deterministic,
real-time operating system. This operating system allows V+ to execute dozens of
tasks concurrently and permits control to pass between tasks in a predictable
manner, often several times per millisecond. The V+ operating system also allows
the installation of additional processors into the controller and automatically
reassigns tasks to optimize overall system performance, providing a key
scalability feature not found in other controllers. The development environment
for V+ is Windows NT-based and allows the customer to utilize industry standard
personal computers.
Machine vision. The real-time control layer of the software also
includes machine vision software technology, which quickly recognizes parts that
are randomly positioned and have an unknown orientation ranging up to 360
degrees, as compared with other solutions which simply locate translated images
with very limited rotation. The ability to quickly recognize parts which have
large variations in orientation is crucial for high speed part feeding where the
part orientation is not known, such as in flexible part feeders. The Company's
machine vision software can also measure part dimensions for inspection
purposes. Vision can be used to acquire parts from stationary locations or from
conveyors. Cameras can be stationary, fixed in the workcell or attached to a
robot.
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Data driven module software. The next level in the Company's software
hierarchy is the AIM layer. AIM simplifies the implementation of intelligent
automation workcells by combining a point and click graphical user interface
with an icon-based programming method that does not require advanced computer
programming skills. This method combines task level statements with a high
performance real-time database and a structure for representing process
knowledge.
The AIM task-level statements allow the developer to specify at a very
high level what operations the workcell is to perform, such as "insert a
component into a socket using vision to correct for part irregularities." This
command is automatically coupled to data contained in the real-time database
that specifies the physical aspects of the workcell, such as the location of a
part. The information contained in the databases can be created or downloaded
from a computer or simulation system at any time. Finally, the AIM system
automatically invokes the routines that capture the process knowledge and
dictate how the specified operation will be performed. In this way, an AIM
workcell can be "programmed" by a person who understands as few as ten process
actions rather than hundreds of programming instructions or thousands of lines
of conventional code.
The Company provides application-specific versions of AIM that have
built in process knowledge to address general motion, vision, part palletizing
and flexible part feeding applications. In addition, process knowledge can be
added by end users and system integrators, many of whom have developed their own
AIM application-specific packages. AIM is available in the Windows NT
environment.
Simulation software. The highest level in the Company's software
architecture is the simulation software layer, developed by the Company's SILMA
division, a leader in the field of simulation software. SILMA's core product,
CimStation, allows machines to be modeled with 3D graphics and then animated in
response to software control programs. Mechanisms can be defined graphically and
the mathematics necessary to animate them (kinematic models) are generated
automatically. CimStation also allows the dynamics of mechanisms to be modeled,
which enables machine cycle times to be accurately predicted. Recently SILMA has
added additional CAD interfaces to this core technology for certain markets. The
Company believes it now has a leadership position with the following CAD
interfaces: CADDS, CATIA, I-DEAS, Pro/ENGINEER, Unigraphics, ACIS, IGES and
VDA/FS. Additionally, CimStation is available on several UNIX workstation
platforms as well as the Windows NT operating system.
New Technology
During fiscal 1998, the Company introduced certain products, including
the direct drive AdeptOne-XL robot that is 25% faster than its predecessor.
Shipments of the AdeptOne-XL began in the second quarter of fiscal 1998.
Similarly, the Company commenced shipments of Adept Cobra 600 and Adept Cobra
800 table-top robots which are faster than and offer extended reaches from those
of their predecessors in the second and fourth quarters of fiscal 1998,
respectively.
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Products
The Company's core product families include robot mechanisms and other
mechanical products, guidance and inspection vision products, vision based
flexible part feeders, machine controllers, machine control software and
simulation software. The following diagram depicts the Company's products by RDA
layer:
[Depiction of Adept's products with respect to the
four layers of its RDA approach.]
Robot Mechanisms and Other Mechanical Products
The Company designs and manufactures two SCARA (Selective Compliance
Assembly Robot Arm) style robot mechanisms called the AdeptOne-XL and the
AdeptThree-XL, both of which are designed for assembly, material handling and
packaging tasks. The links and joints of a SCARA robot are somewhat analogous to
the shoulder, elbow and wrist of a human. This configuration is well suited to a
large number of assembly and material handling tasks. The AdeptOne-XL is the
faster model, while the Adept Three-XL offers a larger work envelope and handles
a larger payload. The AdeptOne-XL and AdeptThree-XL provide improved performance
specifications over their respective predecessors, the AdeptOne and AdeptThree.
The improved performance specifications address the needs, such as ease of use,
in the assembly and packaging
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markets as well as other markets. These products have been designed to deliver
increased performance and ease-of-use, thereby furthering the Company's RDA
strategy. Each of these robots utilize direct-drive motor technology.
The Company also sources and markets two families of robot mechanisms,
which are built to the Company's specifications by Hirata Corporation
("Hirata"). The Adept Cobra 600 and Adept Cobra 800 robots are light-duty SCARA
robots that can be table mounted and offer a small work envelope when space is
at a premium. The second family of sourced robot mechanisms includes the Adept
1850 robot which is a palletizing robot and it is used to palletize completed
product assemblies or packaged products at the end of an assembly line and
allows customers to perform this task with a robot that uses the same control
and software architecture as the upstream assembly line.
The Company also offers a line of linear modules, called AdeptModules,
which the Company purchases from NSK Ltd. ("NSK"). These single axis devices can
be coupled together by the user to form a custom robot mechanism for
applications requiring a robot with fewer than four axes. In addition, the
Company offers these linear modules in combination with its own Z-Theta module
to provide customers with a line of configurable Cartesian robots.
Guidance and Inspection Vision Products
The Company offers a line of machine vision products, the AdeptVision
VME line, which are used for robot guidance and inspection applications. For the
guidance applications, AdeptVision VME is added into the controller by inserting
a printed circuit board and enabling the vision system software. For inspection
applications such as gauging and dimensioning, the AdeptVision VME product is
sold as an integrated inspection vision system comprised of a controller with
the vision board and software.
Machine Controllers
The Company's controller products are based on the VME bus architecture
standard. A large array of controller configurations are possible depending on
the features selected by the customer. The Company's controllers are configured
on a five slot chassis called the Adept MV-5, or a ten slot chassis called the
Adept MV-10. All controllers include a system processor and a system
input/output module(s). Additional functionality can be incorporated by adding
printed circuit boards and additional software. For example, motion control is
added by inserting a motion control board. Printed circuit boards can be added
for machine vision, graphical user interface capability and additional
communication inputs and outputs. The controller products are sold independently
for machine control and inspection vision applications and are also sold as a
component of the robot systems.
Machine Control Software
Adept's V+ programming language and operating system software includes
specific instructions for motion control, machine vision, force sensing,
workcell control and general communications. These capabilities are integrated
to perform real-time machine control. The basic V+ software is included in the
price of the system.
The Company's AIM software simplifies the integration, programming and
operation of automation workcells and lines. AIM accomplishes this goal by
providing a formal method for capturing application
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specific process knowledge and then allowing users lacking advanced programming
expertise to use this embedded knowledge to accomplish a specific task. Several
application specific versions of AIM are sold by the Company, including
MotionWare, which addresses motion applications such as those requiring
sophisticated conveyor tracking, VisionWare, which simplifies the use of vision
in both guidance and inspection applications, and PalletWare, which includes
special knowledge of box palletizing strategies.
Simulation Software
Adept's simulation software products simulate the layout and throughput
of workcells and other equipment and generate the programs to run the workcells.
The CimStation Robotics product simulates robot workcells for the Company's
robot products as well as a number of other robot vendors' products. This
product is used to test layouts and cycle times and to generate robot
application programs. The CimStation Inspection product simulates the operation
of Coordinate Measurement Machines "CMM" and generates programs that would be
tedious to program manually given the complex inspection tasks CMMs perform. In
August 1998, this product was chosen by a major automotive company as its
standard CMM simulation solution. The SoftMachines product tests programs for
machine tool operations. This is a productivity tool for machine tool users who
would otherwise have to perform the time consuming task of testing programs on
the machine tool itself. Additionally, a product called SoftAssembly is used to
simulate and test product assembly and to develop assembly sequences and
procedures. Finally, AdeptRAPID is a robotic simulation product tailored
specifically for Adept robots, standard industry peripherals and Adept's AIM
software, that is designed to quickly generate alternative conceptual layouts
and cycle time estimates for implementing an intelligent automation system. It
can also be used to create AIM databases automatically. All simulation software
products have been expanded to operate on the Windows NT operating system with
the functionality of the Company's UNIX products. The Company anticipates the
new personal computer based products will generate new opportunities within
manufacturing organizations that are more accustomed to working on a personal
computer versus in a UNIX environment.
Vision-Based Flexible Feeder
Part feeding has historically been accomplished by designing custom
devices that could only accommodate a single part or class of parts. The Company
has developed a new flexible feeder, the Adept FlexFeeder 250 that can be
rapidly reconfigured through software to accommodate new products and a wide
variety of parts ranging from simple rectangular objects to complex molded or
machined parts, thus preserving the flexibility of the workcell or production
line. The Adept FlexFeeder 250 integrates machine vision, software and motion
control technology with a simple mechanical device. The Adept FlexFeeder 250
recirculates the parts and separates them, relying on vision to identify
individual parts.
Customers and Applications
The Company sells its products to system integrators, end users and
OEMs. End users of the Company's products include a broad range of manufacturing
companies in the electronics, telecommunications, appliances, pharmaceutical,
food processing and automotive components industries. These companies use
Adept's products to perform a wide variety of functions in assembly, material
handling and packaging applications, including mechanical assembly, printed
circuit board assembly, dispensing, palletizing and inspection. No customer
accounted for more than 10% of the Company's net revenues in fiscal 1998, 1997
or 1996.
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Sales, Distribution and Marketing
Sales and Distribution
The Company markets its products through system integrators, its direct
sales force and OEMs.
System Integrators. A substantial portion of the Company's shipments is
through system integrators, and the Company views its relationships with these
organizations as important to the Company's success. The Company has established
relationships with over 300 system integrators worldwide that provide expertise
and process knowledge for a wide range of specific applications. These
relationships are generally not regional and are mutually nonexclusive, although
the Company continuously works to earn voluntary exclusive use of its products
through product performance and support. The greater the investment in equipment
and training and the higher the purchase volume, the greater the discount the
system integrator receives. In certain international markets, the system
integrators perform marketing and support functions directly.
A substantial portion of the Company's sales are to system integrators
that specialize in designing and building production lines for manufacturers.
Many of these companies are small operations with limited financial resources,
and the Company has from time to time experienced difficulty in collecting
payments from certain of these companies. As a result, the Company performs
ongoing credit evaluations of its customers but does not require collateral. In
lieu of collateral, the Company may require customers to make payments in
advance of shipment or to provide a letter of credit. The Company provides
reserves for potential credit losses, and to date such losses have been within
the Company's expectations. To the extent the Company is unable to mitigate this
risk of collections from system integrators, the Company's results of operations
may be materially adversely affected. Furthermore, the Company's relationships
with its system integrators are generally not exclusive, and some of these
system integrators may expend a significant amount of effort or give higher
priority to selling products of the Company's competitors. There can be no
assurance that any of these system integrators will continue their relationships
with the Company or form additional competing arrangements with the Company's
competitors. The Company believes that its ability to sell products to system
integrators will continue to be important to the Company's success. Although to
date none of the Company's system integrators has accounted for a material
percentage of the Company's net revenues, the loss of, or a significant
reduction in revenues from, system integrators to which the Company sells a
significant amount of its product could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
as the Company enters new geographic and applications markets, it must locate
system integrators to assist the Company in building sales in those markets.
There can be no assurance that the Company will be successful in obtaining
effective new system integrators or in maintaining sales relationships with
them. In the event a number of the Company's system integrators experience
financial problems, terminate their relationships with the Company or
substantially reduce the amount of the Company's products they sell, or in the
event the Company fails to build an effective systems integrator channel in any
new markets, the Company's business, financial condition and results of
operations could be materially adversely affected.
Direct Sales Force. The Company employs a direct sales force which
calls on end users to communicate the capabilities of the Company's products and
support services and obtain up-to-date information on market requirements.
Adept's sales force possesses specific expertise in automation solutions and
advises end users on alternative production line designs, special application
techniques, equipment sources and system integrator selection. This sales force
works closely with system integrators and OEMs to integrate the Adept product
line into their systems, provides sales leads to certain system integrators and
obtains intelligent automation system quotes from system integrators for end
users. As of June 30, 1998, the Company's North American sales organization
included 15 individuals. The Company has four sales and customer support offices
in North America, located in San Jose, California; Southbury, Connecticut;
Southfield, Michigan; and Cincinnati, Ohio. As of June 30, 1998, the
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Company's international sales organization included 13 persons covering Europe,
Japan, Singapore, and South Korea. The Company has seven international sales and
customer support offices located in Dortmund and Munich, Germany; Massy, France;
Arezzo, Italy; Kobe, Japan (through its joint venture); Kenilworth, the United
Kingdom; Seoul, South Korea; and Singapore.
Some of the Company's larger manufacturing end user customers have
in-house engineering departments that are comparable to a captive system
integrator. These captive engineering groups can establish a corporate
integrator relationship with the Company that offers benefits similar to those
provided to the Company's system integrators.
OEMs. The Company's OEM customers typically purchase one standard
product configuration, which the OEM integrates with additional hardware and
software and sells under the OEM's label to other resellers and end users.
The sale of the Company's products generally involves the delays
frequently associated with large capital expenditures. The Company's net
revenues depend in significant part upon the decision of a prospective customer
to upgrade or expand existing manufacturing facilities or to construct new
manufacturing facilities, all of which typically involve a significant capital
commitment. In the event one or more large orders fails to close as forecasted
for a quarter, the Company's net revenues and operating results for such quarter
could be materially adversely affected.
International sales for the fiscal years ended June 30, 1998, 1997 and
1996 were $39.8 million, $29.6 million and $32.2 million, respectively,
representing 40.5%, 35.8%, and 39.4% of net revenues for the respective periods.
The Company anticipates that international sales will continue to account for a
significant portion of its net revenues; however, there can be no assurance that
international sales will increase or that the current level of international
sales will be sustained. The Company's operating results are subject to the
risks inherent in international sales and purchases, including, but not limited
to, various regulatory requirements, political and economic changes and
disruptions, transportation delays, foreign currency fluctuations, export/import
controls, tariff regulations, higher freight rates, difficulties in staffing and
managing foreign sales operations, greater difficulty in accounts receivable
collection and potentially adverse tax consequences. Duty, tariff and freight
costs can materially increase the cost of crucial components for the Company's
products. Foreign exchange fluctuations may render the Company's products less
competitive relative to locally manufactured product offerings, or could result
in foreign exchange losses. In addition, because substantially all of the
Company's foreign sales are denominated in United States dollars, increases in
the value of the dollar relative to the local currency would increase the price
of the Company's products in foreign markets and make the Company's products
relatively more expensive and less price competitive than competitors' products
that are priced in local currencies. There can be no assurance that these
factors will not have a material adverse effect on the Company's future
international sales and, consequently, on the Company's business, financial
condition and results of operations. The Company anticipates that the recent
turmoil in Asian financial markets and the recent deterioration of the
underlying economic conditions in certain Asian countries may have an impact on
its sales to customers located in or whose projects are based in those countries
due to the impact of currency fluctuations on the relative price of the
Company's products and restrictions on government spending imposed by the
International Monetary Fund (the "IMF") on those countries receiving the IMF's
assistance. In addition, customers in those countries may face reduced access to
working capital to fund component
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purchases, such as the Company's products, due to higher interest rates, reduced
bank lending due to contractions in the money supply or the deterioration in the
customer's or its bank's financial condition or the inability to access local
equity financing. A substantial majority of the Company's products are sold to
system integrators who incorporate the Company's products into systems sold and
installed to end-user customers. The Company also makes yen-denominated
purchases of certain components and mechanical subsystems from Japanese
suppliers. Depending on the ratio of yen-denominated purchases to
yen-denominated sales, the Company may engage in additional hedging transactions
in the future. However, notwithstanding these precautions, the Company remains
subject to the transaction exposures that arise from foreign exchange movements
between the dates foreign currency export sales or purchase transactions are
recorded and the dates cash is received or payments are made in foreign
currencies. There can be no assurance that the Company's current or any future
currency exchange strategy will be successful in avoiding exchange related
losses or that any of the factors listed above will not have a material adverse
effect on the Company's business, financial condition and results of operations.
Marketing
Adept's marketing organization, which consisted of 44 persons as of
June 30, 1998, supports the Company's various channels in a number of ways.
Product management works with end users, system integrators, corporate
integrators and the Company's sales engineers to continuously gather input on
product performance and end user needs. This information is used to enhance
existing products and to develop new products. A marketing programs group
generates and qualifies new business through industrial trade shows, various
direct marketing programs such as direct mail and telemarketing, public
relations efforts and advertising in industry periodicals. This marketing group
is responsible for tracking customers and prospects through the Company's
marketing database. The marketing group also publishes a document called the MVP
catalog, which lists software and hardware components that have been certified
by Adept to be compatible with the Company's product line. The Company also
expends considerable effort on the development of thorough technical
documentation and user manuals for the Adept product line, and the Company views
well-designed manuals as critical to simplifying the installation, programming,
use and maintenance of the Company's products.
Backlog
The Company's product backlog at June 30, 1998 was approximately $17.6
million, as compared with approximately $20.5 million at June 30, 1997. The
Company includes in its backlog customer orders for products for which it has
accepted signed purchase orders with assigned delivery dates within nine months
in the case of sales to end users and system integrators, and one year in the
case of sales to OEMs. The Company's business is characterized by short term
order and shipment schedules. Because orders constituting the Company's current
backlog are subject to changes in delivery schedules and in certain instances
may be subject to cancellation without significant penalty, and because the
Company utilizes its backlog to balance seasonal fluctuations in its bookings,
and the sales cycle has continued to shorten, the Company's backlog at any date
may not be indicative of demand for the Company's products or actual net
revenues for any period in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," which is incorporated by
reference into this Annual Report on Form 10-K, including the section titled
"Factors Affecting Future Operating Results."
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The Company has experienced and is expected to continue to experience
seasonality in product bookings. The Company has historically had higher
bookings for its products during the June quarter of each fiscal year and lower
bookings during the September quarter of each fiscal year, due primarily to the
slowdown in sales to European markets. In the past, the Company has generally
been able to maintain revenue levels during the September fiscal quarter by
filling backlog from the June fiscal quarter. In the event bookings for the
Company's products in the June fiscal quarter were lower than anticipated and
the Company's backlog at the end of the June fiscal quarter was insufficient to
compensate for lower bookings in the September fiscal quarter, the Company's
results of operations for the September fiscal quarter and future quarters could
be materially adversely affected. For example, in the quarter ended September
30, 1996, sales to European and other international markets decreased
substantially due to the delay of several large orders by the customers placing
such orders. As a result of the decrease in product bookings, net revenues fell
in the quarter ended September 30, 1996. In addition, during fiscal 1998 as a
whole, the Company's revenues were adversely affected by a decline in orders
from customers in the disk-drive and telecommunications markets. The Company
also believes that backlog is not a useful measure of anticipated activity or
future revenues, because the orders constituting the Company's backlog are
subject to changes in delivery schedules and in certain instances are subject to
cancellation without significant penalty by the customer.
In addition, a significant percentage of the Company's product
shipments occur in the last month of each fiscal quarter. Historically, this has
been due in part, at times, to an inability of the Company to forecast the level
of demand for the Company's products or of the product mix for a particular
fiscal quarter. To address this problem the Company periodically stocks
inventory levels of completed robots, machine controllers and certain strategic
components. If shipments of the Company's products fail to meet forecasted
levels, the increased inventory levels could have a material adverse effect on
the Company's business, financial condition and results of operations.
Services and Support
The Company's service and support organization, which consisted of 95
persons as of June 30, 1998, is designed to support the customer from the design
of the automation line through ongoing support of the installed system. This
organization included 48 RDA and application engineers/programmers as of June
30, 1998 based in a number of the Company's sales offices in the U.S., Europe
and Asia. This team is experienced in applying the Company's product line to
solve a wide array of application issues and operates toll-free telephone
support lines called "the Hotline" to provide advice on issues such as software
programming structure, layout problems and system installation. End users and
system integrators can also hire these experts on a consulting basis to help
resolve new or difficult application issues.
In February 1998, the Company acquired all of the outstanding capital
stock of RoboElektronik GmbH ("RoboElektronik"), a German company that provides
engineering consulting services to European manufacturers. As a result of the
acquisition, the Company issued 24,562 shares of its Common Stock to the
shareholders of RoboElektronik and RoboElektronik became a wholly owned
subsidiary of the Company. On June 26, 1998, RoboElektronik was renamed Adept
Technology GmbH. The Company anticipates that RoboElektronik will continue to
provide consulting services to the Company's customers.
The Company also maintains a team of instructors, consisting of eight
instructors as of June 30, 1998, who develop training courses on subjects
ranging from basic system maintenance to advanced programming. These courses are
geared both for manufacturing engineers who design and implement automation
lines and for operators who operate and maintain equipment once it is in
production.
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The Company's field service organization, which consisted of 47 persons
as of June 30, 1998, is based in six service centers located in San Jose,
California; Cincinnati, Ohio; Massy, France; Dortmund, Germany; Arezzo, Italy,
Kobe, Japan (through its joint venture); Seoul, South Korea and Singapore. The
field-based service engineers maintain and repair Adept products at the end
user's facilities. Personnel based at these service centers also provide advice
to customers on spare parts, product upgrades, and preventative maintenance.
Research and Development
The Company's research and development efforts are focused on the
design of intelligent automation products which address the challenges of
designing, implementing, installing, operating and modifying automated
production lines. The Company intends to focus its research and development
efforts on the development of an integrated product line which further
implements the Company's RDA approach and which reduces cost, enhances
performance and improves ease of use.
The Company has devoted, and intends to devote in the future, a
significant portion of its resources to research and development programs. As of
June 30, 1998, the Company had 79 persons, including four temporary or contract
personnel, engaged in research, development and engineering. The Company's
research, development and engineering expenses for fiscal 1998, 1997 and 1996
were approximately $10.7 million, $9.0 million and $8.1 million, respectively,
and represented 10.9%, 10.9% and 9.9%, respectively, of net revenues.
The Company's future success will depend on its ability to enhance its
existing products and to develop and introduce, on a timely and cost-effective
basis, new products and enhancements that keep pace with technological
developments and address the needs of its customers. The Company is currently
developing a number of new products intended to further implement RDA's goal of
providing easy to use intelligent automation systems to the end user.
The development and commercialization of new products involve many
risks, including the identification of new product opportunities, the retention
and hiring of appropriate research and development personnel, the definition of
the product's technical specifications, the successful completion of the
development process and the successful completion of the development process.
Other risks would include the successful marketing of the product, the risk of
having customers embrace new technological advances, additional customer service
costs associated with supporting new product introductions, and additional
customer service costs required for field upgrades. For example, the Company is
currently in the process of releasing its new AdeptWindows Controller ("AWC").
This product includes significant new networking, communications, and control
technology. Due to these technological advances, the AWC substantially changes
how customers interface this product to their work cells and factory control
systems. There can be no assurance that the development of these products will
be completed in a timely manner or that such products will achieve acceptance in
the market. The development of these products has required, and will require,
the Company to expend significant financial and management resources. If the
Company is unable to continue to successfully develop these or other new
products that respond to customer requirements or technological changes, the
Company's business, financial condition and results of operations would be
materially adversely affected.
The markets in which the Company competes are characterized by rapid
technological change and new product introductions and enhancements. The
Company's ability to remain competitive and its future success will depend in
significant part upon the technological quality of its products and processes
relative to those of
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its competitors and its ability both to develop new and enhanced products and to
introduce such products at competitive prices and on a timely and cost effective
basis. There can be no assurance that the Company will be successful in
selecting, developing and manufacturing new products or in enhancing its
existing products on a timely basis or at all, or that such products will
achieve market acceptance. The success of the Company in developing,
introducing, selling and supporting new and enhanced products depends upon a
variety of factors, including timely and efficient completion of hardware and
software design and development, timely and efficient implementation of
manufacturing processes, and effective sales, marketing and customer service. In
addition, because of the complexity of the Company's products, significant
delays can occur between a product's initial introduction in the market and
commencement of volume production. In addition, new or existing software
products or enhancements may contain errors or performance problems when first
introduced, when new versions or enhancements are released, or even after such
products or enhancements have been used in the marketplace for a period of time.
Despite testing by the Company, such defects may be discovered only after a
product has been installed and used by customers. There can be no assurance that
such errors or performance problems will not be discovered in future shipments
of the Company's products, resulting in expensive and time consuming design
modifications or large warranty charges, damaging customer relationships and
resulting in loss of market share, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Manufacturing
Adept seeks to focus its manufacturing resources on activities which
enable the Company to differentiate its product line and add distinctive value.
Adept's manufacturing activities include the assembly, test and configuration of
its products. The Company believes that by performing these operations it can
better ensure the quality and performance of its products. The Company
outsources low unit volume, low value-added manufacturing operations, including
standard and build-to-print fabricated parts such as machinery, sheet metal
fabrication and assembled printed circuit boards. The Company also sources some
robot mechanisms. The purchased robot mechanisms are tested to meet defined
quality standards and then configured into complete products which are tested
again prior to shipment to the customer. This strategy enables the Company to
leverage product development, manufacturing and management resources while
retaining greater control over product delivery, final product configuration and
the timing of new product introductions, all of which are critical to meeting
customer expectations.
The Company's manufacturing organization has expertise in mechanical,
electrical, electronic and software assembly and test. In addition, because
outstanding quality and reliability over the life of the Company's products are
key to customer satisfaction and customers' repeat purchases of automation
products, the Company believes its quality assurance plans and organization are
a key part of its business strategy. The Company's quality assurance
organization develops detailed instructions for all manufacturing and test
operations. These instructions are established in writing, implemented through
training of the manufacturing work force and monitored to assure compliance. In
addition, the Company's quality assurance organization works closely with
vendors to develop instructions and to remedy quality problems if they arise.
The Company obtains many key components and materials and some
significant mechanical subsystems from sole or single source suppliers with whom
the Company has no guaranteed supply arrangements. In addition, certain of the
sole or single sourced components and mechanical subsystems incorporated into
the Company's products have long procurement lead times. The Company's reliance
on sole or single source suppliers involves several significant risks, including
loss of control over the manufacturing process, the potential absence of
adequate supplier capacity, potential inability to obtain an adequate supply of
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required components, materials or mechanical subsystems and reduced control over
manufacturing yields, costs, timely delivery, reliability and quality of
components, materials and mechanical subsystems. In the event that any
significant sole or single source supplier were unable or unwilling to
manufacture certain components, materials or mechanical subsystems in required
volumes, the Company would be required to identify and qualify acceptable
replacements. The process of qualifying suppliers may be lengthy, and there can
be no assurance that any additional sources would be available to the Company on
a timely basis or on acceptable terms. If supplies of such items were not
available from the Company's existing suppliers and a relationship with an
alternative vendor could not be timely developed, shipments of the Company's
products could be interrupted and reengineering of such products could be
required.
The Company has experienced quality control or specification problems
with certain key components provided by sole source suppliers, and has had to
design around the particular flawed item. The Company has also experienced
delays in filling customer orders due to the failure of certain suppliers to
meet the Company's volume and schedule requirements. Certain suppliers of the
Company have also ceased manufacturing components which the Company requires for
its products, and the Company has been required to purchase sufficient supplies
for the estimated life of its product line. There can be no assurance that these
problems will not occur in the future with the Company's suppliers. Disruption
or termination of the Company's supply sources could require the Company to seek
alternative sources of supply, and could delay the Company's product shipments
and damage relationships with current and prospective customers, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. If the Company incorrectly forecasts
product mix for a particular period and the Company is unable to obtain
sufficient supplies of any components or mechanical subsystems on a timely basis
due to long procurement lead times, the Company's business, financial condition
and results of operations could be materially adversely affected. Moreover, if
demand for a product for which the Company has purchased a substantial amount of
components fails to meet the Company's expectations, the Company would be
required to write off the excess inventory, thereby materially adversely
affecting the Company's results of operations. A prolonged inability to obtain
adequate timely deliveries of key components would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's hardware products are required to comply with European
Union ("EU") Low Voltage, Electro-Magnetic Compatibility, and Machinery Safety
Directives (laws) in certain European countries, including United Kingdom,
France, Germany and Italy. The EU mandates that the Company's products carry the
CE mark denoting that these products are manufactured in strict accordance to
design guidelines (the "Standards") in support of these directives. These
Standards can change and are subject to varying interpretation. New Standards
impacting machinery design go into effect each year. To date, the Company has
retained TUV Rheinland to help certify that its VME controller-based products,
including robots, meet applicable EU Directives and Standards. Although the
Company's existing products meet the requirements of the applicable Directives,
there can be no assurance that future products can be designed, within market
window constraints, to meet the future requirements. In the event any of the
Company's robot products or any other major hardware products do not meet the
requirements of the directives, the Company would be unable to legally sell
these products in Europe. The Company's financial condition and results of
operations could be materially adversely affected.
The Company is subject to a variety of environmental regulations
relating to the use, storage, handling, and disposal of certain hazardous
substances used in the manufacturing and assembly of the Company's products. The
Company believes that it is currently in compliance with all material
environmental regulations in connection with its manufacturing operations, and
that it has obtained all necessary environmental permits to
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conduct its business. Any failure by the Company to comply with present or
future regulations could subject the Company to the imposition of substantial
fines, suspension of production, alteration of manufacturing processes or
cessation of operations, any of which could have a material adverse effect on
the Company's business, financial condition, and results of operations.
Compliance with such regulations could require the Company to acquire expensive
remediation equipment or to incur substantial expenses. Any failure of the
Company to control the use, disposal, removal, or storage of, or to adequately
restrict the discharge of, or assist in the cleanup of, hazardous or toxic
substances, could subject the Company to significant liabilities, including
joint and several liability under certain statutes. The imposition of such
liabilities could materially adversely affect the Company's business, financial
condition, and results of operations.
Competition
The market for intelligent automation products is highly competitive.
The Company competes with a number of robot companies, motion control companies,
machine vision companies and simulation software companies. Many of the
Company's competitors have substantially greater financial, technical, marketing
and other resources than the Company. Although to date the Company's competitors
have not offered a broad range of intelligent automation products, it is
possible that one or more of these competitors may in the future, through
acquisitions or otherwise, offer a more comprehensive line of products which are
competitive with a broader range of the Company's products or with the Company's
entire product line. In addition, the Company may in the future face competition
from new entrants in one or more of its markets. The principal competitive
factors affecting the market for the Company's products are product
functionality and reliability, customer service, price, and product features
such as flexibility, programmability and ease of use. The Company believes that
it competes favorably with respect to these factors. In addition, to date the
Company's competitors have been unable to successfully commercialize direct
drive technology, although there can be no assurance that one or more of them
will not do so in the future.
Many of the Company's competitors in the robot market are integrated
manufacturers of products that produce robotics equipment internally for their
own use and may also compete with the Company's products for sales to other
customers. Certain of these large manufacturing companies have greater
flexibility in pricing than the Company, because they generate substantial unit
volumes of robots for internal demand and may have access through their parent
companies to large sources of capital. There can be no assurance that any of the
Company's competitors will not seek to expand its presence in other markets in
which the Company competes. Moreover, the recent devaluation of the Japanese yen
in relation to the United States dollar may have the effect of making the
Company's dollar-denominated products relatively more expensive than robot
components priced in yen or another Asian currency that has been subject to
devaluation.
The Company's principal competitors in the U.S. robot market include
U.S. subsidiaries of Japan-based Fanuc Ltd. ("Fanuc"), Seiko Instruments
("Seiko"), Yamaha Corporation ("Yamaha"), Sony Corporation ("Sony"), Sankyo
Company Limited ("Sankyo"), and other Japanese robot companies. In the European
robot market, the Company principally competes with Robert Bosch GmbH, which to
date has sold most of its products in Germany, and with Fanuc, Seiko, Yamaha,
Sony, Sankyo, and other Japanese companies. In the Japanese robot market, over a
dozen robot companies compete with the Company, including Fanuc, Nippon Denso,
Panasonic Company, Sankyo, Seiko, Sony, Toshiba Corporation and Yamaha. Certain
of these large manufacturing companies have greater flexibility in pricing than
the Company, because they generate substantial unit volumes of robots for
internal demand and may have access through their parent companies to large
sources of capital. There can be no assurance that any of the Company's
competitors will not seek to expand its presence in other markets in which the
Company competes. In addressing the Japanese market, the
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Company is at a competitive disadvantage as compared to Japanese suppliers, many
of who have long-standing collaborative relationships with Japanese
manufacturers. Although the Company expects to continue to invest significant
resources in the Japanese market in the future, there can be no assurance that
the Company will be able to achieve significant sales growth in the Japanese
intelligent automation market.
The Company's principal competitors in the market for motion control
systems include Allen-Bradley Co. ("Allen-Bradley"), a subsidiary of Rockwell
International Corporation, in the United States, and Siemens AG in Europe. In
addition, the Company faces motion control competition from two major suppliers
of motion control boards, Galil Motion Control, Inc. and Delta Tau Data Systems,
Inc. These motion control boards are purchased by end users which engineer their
own custom motion control systems. In the simulation software market, the
Company's competitors include Tecnomatix Technologies, Inc., an Israel-based
company which sells mostly to major automotive manufacturers, and Deneb Robotics
Inc., a subsidiary of Dassault Systemes. In the machine vision market, the
Company faces competition from Cognex Corporation, Robotic Vision Systems Inc.,
and Allen-Bradley.
There can be no assurance that current or potential competitors of the
Company will not develop products comparable or superior in terms of price and
performance features to those developed by the Company or adapt more quickly
than the Company to new or emerging technologies and changes in customer
requirements. In addition, no assurance can be given that the Company will not
be required to make substantial additional investments in connection with its
research, development, engineering, marketing and customer service efforts in
order to meet any competitive threat, or that the Company will be able to
compete successfully in the future. The Company expects that in the event the
intelligent automation market expands, competition in the industry will
intensify, as additional competitors enter the Company's markets and current
competitors expand their product fines. Increased competitive pressure could
result in a loss of sales or market share, or cause the Company to lower prices
for its products, any of which could materially adversely affect the Company's
business, financial condition and results of operations.
Proprietary Technology and Intellectual Property
The Company relies on a combination of patent, copyright and trade
secret protection, and nondisclosure agreements to protect its proprietary
rights. In the U.S. the Company holds six hardware patents and two software
patents. The Company also holds one hardware patent issued in France, Germany,
Great Britain, Italy and Sweden, and relies on trade secrets principles to
protect its proprietary technology in real-time multi-tasking software
structure, continuous path motion control and assembly of robot mechanisms.
There can be no assurance, however, that patent law, copyright law and trade
secret protection will be adequate to deter misappropriation of its technology,
that any patents issued to the Company will not be challenged, invalidated or
circumvented, that the rights granted thereunder will provide competitive
advantages to the Company, or that the claims under any patent application will
be allowed.
The process of seeking patent protection can be time consuming and
expensive, and there can be no assurance that patents will issue from currently
pending or future applications or that the Company's existing patents or any new
patents that may be issued will be sufficient in scope or strength to provide
meaningful protection or any commercial advantage to the Company. Furthermore,
there can be no assurance that others will not independently develop similar
products, duplicate the Company's products or design around any patents issued
to the Company. The Company may be subject to or may initiate interference
proceedings in the U.S. Patent and Trademark Office, which can demand
significant financial and management resources. In addition, a substantial
amount of the Company's sales are in international markets, and there can be no
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<PAGE>
assurance that foreign intellectual property law will adequately protect the
Company's intellectual property rights.
The Company has from time to time received communications from third
parties asserting that the Company is infringing certain patents and other
intellectual property rights of others or seeking indemnification against such
alleged infringement. As claims arise, the Company evaluates their merits. No
assurance can be given that any of these claims will not result in protracted
and costly litigation, that damages for infringement will not be assessed or
that should it be necessary or desirable to obtain a license relating to one or
more of the Company's products or current or future technologies, the Company
will be able to do so on commercially reasonable terms or at all. Litigation,
which could result in substantial cost to and diversion of resources of the
Company, may be necessary to enforce patents or other intellectual property
rights of the Company or to defend the Company against claimed infringement of
the rights of others. Any such litigation and the failure to obtain necessary
licenses or other rights could have a material adverse effect on the Company's
business, financial condition, and results of operations. In particular, some
end users of the Company's products have notified the Company that they have
received a claim of patent infringement from the Jerome H. Lemelson Foundation,
alleging that its use of the Company's machine vision products infringes certain
patents issued to Mr. Lemelson. In addition, the Company has been notified that
other end users of the Company's AdeptVision VME line and the predecessor line
of Multibus machine vision products have received letters from Mr. Lemelson
which refer to Mr. Lemelson's patent portfolio and offer the end user a license
to the particular patents. Certain end users have notified the Company that they
may seek indemnification from the Company for damages or expenses resulting from
this matter. The Company cannot predict the outcome of this or any similar
litigation which may arise in the future, and although such products have not
represented a material portion of the Company's net revenues in fiscal 1998,
1997 and 1996, there can be no assurance that such litigation will not have a
material adverse effect on the business, financial condition or results of
operations of the Company.
Employees
At June 30, 1998, the Company had 393 full-time employees, including
117 in operations, 171 in sales and marketing, 76 in engineering and 29 in
administration. In addition, at June 30, 1998, the Company utilized the services
of 22 temporary or contract personnel, including eight in operations, seven in
sales and marketing, three in engineering and four in administration. The
Company's employees are not represented by any collective bargaining
organization, and the Company has never experienced a work stoppage. The Company
believes that its relationships with its employees are good.
The Company is highly dependent upon the continuing contributions of
its key management, sales, and product development personnel. In particular, the
Company would be materially adversely affected if it were to lose the services
of Brian Carlisle, Chief Executive Officer and Chairman of the Board of
Directors of the Company, who has provided significant leadership to the Company
since its inception, or Bruce Shimano, Vice President, Research and Development
and a Director of the Company, who has guided the Company's research and
development programs since its inception. In addition, the loss of the services
of any of the Company's senior managerial, technical or sales personnel could
materially adversely affect the Company's business, financial condition, and
results of operations. The Company's future success also heavily depends on its
continuing ability, to attract, retain, and motivate highly qualified
managerial, technical and sales personnel. Competition for qualified technical
personnel in the intelligent automation industry is intense. The Company's
inability to recruit and train adequate numbers of qualified personnel on a
timely basis would adversely affect the Company's ability to design,
manufacture, market and support its products. The Company does not have
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<PAGE>
employment contracts with any of its executive officers and does not maintain
key man life insurance on the lives of any of its key personnel.
ITEM 2. PROPERTIES
The Company's headquarters and principal research and development and
manufacturing facilities are located in a 92,448 square foot leased building in
San Jose, California. The lease expires in December 2003 and provides for annual
lease payments of approximately $1,110,000 in calendar year 1998 and $1,165,000
in calendar year 1999. The Company leases an additional 10,000 square feet in an
adjacent building in San Jose for its SILMA division, which lease expires in
September 1998. A new lease in the same building has been entered into by the
Company for 30,804 square feet commencing in October 1998. The lease expires in
December 2003 and provides for annual lease payments of approximately $153,000
in calendar year 1998 and $610,000 in calendar year 1999. The Company has
entered into an agreement to sublease to a third party 20,387 square feet of the
above lease commencing in October 1998 for one year with a six month option. The
sublease provides for receipts of approximately $104,000 in calendar year 1998
and $312,000 in calendar year 1999, excluding the option. The Company also
leases a 4,844 square foot facility in City of Industry, California at which the
Company's software development group is based. The lease expires in September
2001. The Company also leases a facility in Livermore, California consisting of
25,724 square feet that will house certain of its research and development
activities commencing in October 1998. This lease expires in August of 2003 and
provides for annual lease payments of approximately $36,000 in calendar year
1998 and $145,000 in calendar year 1999.The Company also leases facilities for
sales and customer training in Southbury, Connecticut; Southfield, Michigan;
Cincinnati, Ohio; Massy, France; Dortmund and Munich, Germany; Arezzo, Italy;
Kobe, Japan (through its joint venture); Kenilworth, the United Kingdom; Seoul,
South Korea; and Singapore.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is party to various legal proceedings or
claims, either asserted or unasserted, which arise in the ordinary course of the
Company's business. Management has reviewed pending legal matters and, except to
the extent set forth below, believes that the resolution of such matters will
not have a material adverse effect on the Company's business, financial
condition, or results of operations.
Some end users of the Company's products have notified the Company that
they have received a claim of patent infringement from the Jerome H. Lemelson
Foundation, alleging that its use of the Company's machine vision products
infringes certain patents issued to Mr. Lemelson. In addition, the Company has
been notified that other end users of the Company's AdeptVision VME line and the
predecessor line of Multibus machine vision products have received letters from
Mr. Lemelson which refer to Mr. Lemelson's patent portfolio and offer the end
user a license to the particular patents. Certain end users have notified the
Company that they may seek indemnification from the Company for damages or
expenses resulting from this matter. The Company cannot predict the outcome of
this or any similar litigation which may arise in the future, and although such
products have not represented a material portion of the Company's net revenues
in fiscal 1998, 1997 and 1996, there can be no assurance that such litigation
will not have a material adverse effect on the business, financial condition or
results of operations of the Company.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Brian R. Carlisle............. 47 Chairman of the Board of Directors and
Chief Executive Officer
Bruce E. Shimano.............. 49 Vice President, Research and Development,
Secretary and Director
Marcy R. Alstott.............. 41 Vice President, Operations
Richard J. Casler, Jr......... 46 Vice President, Engineering
Charles S. Duncheon........... 47 Senior Vice President, Marketing and Sales
Betsy A. Lange................ 38 Vice President, Finance and Chief Financial
Officer
Brian R. Carlisle has served as the Company's Chief Executive Officer
and Chairman of the Board of Directors since he co-founded the Company in June
1983. From June 1980 to June 1983, he served as General Manager and from June
1977 to June 1980, he served as project manager of the West Coast Division of
Unimation, Inc. ("Unimation"), where he was responsible for new product strategy
and development for Unimation's electric robots, control systems, sensing
systems and other robotics applications. Mr. Carlisle received a B.S. and M.S.
in mechanical engineering from Stanford University.
Bruce E. Shimano has served as the Company's Vice President, Research
and Development and a director since he co-founded the Company in June 1983.
Prior to that time, he was Director of Software Development at Unimation. Mr.
Shimano received a B.S., a M.S. and a Ph.D. in mechanical engineering from
Stanford University.
Marcy R. Alstott joined Adept Technology in March of 1998 as Vice
President of Operations. From August 1995 to March 1998, Ms. Alstott served as
Program Director responsible for switching product development at 3Com
Corporation, a networking company. Ms. Alstott served as the Director of
Manufacturing Engineering responsible for technical operations at Chipcom
Corporation, a networking company, from May 1994 to August 1995. Prior to that
time, from May 1979 to May 1994, Ms. Alstott served in various capacities at
Hewlett Packard Company, the most recent of which was Materials Manager. Ms.
Alstott has a B.S. in mechanical engineering from Purdue University, a M.S. in
mechanical engineering from Stanford University and a M.B.A. from the University
of Santa Clara.
Richard J. Casler, Jr. has served as the Company's Vice President of
Engineering since April 1993 and from October 1992 to March 1993 served as its
Director of Robot Interface Development. In October 1986, Mr. Casler co-founded
Genesis Automation, Inc., a developer of robots and automation for the service
industry, and served as its president until October 1992. From October 1981 to
October 1986, Mr. Casler was manager of product development at Unimation and at
Unimation's parent company, Westinghouse Electric Corporation. Mr. Casler
received a B.S. and a M.S. in mechanical engineering from the Massachusetts
Institute of Technology.
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<PAGE>
Charles S. Duncheon has served as the Company's Senior Vice President
of Marketing and Sales since September 1988. From May 1984 to May 1987, he
served as the Company's General Sales Manager and from May 1987 to September
1988 as Vice President of North American Sales. Prior to that time, Mr. Duncheon
served in various marketing positions with Fared Robot Systems, Inc., a robot
company, and in various engineering and manufacturing positions at Monsanto
Corporation, an international chemicals company. Mr. Duncheon received a B.S. in
industrial engineering from Purdue University and a M.B.A. from Southern
Illinois University.
Betsy A. Lange has served as the Company's Vice President, Finance and
Chief Financial Officer since July 1993. Ms. Lange joined the Company as an
accounting manager in December 1987 and became its Controller in May 1991. Prior
to that time, Ms. Lange served in various accounting positions for five years at
Avantek, Inc., a manufacturer of microwave components. Ms. Lange received a B.S.
in business administration from California PolyTechnic State University (San
Luis Obispo) and a M.B.A. from Santa Clara University.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from
the section captioned "Market and Stock Price Data" contained in the Company's
1998 Annual Report to Shareholders for the fiscal year ended June 30, 1998,
portions of which are filed as Exhibit 13.1 hereto (the "Annual Report to
Shareholders").
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference to
page 11 of the Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated by reference to
page 14 of the Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference to
page 26 of the Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning the Company's
directors is incorporated by reference from the section captioned "Election of
Directors" contained in the Company's Proxy Statement related to the Annual
Meeting of Shareholders to be held November 5, 1998 to be filed by the Company
with the Securities and Exchange Commission within 120 days of the end of the
Company's fiscal year pursuant to General Instruction G(3) of Form 10-K (the
"Proxy Statement"). The information required by this item concerning executive
officers is set forth in Part I of this Report. The information required by this
item concerning compliance with Section 16(a) of the Exchange Act is
incorporated by reference from the section captioned "Section 16(a) Beneficial
Ownership Reporting Compliance" contained in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the section captioned "Executive Compensation and Other Matters" contained in
the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the sections captioned "Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions" contained in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The following financial statements are incorporated by
reference in Item 8 of this Report:
Ernst & Young, LLP, Independent Auditors' Report
Consolidated Balance Sheets at June 30, 1998 and 1997
Consolidated Statements of Income for the years ended June 30,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years
ended June 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended June
30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
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<PAGE>
(a)(2) Financial Statement Schedules
II - Valuation and Qualifying Accounts
Additional schedules are not required under the related
schedule instructions or are inapplicable, and therefore have been omitted.
(a)(3) Exhibits
3.1(1) Restated Articles of Incorporation of the
Registrant.
3.2(1) Bylaws of the Registrant, as amended to date.
10.1(1) 1983 Stock Incentive Program, and form of Agreement
thereto.
10.2(2) 1993 Stock Plan as amended, and form of agreement
thereto.
10.3(2) 1995 Employee Stock Purchase Plan as amended, and
form of agreements thereto.
10.4(2) 1995 Director Option Plan as amended, and form of
agreement thereto.
10.5(1) Form of Indemnification Agreement between the
Registrant and its officers and directors.
10.6.1(1) Lease Agreement between the Registrant and
Technology Associates I dated July 18, 1986, as
amended.
10.6.2(1) Office Building Lease between Registrant and Puente
Hills Business Center II dated May 20, 1993, as
amended.
10.6.3(1) Standard Office Lease - Gross between SILMA
Incorporated and South Bay/Copley Joint Venture
dated November 11, 1992.
10.6.4(2) Fifth Amendment to Lease between Registrant and
Metropolitan Life Insurance Company dated as of
December 5, 1996.
10.7(1) Loan Payoff Plan dated August 3, 1993 between
Registrant and Charles Duncheon.
10.8 Offer Letter between the Registrant and Marcy
Alstott dated February 19, 1998, as amended.
10.8.1 Promissory Note between Registrant and Marcy
Alstott dated April 27, 1998.
10.9 Lease Agreement dated as of April 30, 1998 between
the Registrant and the Joseph and Eda Pell
Revocable Trust dated August 18, 1989.
10.10 Lease Agreement dated June 1, 1998 between the
Registrant and Technology Centre Associates LLC for
the premises located at 180 Rose Orchard Way, San
Jose, California.
10.10.1 First Amendment to Lease Agreement dated June 1,
1998 between the Registrant and Technology Centre
Associates LLC dated July 31, 1998.
10.10.2 Sublease between the Registrant and Ascent Logic
Corporation dated as of July 31, 1998.
13.1 Portions of Registrant's Annual Report to
Shareholders for the fiscal year ended June 30,
1998.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
24.1 Power of Attorney (See Page 30).
27.1 Financial Data Schedule.
- -----------------
-28-
<PAGE>
1 Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-1 (Reg. No. 33-98816) as declared effective by the
Commission on December 15, 1995.
2 Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997 as filed with
the Commission on September 26, 1997.
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the quarter ended June 30, 1998.
(c) Exhibits. See Item 14(a)(3) above.
(d) Financial Statement Schedules. See Item 14(a)(2) above.
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ADEPT TECHNOLOGY, INC.
By: /s/ Brian R. Carlisle
--------------------------
Brian R. Carlisle
Chairman of the Board of
Directors and Chief
Executive Officer
Date: September 28, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brian R. Carlisle and Betsy A. Lange and
each of them, his or her true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution, to sign any and all amendments
(including post-effective amendments) to this Annual Report on Form 10-K and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, or any of
them, shall do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<CAPTION>
- --------------------------------------- ----------------------------------------------- ------------------
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Brian R. Carlisle Chairman of the Board of Directors and Chief September 28, 1998
- --------------------------------------- Executive Officer (Principal Executive Officer)
(Brian R. Carlisle)
/s/ Betsy A. Lange Vice President, Finance and Chief Financial September 28, 1998
- --------------------------------------- Officer (Principal Financial and Accounting
(Betsy A. Lange) Officer)
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<PAGE>
- --------------------------------------- ----------------------------------------------- ------------------
Signature Title Date
--------- ----- ----
/s/ Bruce E. Shimano Vice President, Research and Development, September 28, 1998
- --------------------------------------- Secretary and Director
(Bruce E. Shimano)
/s/ Ronald E. F. Codd Director September 28, 1998
- ---------------------------------------
(Ronald E. F. Codd)
/s/ Michael P. Kelly Director September 28, 1998
- ---------------------------------------
(Michael P. Kelly)
/s/ Cary R. Mock Director September 28, 1998
- ---------------------------------------
(Cary R. Mock)
/s/ John E. Pomeroy Director September 28, 1998
- ---------------------------------------
(John E. Pomeroy)
</TABLE>
-31-
<PAGE>
<TABLE>
SCHEDULE II
ADEPT TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Balance Additions
at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions (1) of Period
----------- --------- -------- -------------- ---------
<S> <C> <C> <C> <C>
Year ended June 30, 1996:
Allowance for doubtful accounts $482 $277 $294 $465
Year ended June 30, 1997:
Allowance for doubtful accounts 465 129 145 449
Year ended June 30, 1998:
Allowance for doubtful accounts 449 346 343 452
<FN>
- -----------------
(1) Includes write offs net of recoveries.
</FN>
</TABLE>
<PAGE>
Exhibits
3.1(1) Restated Articles of Incorporation of the
Registrant.
3.2(1) Bylaws of the Registrant, as amended to date.
10.1(1) 1983 Stock Incentive Program, and form of Agreement
thereto.
10.2(2) 1993 Stock Plan as amended, and form of agreement
thereto.
10.3(2) 1995 Employee Stock Purchase Plan as amended, and
form of agreements thereto.
10.4(2) 1995 Director Option Plan as amended, and form of
agreement thereto.
10.5(1) Form of Indemnification Agreement between the
Registrant and its officers and directors.
10.6.1(1) Lease Agreement between the Registrant and
Technology Associates I dated July 18, 1986, as
amended.
10.6.2(1) Office Building Lease between Registrant and Puente
Hills Business Center II dated May 20, 1993, as
amended.
10.6.3(1) Standard Office Lease - Gross between SILMA
Incorporated and South Bay/Copley Joint Venture
dated November 11, 1992.
10.6.4(2) Fifth Amendment to Lease between Registrant and
Metropolitan Life Insurance Company dated as of
December 5, 1996.
10.7(1) Loan Payoff Plan dated August 3, 1993 between
Registrant and Charles Duncheon.
10.8 Offer Letter between the Registrant and Marcy
Alstott dated February 19, 1998, as amended.
10.8.1 Promissory Note between Registrant and Marcy
Alstott dated April 27, 1998.
10.9 Lease Agreement dated as of April 30, 1998 between
the Registrant and the Joseph and Eda Pell
Revocable Trust dated August 18, 1989.
10.10 Lease Agreement dated June 1, 1998 between the
Registrant and Technology Centre Associates LLC for
the premises located at 180 Rose Orchard Way, San
Jose, California.
10.10.1 First Amendment to Lease Agreement dated June 1,
1998 between the Registrant and Technology Centre
Associates LLC dated July 31, 1998.
10.10.2 Sublease between the Registrant and Ascent Logic
Corporation dated as of July 31, 1998.
13.1 Portions of Registrant's Annual Report to
Shareholders for the fiscal year ended June 30,
1998.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
24.1 Power of Attorney (See Page 30).
27.1 Financial Data Schedule.
- -----------------
<PAGE>
1 Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-1 (Reg. No. 33-98816) as declared effective by the
Commission on December 15, 1995.
2 Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997 as filed with
the Commission on September 26, 1997.
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the quarter ended June 30, 1998.
(c) Exhibits. See Item 14(a)(3) above.
(d) Financial Statement Schedules. See Item 14(a)(2) above.
EXHIBIT 10.8
[Adept letterhead]
February 19, 1998
March Alstott
2 Williamsburg Circle
Northborough, MA 01532
REVISED
Dear Marcy:
On behalf of Adept Technology, Inc., I am pleased to offer you a position as
Vice President, Operations reporting to Brian Carlisle. Chairman and CEO. Your
biweekly base salary will be $5,769.23, plus you will also be entitled to a
monthly car allowance of $728, which when annualized in total is $158,736. You
will receive a prorated compensation review in conjunction with your performance
appraisal, which will be effective October 1, 1998.
In addition, I am pleased to offer you a one-time signing bonus in the amount of
$25,000 to be payable the first week of April 1998. Please note that this amount
should be considered taxable income and if you voluntarily terminate your
employment within one year from date of hire, the bonus will be reimbursable to
Adept by you.
You will receive the right to obtain 30,000 options for shares of stock at the
fair market value price at the time of the next Board of Directors meeting. In
addition, you will receive 10,000 options in August. The stock will vest over a
period of 48 months from the date of hire. No vesting occurs for the first 12
months. At month 13, 12/48ths become vested, and each month thereafter vests
linearly at 1/48th per month.
We are also pleased to extend to you a loan in the amount of $300,000 at an
initial interest rate of 5.64% (determined by a federal standard) which will be
forgiven over a period of 10 years. This results in an additional taxable income
to you of $30,000 for each of these 10 years. If you terminate your employment
within the first 4 years, the balance on the loan will be due within 180 days.
If Adept should terminate your employment at any time, there will be no balance
due.
As an Adept employee, you will be eligible to participate in Adept's Incentive
Program. The payout of this program varies from year to year and is a function
of both your individual performance and the company's overall financial
performance and can range from 0 to 70% of base salary. During your first 10
years of employment, your incentive bonus will be guaranteed to cover taxes and
interest on the loan. You will be eligible for additional incentive pay as
described on the attached spread sheet.
Additionally, we will provide the following relocation assistance in conjunction
with your move from Massachusetts to California.
A. Actual moving expenses associated with moving household goods and up to
two automobiles from Massachusetts to California. Two estimates should be
obtained by the moving company and approved by Adept prior to engaging the
company. Please contact Lori Hioki in Human Resources.
<PAGE>
EXHIBIT 10.8
B. Temporary living allowance consisting of up to two month's actual and
reasonable hotel, meal and rental car expenses for you and your family.
C. Up to one roundtrip airline ticket to Massachusetts per week through June
15, 1998 as needed to visit your family, not to exceed a total of $5,000.
D. Up to two house hunting trips for you and your spouse.
E. One way economy airfare or expenses to drive out for immediate family
members upon time of relocation.
F. Additionally, one of the following will be provided:
1. Real estate and legal fees required to sell the existing home:
*Licensed brokerage fees up to 6% of the selling price
*Statutory fees imposed by federal or state law
*Fees up to $500 maximum for lawyers, mortgage fees, title search and
title insurance
*Unavoidable mortgage prepayment fees
OR
2. Closing Costs on a new home to include:
*Loan origination fees
*Credit report
*Tax service fee
*Termite inspection
*Document fees
*Notary fees
*Title premiums
*Recording fees
*Inspect title fees
Total reimbursement for real estate costs (F1 or F2) will be provided up to a
maximum of $20,000.
G. A letter guaranteeing the loan on a new home in California pending the
sale of your existing home.
H. 5 paid days off for relocation.
All expenses are to be submitted to Accounting on an expense report. Please note
that some moving expenses may be taxable to you and you should retain original
receipts for tax purposes. If you voluntarily terminate your employment within
one year from date of hire, relocation costs will be reimbursable to Adept by
you.
Attached is a summary of employee benefits which includes information regarding
our 401(k) match of $1,000 per year and our Employee Stock Purchase Plan. In
addition to the benefits described, you will also begin accruing vacation at a
rate of 3 weeks per year. Also included is a copy of the Adept Proprietary
Agreement. This offer is contingent on you signing that agreement. We are
required by the U.S. government to verify your right to work in the United
States. Please be able to produce documentation from the attached list.
<PAGE>
EXHIBIT 10.8
Marcy, we appreciate your interest in Adept Technology and hope that you will
make the decision to join our team. Please indicate your acceptance of this
offer by signing the bottom portion of this letter. This offer will remain in
effect until February 20, 1998.
Sincerely,
Brian Carlisle
Chairman & CEO
ACCEPTED: /s/ Brian R. Carlisle 2/19/98
---------------------------------
EMPLOYEE SIGNATURE DATE
/s/ Marcy R. Alstott 3/6/98
EXHIBIT 10.8.1
[Adept letterhead]
PROMISSORY NOTE
$300,000 San Jose, California
April 27, 1998
FOR VALUE RECEIVED, the undersigned, Marcy Alstott ("Employee"), promises
to pay to the order of ADEPT TECHNOLOGY, INC., a California corporation
("Company"), at its office at 150 Rose Orchard Way, San Jose, California 95134,
the principal sum of Three Hundred Thousand Dollars ($300,000), with interest on
the principal amount outstanding from the date hereof, at the initial rate of
(i) five and sixty four percent (5.64%) per annum, and (ii) thereafter during
the term hereof (A) each May 1, at the applicable Federal short-term rate in
effect on such date, compounded semi-annually and (B) each November 1, at the
applicable Federal short-term rate in effect on such date, compounded
semiannually. Interest only shall be payable annually commencing on May 1, 1999.
The Company shall forgive the loan at a rate of ten percent (10%) per year
beginning on March 23, 1999, and each year thereafter, for a total of ten (10)
years, except under the conditions specified below:
(1) If the holder of this Note terminates her employment with the Company
before March 23, 2002, the unforgiven balance of this Note (being the
then remaining principal and all accrued and unpaid interest thereon)
shall become due and payable within 180 days.
(2) If the Company should terminate the Employee's employment at any time,
the entire unforgiven balance of this Note (being the then remaining
principal and all accrued and unpaid interest thereon) shall no longer
be the obligation of the Employee.
(3) If the holder of this Note should die, the unforgiven balance of this
Note (being the then remaining principal and all accrued and unpaid
interest thereon) would be completely forgiven by the Company.
<PAGE>
EXHIBIT 10.8.1
The Company shall reimburse the Employee for the grossed-up taxes due on
the amount of the annual forgiveness ((30,000 x tax rate) / 1-tax rate)).
Additionally, the Company will reimburse the Employee for the amount of annual
interest due on the loan on May 1 of each year. Required withholding taxes will
be withheld on the interest payment reimbursement.
The Note is secured by the property commonly known as 1117 Lund Ranch Road,
Pleasanton, California. This Note is subordinate only to the primary lender on
the aforementioned property.
Employee agrees to pay the actual expenses incurred by the holder of this
Note in connection with any attempt by the holder to collect any amount due or
to exercise any rights the holder may have under this Note. Employee agrees
that, if any legal action is necessary to enforce or collect this Note, or any
other obligations of Employee pursuant to this Note, the prevailing party shall
be entitled to reasonable attorneys' fees in addition to any other relief to
which the part may be entitled.
/s/ Marcy Alstott
------------------------------
Marcy Alstott
Exhibit 10.9
BASIC LEASE INFORMATION
Lease Date: April 30, 1998
Tenant: ADEPT TECHNOLOGY, INC., a California corporation
Address of Tenant: 4659 Las Positas Road, Suite C
Livermore, CA 94550
Landlord: THE JOSEPH AND EDA PELL REVOCABLE TRUST DATED AUGUST 18, 1989
Address of Landlord: 100 Smith Ranch Road, Suite 325
San Rafael, CA 94903
Project Description: Arroyo Business Center, Livermore, CA
Building Description: Building "B" at Arroyo Business Center
Premises: Approximately 12,862 square feet of industrial space
Permitted Uses: Office administration, and light manufacturing
and assembly of products
Scheduled Term
Commencement Date: One hundred twenty (120) after the date of Landlord's
selection of the Contractor in accordance with the Tenant Improvement Work
Letter attached to this Lease as Exhibit F
Length of Term: Five (5) years
Rent:
Base Rent: Lease Months Rent/Square Foot/Month Monthly Base Rent
$12,090.28 1-30 $0.94
$13,376.48 31-60 $1.04
Estimated First Year Basic
<PAGE>
Operating Cost: $2,315.16/month
Security Deposit: $12,090.28
Tenant's Proportionate Share: 15.8%
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
TABLE OF CONTENTS
BASIC LEASE INFORMATION .................................................... 1
PREMISES ................................................................... 3
POSSESSION AND LEASE COMMENCEMENT .......................................... 3
TERM ....................................................................... 3
USE ........................................................................ 3
RULES AND REGULATIONS ...................................................... 5
RENT ....................................................................... 5
BASIC OPERATING COSTS ...................................................... 5
INSURANCE AND INDEMNIFICATION .............................................. 7
WAIVER OF SUBROGATION ...................................................... 7
HAZARDOUS SUBSTANCES ....................................................... 8
LANDLORD'S REPAIRS AND SERVICES ............................................ 9
TENANT'S REPAIRS ........................................................... 9
ALTERATIONS ................................................................ 10
SIGNS ...................................................................... 10
INSPECTION/POSTING NOTICES ................................................. 11
UTILITIES .................................................................. 11
SUBORDINATION .............................................................. 11
FINANCIAL STATEMENTS ....................................................... 12
ESTOPPEL CERTIFICATES ...................................................... 12
SECURITY DEPOSIT ........................................................... 12
TENANT'S REMEDIES .......................................................... 12
ASSIGNMENT AND SUBLETTING .................................................. 12
QUIET ENJOYMENT ............................................................ 13
CONDEMNATION ............................................................... 13
CASUALTY DAMAGE ............................................................ 13
HOLDING OVER ............................................................... 14
DEFAULT .................................................................... 15
LIENS ...................................................................... 17
<PAGE>
SUBSTITUTION ............................................................... 17
TRANSFERS BY LANDLORD ...................................................... 17
RIGHT OF LANDLORD TO PERFORM
TENANT'S COVENANTS ......................................................... 17
WAIVER ..................................................................... 18
NOTICES .................................................................... 18
ATTORNEYSO FEES ............................................................ 18
SUCCESSORS AND ASSIGNS ..................................................... 18
FORCE MAJEURE .............................................................. 18
MISCELLANEOUS .............................................................. 18
ADDITIONAL PROVISIONS ...................................................... 19
LEASE
THIS LEASE is made as of April 30, 1998 between The Joseph and Eda Pell
Revocable Trust Dated August 18, 1989 ("Landlord") and Adept Technology, Inc., a
California corporation ("Tenant").
PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms and
conditions hereafter set forth, those premises (the "Premises") shown by
cross-hatch on Exhibit A attached hereto and inpose requirements respecting
impound accounts in conflict with "applicable law;" provide for the application
of insurance or condemnation?????????
BASIC LEASE INFORMATION
Lease Date: April 30, 1998
Tenant: ADEPT TECHNOLOGY, INC., a California corporation
Address of Tenant: 4659 Las Positas Road, Suite C
Livermore, CA 94550
Landlord: THE JOSEPH AND EDA PELL REVOCABLE TRUST DATED AUGUST 18, 1989
Address of Landlord: 100 Smith Ranch Road, Suite 325
San Rafael, CA 94903
Project Description: Arroyo Business Center, Livermore, CA
<PAGE>
Building Description: Building "B" at Arroyo Business Center
Premises: Approximately 12,862 square feet of industrial space
Permitted Uses: Office administration, and light manufacturing
and assembly of products
Scheduled Term
Commencement Date: One hundred twenty (120) after the date of Landlord's
selection of the Contractor in accordance with the Tenant Improvement Work
Letter attached to this Lease as Exhibit F
Length of Term: Five (5) years
Rent:
Base Rent: Lease Months Rent/Square Foot/Month Monthly Base Rent
$12,090.28 1-30 $0.94
$13,376.48 31-60 $1.04
Estimated First Year Basic
Operating Cost: $2,315.16/month
Security Deposit: $12,090.28
Tenant's Proportionate Share: 15.8%
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
TABLE OF CONTENTS
BASIC LEASE INFORMATION .................................................... 1
PREMISES ................................................................... 3
<PAGE>
POSSESSION AND LEASE COMMENCEMENT .......................................... 3
TERM ....................................................................... 3
USE ........................................................................ 3
RULES AND REGULATIONS ...................................................... 5
RENT ....................................................................... 5
BASIC OPERATING COSTS ...................................................... 5
INSURANCE AND INDEMNIFICATION .............................................. 7
WAIVER OF SUBROGATION ...................................................... 7
HAZARDOUS SUBSTANCES ....................................................... 8
LANDLORD'S REPAIRS AND SERVICES ............................................ 9
TENANT'S REPAIRS ........................................................... 9
ALTERATIONS ................................................................ 10
SIGNS ...................................................................... 10
INSPECTION/POSTING NOTICES ................................................. 11
UTILITIES .................................................................. 11
SUBORDINATION .............................................................. 11
FINANCIAL STATEMENTS ....................................................... 12
ESTOPPEL CERTIFICATES ...................................................... 12
SECURITY DEPOSIT ........................................................... 12
TENANT'S REMEDIES .......................................................... 12
ASSIGNMENT AND SUBLETTING .................................................. 12
QUIET ENJOYMENT ............................................................ 13
CONDEMNATION ............................................................... 13
CASUALTY DAMAGE ............................................................ 13
HOLDING OVER ............................................................... 14
DEFAULT .................................................................... 15
LIENS ...................................................................... 17
SUBSTITUTION ............................................................... 17
TRANSFERS BY LANDLORD ...................................................... 17
RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS ............................ 17
WAIVER ..................................................................... 18
NOTICES .................................................................... 18
ATTORNEYS' FEES ............................................................ 18
SUCCESSORS AND ASSIGNS ..................................................... 18
FORCE MAJEURE .............................................................. 18
MISCELLANEOUS .............................................................. 18
ADDITIONAL PROVISIONS ...................................................... 19
LEASE
THIS LEASE is made as of April 30, 1998 between The Joseph and Eda Pell
Revocable Trust Dated August 18, 1989 ("Landlord") and Adept Technology, Inc., a
California corporation ("Tenant").
<PAGE>
PREMISES Landlord leases to Tenant and Tenant leases from Landlord, upon the
terms and conditions hereafter set forth, those premises (the "Premises") shown
by cross-hatch on Exhibit A attached hereto and incorporated herein by reference
and described in the Basic Lease Information. The Premises may be all or part of
the building (the "Building") or of the project (the "Project") which may
consist of more than one building. The Building and Project are depicted on
Exhibit A.
Tenant shall have the right during the Term of this Lease to the nonexclusive
use of the common corridors and hallways, stairwells, restrooms, and other
public or common areas of the Building, if any, subject to the Rules and
Regulations (as hereinafter defined).
POSSESSION
AND LEASE
COMMENCEMENT In the event this Lease pertains to a Premises in which the
interior improvements have already been constructed (existing improvements), the
provisions of this Paragraph 2.A shall apply and the Term Commencement Date
shall be the earlier of the date on which (1) Tenant takes possession of some or
all of the Premises, or (2) Landlord delivers the Premises to Tenant. If for any
reason Landlord cannot deliver possession of the Premises to Tenant on the
Scheduled Term Commencement Date, Landlord shall not be subject to any liability
therefor, nor shall Landlord be in default hereunder, and Tenant agrees to
accept possession of the Premises at such time as Landlord is able to deliver
the same, which date shall then be deemed the Term Commencement Date. Tenant
shall not be liable for any Rent for any period prior to delivery of the
Premises. Tenant acknowledges that it has inspected and accepts the Premises in
their present condition as suitable for the purpose for which the Premises are
leased. Tenant agrees that said Premises and other improvements are in good and
satisfactory condition as of when possession was taken. Tenant further
acknowledges that no representations as to the condition or repair of the
Premises, nor promises to alter, remodel, or improve the Premises have been made
by Landlord, unless such are expressly set forth in this Lease.
In the event this Lease pertains to a Building to be constructed or
improvements to be constructed within a Building, the provisions of this
Paragraph 2.B shall apply in lieu of the provisions of Paragraph 2.A above and
the Term Commencement Date shall be the earlier of the date on which (1) Tenant
takes possession of some or all of the Premises (subject to Section 42) or (2)
Landlord delivers possession of the Premises to Tenant Substantially Complete
(as defined in the Tenant Improvement Work Letter attached hereto as Exhibit F
and incorporated herein) in accordance with the plans and specifications
described on Exhibit B attached hereto and incorporated herein by reference (the
"Plans"). Tenant shall, upon demand on or after the Term Commencement Date,
execute and deliver to Landlord a letter of acceptance of delivery of the
Premises.
If for any reason Landlord cannot deliver possession of the Premises to Tenant
on the
<PAGE>
Scheduled Term Commencement Date, Landlord shall not be subject to any liability
therefor, nor shall Landlord be in default hereunder, and Tenant agrees to
accept possession of the Premises at such time as Landlord is able to deliver
the same, which date shall then be deemed the Term Commencement Date; provided,
however, that if Landlord does not deliver possession of the Premises on or
before the date that is one hundred twenty (120) days after the Scheduled Term
Commencement Date (the "Outside Date"), Tenant's sole remedy shall be the right
to deliver a notice to Landlord (the "Outside Date Termination Notice") electing
to terminate this Lease effective on Landlord's receipt of the Outside Date
Termination Notice. The Outside Date Termination Notice must be delivered by
Tenant to Landlord, if at all, no earlier than the Outside Date and no later
than five (5) business days after the Outside Date.
Within ten (10) days after Landlord's request, Tenant shall execute a lease
confirmation in the form attached hereto as Exhibit C and incorporated herein by
reference.
TERM The Term of this Lease shall commence on the Term Commencement Date and
continue in full force and effect for the number of months specified as the
Length and Term in the Basic Lease Information or until this Lease is terminated
as otherwise provided herein. If the Term Commencement Date is a date other than
the first day of the calendar month, the Term shall be the number of months of
the Length of Term in addition to the remainder of the calendar month following
the Term Commencement Date (the date on which the Term ends, the "Expiration
Date").
USE Tenant shall use the Premises for the Permitted Use and for no other use or
purpose without prior written consent of Landlord. Tenant and its employees,
customers, visitors, and licensees shall have the nonexclusive right to use, in
common with other parties occupying the Buildings or Project, the parking areas
and driveways of the Project, subject to the Rules and Regulations attached
hereto as Exhibit D and incorporated herein, or such other reasonable rules and
regulations as Landlord may from time to time reasonably prescribe (the "Rules
and Regulations"), as follows:
(1) Tenant shall be entitled to twenty-six (26) vehicle parking spaces,
unreserved and unassigned, on those portions of the Project designated by
Landlord for parking. Tenant shall not use more parking spaces than said number.
Said parking spaces shall be used only for parking by vehicles no larger than
full size passenger automobiles or pick-up trucks.
(2) Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Landlord for such activities.
(3) If Tenant permits or allows any of the prohibited activities
described in this Paragraph, then Landlord shall have the right, without notice,
in addition to such other rights and remedies that it may have, to remove or tow
away the vehicle involved and
<PAGE>
charge the cost to Tenant, which cost shall be immediately payable on demand by
Landlord.
Tenant shall not permit any odors, smoke, dust, gas, substances, noise or
vibrations to emanate from the Premises, nor take any action which would
constitute a nuisance or would obstruct, endanger, or unreasonably disturb any
other tenants of the Building or Project in which the Premises are situated or
unreasonably interfere with their use of their respective premises. Tenant shall
not receive, store or otherwise handle any product, material or merchandise
which is toxic, harmful, explosive, highly flammable or combustible. Storage
outside the Premises of materials, vehicles or any other items Landlord deems
objectionable is prohibited without Landlord's prior written consent. Tenant
shall not use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause or maintain or permit
any nuisance in, on or about the Premises. Tenant shall not commit or suffer the
commission of any waste in, on or about the Premises. Tenant shall not allow any
sale by auction upon the Premises, or place any loads upon the floors, walls or
ceilings which endanger the structure, or place any harmful liquids in the
drainage system of the Building or Project. No waste materials or refuse shall
be dumped upon or permitted to remain outside the Premises except in trash
containers placed inside exterior enclosures designated for that purpose by
Landlord.
Tenant shall not use the Premises or permit anything to be done in or about
the Premises, the Building or the Project which will in any way conflict with
any law, statute, ordinance, code, rule, regulation, requirement, license,
permit, certificate, judgment, decree, order or direction now in force or which
may hereafter be enacted or promulgated of any governmental or
quasi-governmental authority, agency, department, board, panel or court
(singularly and collectively, "Laws"). Tenant shall at its sole cost and expense
obtain, maintain in effect and comply with any and all licenses or permits
necessary for Tenant's use of the Premises. Tenant shall at its sole cost and
expense promptly comply with all Laws and the requirements of any board of fire
underwriters or other similar bodies now or hereinafter constituted relating to
or affecting the condition, use or occupancy of the Premises. The judgment of
any court of competent jurisdiction or the admission of Tenant in any actions
against Tenant, whether Landlord be a party thereto or not, that Tenant has so
violated any such law, statute, ordinance, rule, regulation or requirement,
shall be conclusive of such violation as between Landlord and Tenant. Tenant
shall not do or permit anything to be done in, on or about the Premises or bring
or keep anything which will in any way increase the rate of any insurance upon
the Premises, the Building or the Project, or upon any contents therein (unless
Tenant pays for any such increase) or cause a cancellation of said insurance or
otherwise adversely affect said insurance in any manner. Tenant shall indemnify,
defend and hold Landlord and Landlord's affiliates, directors, officers,
shareholders, partners, members, representatives, agents, employees, successors
and assigns (collectively, "Landlord's Affiliates") harmless from and against
any and all losses, costs, expenses, damages, claims, injuries, fines,
penalties, liabilities and judgments (including, without limitation, attorneys'
fees and costs) (collectively, "Liabilities") arising out of the failure of
Tenant to comply with any Laws pertaining to its use of the Premises or comply
with the
<PAGE>
requirements as set forth herein. Notwithstanding the foregoing, Tenant shall
not be required to comply with Laws of general applicability requiring
construction of improvements in the Premises which are properly capitalized
under generally accepted accounting principles unless such compliance arises due
to or is triggered by or in connection with Tenant's particular use of the
Premises or Tenant's Alterations (as hereinafter defined).
RULES AND
REGULATIONS Tenant and Tenant's agents, employees, and invitees shall faithfully
observe and comply with any rules and regulations Landlord may from time to time
prescribe in writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the Premises or Project.
Landlord shall not be responsible to Tenant for the noncompliance by any other
tenant or occupant of the Building or Project with any of the rules and
regulations. Landlord's current rules and regulations are attached hereto as
Exhibit D and incorporated herein.
RENT Tenant shall pay to Landlord, without demand throughout the term, Rent as
specified in the basic Lease Information, payable in monthly installments in
advance on or before the first day of each calendar month, in lawful money of
the United States, without deduction or offset whatsoever to Landlord at the
address specified in the Basic Lease Information or to such other firm or to
such other place as Landlord may from time to time designate in writing. Rent
for the first full month of the Term shall be paid by Tenant upon Tenant's
execution of this Lease. If the obligation for payment of Rent commences on
other than the first day of a month, then Rent shall be prorated and the
prorated installments shall be paid on the first day of the calendar month next
succeeding the Term Commencement Date.
BASIC
OPERATING
COSTS Basic Operating Cost. In addition to the Base Rent required to be paid
hereunder, Tenant shall pay as additional Rent, Tenant's Proportionate Share, as
defined in the Basic Lease Information, of Basic Operating Cost in the manner
set forth below. "Basic Operating Cost" shall mean all expenses and costs of
every kind and nature which Landlord shall pay or become obligated to pay
because of or in connection with the management, maintenance, preservation and
operation of the Project and its supporting facilities servicing the Project
including, but not limited to, the following:
All real estate taxes, possessory interest taxes, business or license
taxes or fees, service payment in lieu of such taxes or fees, annual or periodic
license or use fees, excises, transit charges, housing fund assessments, open
space charge, assessments, levies, fees or charges, general and special,
ordinary and extraordinary, unforeseen as well as foreseen, of any kind
(including fees in lieu of any such tax or assessment) which are assessed,
levied, charged, confirmed, or imposed by any public authority upon the Project,
its operations or the rent (or any portion or component thereof), except (a)
inheritance or estate taxes imposed upon or assessed against the Project, or any
part thereof or interest therein, and (b)
<PAGE>
taxes computed on the basis of the net income of Landlord or the owner of any
interest therein.
All insurance premiums and costs, including, but not limited to, any
deductible amounts, premiums and cost of fire, casualty and liability coverage,
rental abatement and special hazard insurance applicable to the Project and
Landlord's personal property used in connection therewith; provided, however,
that Landlord may, but shall not be obligated, to carry special hazard insurance
covering losses caused by casualty not insured under standard fire and extended
coverage insurance.
Repairs, replacements and general maintenance for the Premises,
Building and Project (except for those repairs expressly the responsibility of
Landlord, those repairs paid for by proceeds of insurance or by Tenant or other
third parties and alterations attributable solely to tenants of the Project
other than Tenant).
All maintenance, janitorial and service agreements and costs of
supplies and equipment used in maintaining the Premises, Building and Project
and the equipment therein and the adjacent sidewalks, driveways, parking and
service areas, including, without limitation, alarm service, window cleaning,
elevator maintenance, Building exterior maintenance and landscaping.
Utilities which benefit all or a portion of the Premises.
A management and accounting cost recovery equal to ten percent (10%)
of Basic Operating Cost.
Capital expenditures made by Landlord after the Commencement Date for
the purpose of reducing recurring expenses or that are required by Laws. The
portion to be included each year in Basic Operating Cost shall be that fraction
allocable to the year in question calculated by amortizing the total cost over
the reasonable useful life of such improvement, determined in accordance with
generally accepted accounting principles, with interest on the unamortized
balance at ten percent (10%) per annum or such higher rate as may have been paid
by Landlord for funds borrowed for the purpose of constructing such improvement,
but in no event to exceed the highest rate permitted by law.
In the event that the Project is not fully occupied during any
fiscal year of the Term as determined by Landlord, an adjustment shall be made
in computing the Basic Operating Cost for such year so that Basic Operating Cost
shall be computed as though the Building had been one hundred percent (100%)
occupied; provided, however, that in no event shall Landlord be entitled to
collect in excess of one hundred percent (100%) of the total Basic Operating
Cost from all of the tenants in the Project including Tenant.
All costs and expenses shall be determined in accordance with
general accepted accounting principles which shall be consistently applied.
Basic Operating Cost shall not include the following: (i) specific costs
incurred for the account of, separately
<PAGE>
billed to and paid by specific tenants; (ii) costs occasioned by casualties (but
not deductible amounts, all of which shall be included in Basic Operating Cost),
but only to the extent that Landlord is reimbursed from insurance proceeds;
(iii) costs incurred to comply with Laws applicable to the Project in effect and
as interpreted by government authorities prior to the Lease Date; (iv) costs
incurred in connection with negotiating and enforcing tenant leases; (v)
depreciation and expense reserves; (vi) interest, charges, fees or amortization
on mortgages or ground lease payments; (vii) subject to Paragraph 10, costs to
investigate and remediate Hazardous Substances; and (viii) unless otherwise
permitted by Paragraph 7.A.7, costs incurred by Landlord that are considered to
be capital improvements or capital replacements under generally accepted
accounting principles. Notwithstanding anything herein to the contrary, in any
instance wherein Landlord, in Landlord's reasonable discretion, deems Tenant to
be responsible for any amounts greater than its Proportionate Share, because
Landlord has determined, in its reasonable judgment, that Tenant has used or
consumed an item or service in an amount greater than its Proportionate Share,
Landlord shall have the right to allocate costs in such manner Landlord deems
appropriate and reasonable.
Payment of Estimated Basic Operating Cost. "Estimated Basic Operating Cost"
for any particular year shall mean Landlord's estimate of the Basic Operating
Cost for such fiscal year made prior to commencement of such fiscal year as
hereinafter provided. Landlord shall have the right from time to time to revise
its fiscal year and interim accounting periods so long as the periods are so
revised are reconciled with prior periods in accordance with generally accepted
accounting principles applied in a consistent manner. During the last month of
each fiscal year during the Term, or as soon thereafter as practicable, Landlord
shall give Tenant written notice of the Estimated Basic Operating Cost for
ensuing fiscal year. Tenant shall pay Tenant's Proportionate Share of the
Estimated Basic Operating Costs with installments of Base Rent for the fiscal
year to which the Estimated Basic Operating Costs applies in monthly
installments on the first day of each calendar month during such year, in
advance. If at any time during the course of the fiscal year, Landlord
determines that Basic Operating Cost will apparently vary from the then
Estimated Basic Operating Cost by more than ten percent (10%), Landlord may, by
written notice to Tenant, revise the Estimated Basic Operating Cost for the
balance of such fiscal year and Tenant shall pay Tenant's Proportionate Share of
the Estimated Basic Operating Cost as so revised for the balance of the then
current fiscal year on the first of each calendar month thereafter.
Computation of Basic Operating Cost Adjustment. "Basic
Operating Cost Adjustment" shall mean the difference between Estimated Basic
Operating Cost and Basic Operating Cost for any fiscal year determined as
hereinafter provided. Within one hundred twenty (120) days after the end of each
fiscal year, as determined by Landlord, or as soon thereafter as practicable,
Landlord shall deliver to Tenant a statement of Basic Operating Cost for the
fiscal year just ended accompanied by a computation of Basic Operating Cost
Adjustment (the "Statement"). If such statement shows that Tenant's payment
based upon Estimated Basic Operating Cost is less than Tenant's Proportionate
Share of Basic Operating Cost, then Tenant shall pay to
<PAGE>
Landlord the difference within twenty (20) days after receipt of such statement.
If such statement shows that Tenant's payments of Estimated Basic Operating Cost
exceed Tenant's Proportionate Share of Basic Operating Costs, then provided that
Tenant is not in default under this Lease, Landlord shall pay to Tenant the
difference within twenty (20) days of such statement, or if Tenant is in
default, Landlord shall pay any amount otherwise due to Tenant if and when
Tenant cures such default. If this Lease has been terminated or the Term hereof
has expired prior to the date of such statement, then the Basic Operating Cost
Adjustment shall be paid by the appropriate party within twenty (20) days after
the date of delivery of the statement. Should this Lease commence or terminate
at any time other than the first day of the fiscal year, Tenant's Proportionate
Share of the Basic Operating Cost adjustment shall be prorated by reference to
the exact number of calendar days during such fiscal year for which Tenant is
obligated to pay Base Rent.
Net Lease. This shall be a net Lease and Base Rent shall be
paid to Landlord absolutely net of all costs and expenses except as herein
provided. The provisions for payment of Basic Operating Cost and the Basic
Operating Cost Adjustment are intended to pass on to Tenant and reimburse
Landlord for all costs and expenses of the nature described in Paragraph 7.A
incurred in connection with the ownership, operation, management, maintenance
and repair of the Building or Project and such additional facilities now and in
subsequent years as may be determined by Landlord to be necessary to the
Building or Project.
Landlord's Books and Records. If Tenant disputes the amount
of Basic Operating Cost stated in the Statement, Tenant may designate, within
thirty (30) days after receipt of that Statement, an independent certified
public accountant to inspect Landlord's records. Tenant shall not be entitled to
request that inspection, however, if Tenant is then in default under this Lease.
The accountant must not charge a fee based on the amount of Tenant's
Proportionate Share of Basic Operating Cost that the accountant is able to save
Tenant by the inspection. Tenant must give reasonable notice to Landlord of the
request for inspection, and the inspection must be conducted in Landlord's
offices at a reasonable time. If, after that inspection, Tenant still disputes
the amount of Basic Operating Cost, a certification of the proper amount shall
be made, at Tenant's expense (unless the certification discloses a discrepancy
of greater than five percent (5%), in which case such certification shall be at
Landlord's expense), by Landlord's independent certified accountant. That
certification shall be final and conclusive. If such certification discloses
that the amount of Basic Operating Cost stated in the Statement is not accurate,
then an adjustment shall be made by Landlord and Tenant so that Tenant shall be
responsible for its share of Basic Operating Cost.
INSURANCE AND
INDEMNIFICATION Casualty Insurance. Landlord agrees to maintain insurance
insuring the Buildings of the Project of which the Premises are a part, against
fire, lightning, extended coverage, vandalism and malicious mischief in an
amount not less than eighty percent (80%) of the replacement cost thereof. Such
insurance shall be for the sole benefit of Landlord and under its sole control.
Landlord shall not be
<PAGE>
obligated to insure any furniture, equipment, machinery, goods or supplies not
covered by this Lease which Tenant may keep or maintain in the Premises or any
leasehold improvements, additions or alterations which Tenant may make upon the
Premises.
Liability Insurance. Tenant shall purchase at its own expense and
keep in force during this Lease a policy or policies of comprehensive liability
insurance, including personal injury and property damage, in the amount of not
less than One Million Dollars ($1,000,000.00) for property damage and Two
Million Dollars ($2,000,000.00) per occurrence for personal injuries or deaths
of persons occurring in or about the Premises and Project. Said policies shall
(1) name Landlord and, if applicable, its agent, and any party holding an
interest to which this Lease may be subordinated as additional insureds, (2) be
issued by an insurance company acceptable to Landlord and licensed to do
business in the State of California, and (3) provide that said Insurance shall
not be canceled unless thirty (30) days prior written notice shall have been
given to Landlord. Said policy or policies or certificates thereof shall be
delivered to Landlord by Tenant upon commencement of the Lease and upon each
renewal of said Insurance.
Indemnification. Landlord shall not be liable to Tenant for any loss
or damage to person or property caused by theft, fire, act of God, acts of a
public enemy, riot, strike, insurrection, war, court order, requisition or order
of governmental body or authority or for any damage or inconvenience which may
arise through repair or alteration of any part of the Building or Project or
failure to make any such repair except as expressly otherwise provided in
Paragraphs 11 and 13. Tenant shall indemnify, defend, and hold Landlord and
Landlord's Affiliates harmless from and against all Liabilities arising out of
or related to (1) claims of injury to or death of persons or damage to property
occurring or resulting directly or indirectly from the Tenant's use or occupancy
of the Premises or from activities of Tenant its agents, servants, employees, or
anyone in or about the Premises or Project, (2) claims for work or labor
performed or for materials or supplies furnished to or at the request of Tenant
or in connection with performance of any work done for the account of Tenant
within the Premises or Project and (3) claims arising from any breach or default
on the part of Tenant in the performance of any covenant contained in this
Lease. Such indemnity shall include without limitation the obligation to provide
all costs of defense against any such claims including any action or proceeding
brought against Landlord. The foregoing indemnity shall not be applicable to
claims arising from the active negligence or willful misconduct of Landlord. The
provisions of this Paragraph shall survive the expiration or termination of this
Lease with respect to any claims or liability occurring prior to such expiration
or termination.
WAIVER OF
SUBROGATION To the extent permitted by law and without affecting the coverage
provided by insurance required to be maintained hereunder, Landlord and Tenant
each waive any right to recover against the other claims arising by reason of
damage to property or damage to the Premises or any part thereof to the extent
that the same is insured under their respective insurance policies or would have
been insured if the parties had carried the insurance required to be carried by
them under the terms of this
<PAGE>
Lease. This provision is intended to waive fully, and for the benefit of each
party, any rights and/or claims which might give rise to a right of subrogation
on any insurance carrier. The coverage obtained by each party pursuant to this
Lease shall include, without limitation, a waiver of subrogation by the carrier
which conforms to the provisions of this Paragraph.
HAZARDOUS
SUBSTANCES Tenant agrees that any and all handling, transportation, storage,
treatment, disposal, or use of Hazardous Substances (as defined below) by Tenant
in or about the Project shall strictly comply with all applicable Environmental
Laws (as defined below).
Tenant agrees to indemnify, defend, and hold Landlord and Landlord's Affiliates
harmless from and against all Liabilities resulting from or arising out of the
use, storage, treatment, transportation, release, or disposal of Hazardous
Substances in, on, under or about the Project by Tenant.
If the presence of Hazardous Substances in, on, under or about the Project
caused or permitted by Tenant results in the contamination or deterioration of
the Project or any water or soil beneath the Project, Tenant shall promptly take
all action necessary to investigate and remedy that contamination.
Tenant agrees to promptly notify Landlord of any communication received from any
governmental entity concerning Hazardous Substances or the violation of
Environmental Laws that relate to the Project.
Tenant shall not use, handle, store, transport, generate, release, or dispose of
any Hazardous Substances in, on, under or about the Project, except that Tenant
may use (i) small quantities of common chemicals such as adhesives, lubricants,
and cleaning fluids in order to conduct business at the Premises and (ii) other
Hazardous Substances that are necessary for the operation of Tenant's business
and for which Landlord gives written consent prior to the Hazardous Substances
being brought onto the Premises (which consent is hereby given for those
Hazardous Substances listed on Exhibit E attached hereto and incorporated
herein). At any time during the Term of this Lease, Tenant shall, within ten
(10) days after written request from Landlord, disclose in writing all Hazardous
Substances that are being used by Tenant on the Project, the nature of the use,
and the manner of storage and disposal.
At any time and upon prior written notice to Tenant, Landlord may require
testing wells to be drilled on the Project and may require the ground water to
be tested to detect the presence of Hazardous Substances by the use of any tests
that are then customarily used for those purposes. Landlord shall supply Tenant
with copies of the test results. The cost of these tests and of the
installation, maintenance, repair, and replacement of the wells shall be paid by
Tenant if the tests disclose the existence of facts that give rise to liability
of Tenant pursuant to this Paragraph.
<PAGE>
As used herein, the term "Hazardous Substances" includes without limitation: (1)
those substances included within the definitions of hazardous substance,
hazardous waste, hazardous material, toxic substance, solid waste, or pollutant
or contaminant in CERCLA, RCRA, TSCA, HMTA, or under any other Environmental
Law; (2) those substances listed in the United States Department of
Transportation (DOT) Table [49 CFR 172.101], or by the Environmental Protection
Agency (EPA), or any successor agency, as hazardous substances [40 CFR Part
302]; (3) other substances, materials, and wastes that are or become regulated
or classified as hazardous or toxic under federal, state, or local laws or
regulations; and (4) any material, waste, or substance that is (a) a petroleum
or refined petroleum product, (b) asbestos, (c) polychlorinated biphenyl, (d)
designated as a hazardous substance pursuant to 33 USCS ss. 1321 or listed
pursuant to 33 USCS ss. 1317, (e) a flammable explosive, or (f) a radioactive
material. As used herein, the term "Environmental Laws" means all federal,
state, local, or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, or requirements of any government authority
regulating, relating to, or imposing liability or standards of conduct
concerning any Hazardous Substance (as later defined), or pertaining to
occupational health or industrial hygiene (and only to the extent that the
occupational health or industrial hygiene laws, ordinances, or regulations
relate to Hazardous Substances in, on, under or about the Property),
occupational or environmental conditions on, under, or about the Property, as
now or may at any later time be in effect, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA) [42 USCS ss. 9601 et seq.]; the Resource Conservation and Recovery Act
of 1976 (RCRA) [42 USCS ss. 6901 et seq.]; the Clean Water Act, also known as
the Federal Water Pollution Control Act (FWPCA) [33 USCS ss. 1251 et seq.]; the
Toxic Substances Control Act (TSCA) [15 USCS ss. 2601 et seq.]; the Hazardous
Materials Transportation Act (HMTA) [49 USCS ss. 1801 et seq.]; the Insecticide,
Fungicide, Rodenticide Act [7 USCS ss. 136 et seq.]; the Superfund Amendments
and Reauthorization Act [42 USCS ss. 6901 et seq.]; the Clean Air Act [42 USCS
ss. 7401 et seq.]; the Safe Drinking Water Act [42 USCS ss. 300f et seq.]; the
Solid Waste Disposal Act [42 USCS ss. 6901 et seq.]; the Surface Mining Control
and Reclamation Act [30 USCS ss. 1201 et seq.]; the Emergency Planning and
Community Right to Know Act [42 USCS ss. 11001 et seq.]; the Occupational Safety
and Health Act [29 USCS ss. 655 and 657]; the California Underground Storage of
Hazardous Substances Act [H & S C ss. 25280 et seq.]; the California Hazardous
Substances Account Act [H & S C ss. 25300 et seq.]; the California Hazardous
Waste Control Act [H & S C ss. 25100 et seq.]; the California Safe Drinking
Water and Toxic Enforcement Act [H & S C ss. 24249.5 et seq.]; the
Porter-Cologne Water Quality Act [Wat C ss. 13000 et seq.] together with any
amendments of or regulations promulgated under the statutes cited above and any
other federal, state, or local law, statute, ordinance, or regulation now in
effect or later enacted that pertains to occupational health or industrial
hygiene, and only to the extent that the occupational health or industrial
hygiene laws, ordinances, or regulations relate to Hazardous Substances in, on,
under or about the Property, or the regulation or protection of the environment,
including ambient air, soil, soil vapor, groundwater, surface water, or land
use.
Landlord represents to Tenant that, to the best of Landlord's actual knowledge
without
<PAGE>
independent investigation or inquiry, as of the Lease Date, Landlord is not
aware of the presence of Hazardous Substances in, on or under the Project in
violation of Environmental Laws.
LANDLORD'S
REPAIRS AND
SERVICES Subject to Paragraphs 24 and 25, Landlord shall, as part of Basic
Operating Cost (to the extent permitted by Paragraph 7), repair and maintain in
good repair (reasonable wear and tear excepted): (a) the roof, foundations and
exterior walls of the Building and all other structural elements of the
Building, (b) the public and common areas of the Building and Project including,
but not limited to, the landscaped areas, parking areas, driveways, the truck
staging areas, fire sprinkler systems, sanitary and storm sewer lines, utility
services, electric and telephone equipment servicing the Building(s), exterior
lighting, and anything which affects the operation and exterior appearance of
the Project, which determination shall be at Landlord's sole discretion; (c)
building systems not exclusively serving the Premises; (d) construction defects;
and (e) repairs, replacement and maintenance to the roof membrane (but excluding
any repair, replacement or maintenance of or to any penetrations to the roof
membrane made by or on behalf of Tenant). The term "walls" as used herein shall
not include windows, glass or plate glass, doors, special store fronts or office
entries. The term "roof" as used herein shall not include skylights, smoke
hatches or roof vents. Subject to Paragraph 9, any damage caused by or repairs,
maintenance or replacement necessitated in whole or in part by the act, neglect,
fault or omission of Tenant or by Tenant's Alterations, may be repaired by
Landlord at Landlord's option and at Tenant's expense. Tenant shall immediately
give Landlord written notice of any defect or need of repairs governed by this
Paragraph after which Landlord shall have reasonable opportunity to repair same.
Landlord's liability with respect to any defects, repairs, or maintenance for
which Landlord is responsible under any of the provisions of this Lease shall be
limited to the cost of such repairs or maintenance. Notwithstanding anything to
the contrary contained in this Lease, in the event of any damage to the roof
membrane caused by, or repairs, maintenance or replacement of the roof membrane
necessitated by, the act, neglect, fault or omission of Tenant or by Tenant's
Alterations (including, without limitation, any damage to the roof membrane
resulting from Tenant's maintenance and repair of its HVAC unit(s)), the repair,
maintenance and/or replacement of the same shall be the sole responsibility of
Tenant and may, at Landlord's option, be performed by Landlord (but at Tenant's
sole cost and expense).
TENANT'S
REPAIRS Tenant shall, at Tenant's expense, maintain all parts of the Premises in
a good, clean and secure condition promptly making all necessary repairs and
replacements including, but not limited to, all windows, glass, doors and any
special office entries, walls and wall finishes, floor covering, heating,
ventilating and air conditioning systems, truck doors, dock bumpers, dock plates
and levelers, roofing, plumbing work and fixtures, down spouts, skylights, smoke
hatches and roof vents. Tenant shall, at Tenant's expense, also perform
necessary pest extermination and regular removal of trash and debris. Tenant
shall, at its own expense, enter into a regularly scheduled preventive
maintenance/service contract with a maintenance contractor for
<PAGE>
servicing all hot water, heating and air conditioning systems and equipment
within or serving the Premises. The maintenance contractor and the contract must
be approved by Landlord. The service contract must include all services
suggested by the equipment manufacturer within the operation/maintenance manual,
including maintaining the system and ducts in a weatherproof condition, and must
become effective and a copy thereof delivered to Landlord within thirty (30)
days of the Term Commencement Date. Tenant shall not damage any demising wall or
disturb the integrity and support provided by any demising wall and shall, at
its sole expense, immediately repair any damage to any demising wall caused by
Tenant or its employees, agents or invitees. Tenant shall not be required to
repair or restore the Premises in the event of a casualty except to the extent
of insurance proceeds payable to Tenant on account of Tenant's Alterations (as
defined below).
Tenant, at its sole cost and expense, shall have the benefit of any construction
or equipment warranties existing in favor of Landlord that would assist Tenant
in correcting any defect in the Premises and in satisfying its obligation
regarding the repair and maintenance of the Premises. Landlord, at Tenant's sole
cost and expense, shall cooperate with Tenant in enforcing such warranties and
in bringing any suit against a third party that may be necessary to enforce its
rights under this paragraph.
ALTERATIONS Tenant shall not make, or allow to be made, any improvements,
alterations or physical additions in, about or to the Premises (collectively,
"Tenant's Alterations") without obtaining the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed. Specifically, but
without limiting the generality of the foregoing, Landlord shall have the right
of consent for all plans and specifications for the proposed improvements,
alterations or additions, construction means and methods, any contractor or
subcontractor to be employed on the work of alterations or additions, and the
time for performance of such work. Tenant shall also supply to Landlord any
documents and information reasonably requested by Landlord in connection with
its consideration of a request for approval hereunder. Tenant must have
Landlord's written approval and all appropriate permits and licenses prior to
the commencement of said improvements, alterations and additions. All
improvements, alterations and additions permitted hereunder shall be made and
performed by Tenant without cost or expense to Landlord (including any costs or
expenses which Landlord may incur in electing to have an outside agency review
said plans and specifications). Landlord shall have the right to require Tenant
to remove any or all alterations, additions, improvements and partitions made by
Tenant and restore the Premises to their original condition by the termination
of this Lease, by lapse of time or otherwise, all at Tenant's sole cost and
expense (provided that Landlord notifies Tenant of its intent to require such
removal and restoration at the time Landlord approves of the same). All such
removals and restoration shall be accomplished in a good workmanlike manner so
as not to cause any damage to the Premises or Project whatsoever. If Landlord so
elects, such alterations, physical additions or improvements shall become the
property of Landlord and surrendered to Landlord upon the termination of this
Lease by lapse of time or otherwise; provided, however, that this clause shall
not apply to trade fixtures or furniture owned by Tenant. In addition to and
wholly apart from its obligation to pay Tenant's
<PAGE>
Proportionate Share of Basic Operating Costs, Tenant shall be responsible for
and shall pay prior to delinquency any taxes or governmental service fees,
possessory interest taxes, fees or charges in lieu of any such taxes, capital
levies, or other charges imposed upon, levied with respect to or assessed
against its personal property, on the value of its alterations, additions or
improvements and on its interest pursuant to this Lease. To the extent that any
such taxes are not separately assessed or billed to Tenant, Tenant shall pay the
amount thereof as invoiced to Tenant by Landlord.
SIGNS All signs, notices and graphics of every kind or character, visible in or
from public view or corridors, the common areas or the exterior of the Premises,
shall be subject to Landlord's prior written approval, which Landlord shall have
the right to withhold in its absolute and sole discretion; provided, however,
that Tenant shall have the right to "storefront" signage consistent with the
rights granted to other tenants at the Project as of the Lease Date. All
approved signage shall conform to the requirements in the Sign Criteria set
forth in Exhibit G attached hereto and incorporated herein. Tenant shall not
place or maintain any banners whatsoever or any window decor in or on any
exterior window or window fronting upon any common areas or service area or upon
any truck doors or man doors without Landlord's prior written approval which
Landlord shall have the right to grant or withhold in its absolute and sole
discretion. Any installation of signs or graphics on or about the Premises and
Project shall be subject to any applicable governmental laws, ordinances,
regulations and to any other requirements imposed by Landlord. Tenant shall
remove all such signs and graphics by the termination of this Lease. Such
installations and removals shall be made in such manner as to avoid injury to or
defacement of the Premises, Building or Project and any other improvements
contained therein, and Tenant shall repair any injury or defacement including,
without limitation, discoloration caused by such installation or removal.
INSPECTION/
POSTING NOTICES After reasonable notice, except in emergencies where no such
notice shall be required, Landlord, its agents and representatives, shall have
the right to enter the Premises to inspect the same, to clean, to perform such
work as may be permitted or required hereunder, to make repairs or alterations
to the Premises or Project or to other tenant spaces therein, to deal with
emergencies, to post such notices as may be permitted or required by law to
prevent the perfection of liens against Landlord's interest in the Project or to
exhibit the Premises to prospective tenants (during the last six (6) months of
the Term of the Lease), purchasers, encumbrances or others, or for any other
purpose as Landlord may deem necessary or desirable. Tenant shall not be
entitled to any abatement of Rent or other relief by reason of the exercise of
any such right of entry. To the extent reasonably practicable, Landlord shall
exercise its rights under this Paragraph in such manner as to minimize the
impact on Tenant's business in the Premises. Six (6) months prior to the end of
the Lease, Landlord shall have the right to erect on the Premises and/or Project
a suitable sign indicating that the Premises are available for lease. Tenant
shall give written notice to Landlord at least thirty (30) days prior to
vacating the Premises and shall meet with Landlord for a joint inspection of the
Premises at the time of vacating. In the event of Tenant's failure to give such
notice or participate in such joint inspection, Landlord's inspection at or
after Tenant's vacating
<PAGE>
the Premises shall conclusively be deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration.
UTILITIES Tenant shall pay for all water, gas, heat, air conditioning, light,
power, telephone, sewer, sprinkler charges and other utilities and services used
on or from the Premises, together with any taxes, penalties, surcharges or the
like pertaining thereto, and maintenance charges for utilities and shall furnish
all electric light bulbs, ballasts and tubes. If any such services are not
separately metered to Tenant, Tenant shall pay a reasonable proportion, as
determined by Landlord, of all charges jointly serving other premises. Landlord
shall not be liable for any damages directly or indirectly resulting from nor
shall the Rent or any monies owed Landlord under this Lease herein reserved be
abated by reason of (a) the installation, use or interruption of use of any
equipment used in connection with the furnishing of any of the foregoing
utilities and services, (b) failure to furnish or delay in furnishing any such
utilities or services when such failure or delay is caused by acts of God or the
elements, labor disturbances of any character, any other accidents or other
conditions beyond the reasonable control of Landlord, or (c) the limitation,
curtailment, rationing or restriction on use of water, electricity, gas or any
other form of energy or any other service or utility whatsoever serving the
Premises or Project. Landlord shall be entitled to cooperate voluntarily and in
a reasonable manner in the efforts of national, state or local governmental
agencies or utility suppliers in reducing energy or other resource consumption.
The obligation to make services available hereunder shall be subject to the
limitations of any such voluntary, reasonable program.
SUBORDINATION Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, this Lease shall be subject
and subordinate at all times to (a) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Premises and/or the land
upon which the Premises and Project are situated, or both, and (b) any mortgage
or deed of trust which may now exist or be placed upon said Project, land,
ground leases or underlying leases, or Landlord's interest or estate in any of
said items, which is specified as security (provided that Tenant receives a
nondisturbance agreement from Landlord's lender or ground lessor). As of the
Lease Date, there is no mortgage or deed of trust existing on the Project, land,
or Landlord's interest or estate therein. Notwithstanding the foregoing,
Landlord shall have the right to subordinate or cause to be subordinated any
such ground leases or underlying leases or any such liens to this Lease. In the
event that any ground lease or underlying lease terminates for any reason or any
mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason, Tenant shall, notwithstanding any subordination, attorn
to and become the Tenant of the successor in interest to Landlord at the option
of such successor in interest. Tenant shall execute and deliver, upon demand by
Landlord and in the form reasonably requested by Landlord, any additional
documents evidencing the priority of subordination of this Lease with respect to
any such ground leases or underlying leases or any such mortgage or deed of
trust.
FINANCIAL
<PAGE>
STATEMENTS At the request of Landlord, Tenant shall provide to Landlord its
current financial statements or other information discussing financial worth
which Landlord shall use solely for purposes of this Lease and in connection
with the ownership, management and disposition of the property subject hereto.
ESTOPPEL
CERTIFICATES Tenant agrees from time to time within ten (10) days after request
of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, the date to
which Rent has been paid, the unexpired portion of this Lease and such other
matters pertaining to this Lease as may be reasonably requested by Landlord.
Failure by Tenant to execute and deliver such certificate shall constitute an
acceptance of the Premises and acknowledgment by Tenant that the statements
included are true and correct without exception. Landlord and Tenant intend that
any statement delivered pursuant to this Paragraph may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the Project or any
interest therein. The parties agree that Tenant's obligation to furnish such
estoppel certificates in a timely fashion is a material inducement for
Landlord's execution of the Lease.
SECURITY
DEPOSIT Tenant agrees to deposit with Landlord upon execution of this Lease, a
Security Deposit as stated in the Basic Lease Information which sum shall be
held by Landlord, without obligation for interest, as security for the
performance of Tenant's covenants and obligations under this Lease, it being
expressly understood and agreed that such deposit is not an advance rental
deposit or a measure of damages incurred by Landlord in case of Tenant's
default. Upon the occurrence of any event of default by Tenant, Landlord may,
from time to time, without prejudice to any other remedy provided herein or
provided by law, use such fund to the extent necessary to make good any arrears
of Rent or other payments due to Landlord hereunder, and any other damage,
injury, expense or liability caused by such event of default, and Tenant shall
pay to Landlord, on demand, the amount so applied in order to restore the
Security Deposit to its original amount. Any remaining balance of such deposit
shall be returned by Landlord to Tenant at such time after termination of this
Lease that all of the Tenant's obligations under this Lease have been fulfilled.
TENANT'S
REMEDIES Tenant shall look solely to Landlord's interest in the Project for
recovery of any judgment from Landlord. Landlord and Landlord's Affiliates shall
never be personally liable for any such judgment.
ASSIGNMENT AND
SUBLETTING Tenant shall not assign or sublet the Premises or any part thereof
without Landlord's prior written approval except as provided herein. If Tenant
desires to assign this Lease or sublet any or all of the Premises, Tenant shall
give Landlord written notice thirty (30) days prior to the anticipated effective
date of the assignment or sublease. Landlord shall then have a period of fifteen
(15) days following
<PAGE>
receipt of such notice to notify Tenant in writing that Landlord elects either
(1) to terminate this Lease as to the space so affected as of the date so
requested by Tenant (except in the event of an assignment to an Affiliate (as
hereinafter defined)), or (2) to permit Tenant to assign this Lease or sublet
such space, subject, however, to Landlord's prior written approval of the
proposed assignee or subtenant and of any related documents or agreements
associated with the assignment or sublease, such consent not to be unreasonably
withheld so long as Tenant provides data and documentation reasonably
satisfactory to Landlord that demonstrates that the use of the Premises by such
proposed assignee or subtenant would be a Permitted Use, and the proposed
assignee or subtenant is of sound financial condition (determined in Landlord's
reasonable judgment).
Any Rent or other consideration realized by Tenant under any
such sublease or assignment (except to an Affiliate) in excess of the Rent
payable hereunder, after deducting the amortization of (1) the reasonable cost
of any improvements which Tenant has made for the purpose of assigning or
subletting all or part of the Premises and (2) reasonable subletting and
assignment costs, shall be divided and paid fifty percent (50%) to Tenant, fifty
percent (50%) to Landlord.
If Tenant is a closely held corporation (i.e., one whose stock
is not publicly held and not traded through an exchange or over the counter), a
transfer of corporate shares by sale, assignment, bequest, inheritance,
operation of law or other disposition (including such a transfer to or by a
receiver or trustee in federal or state bankruptcy, insolvency or other
proceedings), in one or a series of related transactions, so as to result in a
change in the present control of such corporation or any of its parent
corporations by the person or persons owning a majority of said corporate
shares, shall constitute an assignment for purposes of this Paragraph.
If Tenant is a partnership, joint venture or other
unincorporated business form, a transfer of the interest of persons, firms or
entities responsible for managerial control of Tenant by sale, assignment,
bequest, inheritance, or operation of law or other disposition, so as to result
in a change in the present control of said entity and/or a change in the
identity of the persons responsible for the general credit obligations of said
entity shall constitute an assignment for all purposes of this Paragraph.
No assignment or subletting by Tenant shall relieve Tenant of
any obligations under this Lease. Any assignment or subletting which conflicts
with the provisions hereof shall be void.
Notwithstanding the foregoing, Landlord's consent shall not be
required for any assignment of the Lease or sublet of the Premises (either, a
"Transfer") to an Affiliate, as long as the following conditions are met:
At least fifteen (15) business days before the Transfer,
Landlord receives written notice of the Transfer (as well as any documents or
information reasonably requested by Landlord regarding the Transfer or the
Affiliate);
The Transfer is not a subterfuge by Tenant to avoid its
<PAGE>
obligations or liabilities under the Lease;
The Affiliate assumes in writing all of Tenant's obligations
under this Lease relating to the portion of the Premises being assigned or
sublet; and
The Affiliate has a net worth immediately following the
Transfer, as evidenced by financial statements delivered to Landlord and
certified by an independent certified public accountant in accordance with
generally accepted accounting principles that are consistently applied ("Net
Worth") at least equal to Tenant's Net Worth either immediately before the
transfer or as of the date of this Lease, whichever is greater.
As used herein, the term "Affiliate" means any entity that (a)
controls, is controlled by, or is under common control with Tenant; (b) results
from the purchase of all or substantially all of Tenant's assets or stock; or
(c) results from the merger or consolidation of Tenant with another entity.
"Control" means the direct or indirect ownership of more than fifty percent
(50%) of the voting securities of an entity or possession of the right to vote
more than fifty percent (50%) of the voting interest in the entity.
QUIET
ENJOYMENT Landlord represents that it has full right and authority to enter into
this Lease and that Tenant, upon paying the Rent and performing its other
covenants and agreements herein set forth, shall peaceably and quietly have,
hold and enjoy the Premises for the Term hereof without hindrance or molestation
from Landlord, subject to the terms and provisions of this Lease.
CONDEMNATION If the whole, or any substantial portion of the Project of which
the Premises are a part, should be taken or condemned for any public use under
governmental law, ordinance, or regulation, or by right of eminent domain, or by
private purchase in lieu thereof, and the taking would prevent or materially
interfere with the Permitted Use of the Premises, this Lease shall terminate and
the Rent shall be abated during the unexpired portion of this Lease, effective
when the physical taking of said Premises shall have occurred.
If a portion of the Project of which the Premises are a part
should be taken or condemned for any public use under any governmental law,
ordinance, or regulation, or by right of eminent domain, or by private purchase
in lieu thereof, and this Lease is not terminated as provided in Paragraph 24.A
above, this Lease shall not terminate, but the Rent payable hereunder during the
unexpired portion of the Lease shall be reduced to such extent as may be fair
and reasonable under all of the circumstances.
Landlord shall be entitled to any and all payment, income,
rent, award, or any interest therein whatsoever which may be paid or made in
connection with such
<PAGE>
taking or conveyance and Tenant shall have no claim against Landlord or
otherwise for the value of any unexpired portion of this Lease. Notwithstanding
the foregoing, any compensation specifically awarded Tenant for personal
property or moving costs shall be and remain the property of Tenant so long as
Landlord's award is not reduced thereby.
CASUALTY
DAMAGE If the Premises should be damaged or destroyed by fire, tornado or other
casualty, Tenant shall give immediate written notice thereof to Landlord. Within
thirty (30) days of such notice, Landlord shall notify Tenant whether in
Landlord's opinion such repairs can be made either (1) within ninety (90) days,
(2) in more than ninety (90) days, but in less than one hundred eighty (180)
days, or (3) in more than one hundred eighty (180) days from the date of such
notice; Landlord's determination shall be binding on Tenant.
If the Premises should be damaged by fire, tornado or other
casualty but only to such extent that rebuilding or repairs can in Landlord's
estimation be completed within ninety (90) days after the date upon which
Landlord is notified by Tenant of such damage, this Lease shall not terminate,
and Landlord shall with reasonable diligence to rebuild and repair the Premises
to substantially the condition in which they existed prior to such damage (to
the extent permitted by then-applicable Laws), except that Landlord shall not be
required to rebuild, repair or replace any part of the partitions, fixtures,
additions and other improvements which may have been placed in, on or about the
Premises by Tenant. If the Premises are untenantable in whole or in part
following such damage, the Rent payable hereunder during the period in which
they are untenantable shall be reduced to such extent as may be fair and
reasonable under all of the circumstances.
If the Premises should be damaged by fire, tornado or other
casualty, but only to such extent that rebuilding or repairs can in Landlord's
estimation be completed in more than ninety (90) days but in less than one
hundred eighty (180) days, then Landlord shall have the option of either (1)
terminating the Lease effective upon the date of the occurrence of such damage,
in which event the Rent shall be abated during the unexpired portion of the
Lease, or (2) electing to rebuild or repair the Premises to substantially the
condition in which they existed prior to such damage except that Landlord shall
not be required to rebuild, repair or replace any part of the partitions,
fixtures, additions and other improvements which may have been placed in, on or
about the Premises by Tenant. If the Premises are untenantable in whole or in
part following such damage, the Rent payable hereunder during the period in
which they are untenantable shall be reduced to such extent as may be fair and
reasonable under all of the circumstances. In the event that Landlord should
fail to complete such repairs and rebuilding within one hundred eighty (180)
days after the date upon which Landlord is notified by Tenant of such damage,
such period of time to be extended for delays caused by the fault or neglect of
Tenant or because of acts of God, acts of public agencies, labor disputes,
strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain
materials, supplies or fuels, or delay of the contractors or subcontractors due
to such causes or other contingencies beyond the reasonable control of Landlord,
Tenant may at its option terminate this Lease by delivering thirty (30) days
prior written notice of
<PAGE>
termination to Landlord as Tenant's exclusive remedy, whereupon all rights and
obligations hereunder shall cease and terminate.
If the Premises should be so damaged by fire, tornado, or
other casualty that rebuilding or repairs cannot in Landlord's estimation be
completed within one hundred eighty (180) days after the date upon which
Landlord is notified by Tenant of such damage, this Lease shall terminate and
the Rent shall be abated during the unexpired portion of this Lease, effective
upon the date of the occurrence of such damage.
Notwithstanding anything herein to the contrary, in the
event that the holder of any indebtedness secured by a mortgage or deed of trust
covering the Premises requires that the insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement it made by any such holder, whereupon all rights and
obligations hereunder shall cease and terminate. In addition, Landlord may elect
to terminate this Lease if the estimated repair cost exceeds the insurance
proceeds, if any, available for such repair (not including the deductible, if
any, on Landlord's property insurance), plus any amount that Tenant is obligated
or elects to pay for such repair.
Notwithstanding anything herein to the contrary, in the event
of earthquake casualty, one of the following shall apply:
1. If Substantial Destruction (as defined below) of the
Premises occurs as a result of an earthquake casualty, and if Landlord is not
then carrying earthquake insurance for the Building, either Landlord or Tenant
may terminate this Lease by giving written notice to the other party within
thirty (30) days after Substantial Destruction. If neither party terminates the
Lease due to Substantial Destruction, the Premises shall be repaired as
otherwise provided in this Article 12. As used herein, "Substantial Destruction"
shall mean damage and/or destruction of the Premises greater than fifty percent
(50%) either in terms of reconstruction cost to fair market value or total
square footage.
2. In the event of damage and/or destruction to the Premises
as a result of earthquake casualty that does not rise to the level of
Substantial Destruction, and if Landlord is not then carrying earthquake
insurance for the Building, Tenant's obligation to pay for associated repair
and/or restoration pursuant to the terms of this Lease shall not exceed $25,000
per year.
3. In the event of damage and/or destruction to the Premises
as a result of earthquake casualty, and if Landlord is then carrying earthquake
insurance, Tenant's obligation to reimburse Landlord for any portion of the
deductible amount under Landlord's earthquake insurance policy shall not exceed
$25,000 per year.
Except as expressly provided in this Lease, damage to or
destruction of the Premises, the Building, or the Project shall not terminate
this Lease or result in any
<PAGE>
abatement of rentals. Tenant waives any right to terminate this Lease and any
right of offset against Tenant's rental obligations that may be provided by any
statute or rule of law in connection with Landlord's duties of repair and
restoration under the provisions of this Lease. If this Lease is terminated by
either party pursuant to the terms of this Article 12, Tenant shall not be
obligated to pay any portion of the deductible amount attributable to the
casualty triggering such termination right.
HOLDING OVER If Tenant shall retain possession of the Premises or any portion
thereof without Landlord's written consent following the expiration of the Lease
or sooner termination for any reason, then (1) such holding over shall be a
tenancy at sufferance and not for any periodic or fixed term; and (2) Tenant
shall pay to Landlord for each day of such retention twice the amount of the
daily rental for the first month prior to the date of expiration or termination.
Tenant shall also indemnify, defend and hold Landlord and Landlord's Affiliates
harmless from and against any Liabilities resulting from delay by Tenant in
surrendering the Premises, including, without limitation, any claims made by any
succeeding tenant founded on such delay. Alternatively, if Landlord gives
written notice of Landlord's consent to Tenant's holding over, such holding over
shall constitute renewal of the Lease on a month to month basis (except as
otherwise agreed to by Landlord and Tenant in writing) on the terms and
conditions contained in this Lease except as provided above and excluding any
options or rights of Tenant to renew or extend this Lease or expand the Premises
that may be given to Tenant under the terms of this Lease. Acceptance of Rent by
Landlord following expiration or termination of this Lease shall not constitute
a renewal of this Lease, and nothing contained in this Paragraph shall waive
Landlord's right of reentry or any other right. Unless Landlord exercises the
option hereby given to it in writing, Tenant shall be only a tenant at
sufferance, whether or not Landlord accepts any Rent from Tenant while Tenant is
holding over without Landlord's written consent. Additionally, in the event that
upon termination of the Lease, Tenant has not fulfilled its obligation with
respect to repairs and cleanup of the Premises or any other Tenant obligations
as set forth in this Lease, then Landlord shall have the right to perform any
such obligations as it deems necessary at Tenant's sole cost and expense, and
any time required by Landlord to complete such obligations shall be considered a
period of holding over and the terms of this Paragraph shall apply.
DEFAULT Events of Default. The occurrence of any of the following shall
constitute an event of default on the part of Tenant:
Abandonment. Abandonment of the Premises as defined in Section
1951.3 of the Civil Code of the State of California.
Nonpayment of Rent. Failure to pay when due any installment of
Rent or any other amount due and payable hereunder if the failure continues for
three (3) days after written notice of the failure from Landlord to Tenant.
Other Obligations. Failure to perform any obligations,
agreement or covenant under this Lease other than those matters specified in
subparagraphs (1) and
<PAGE>
(2) of this Paragraph 27.A, such failure continuing for fifteen (15) days after
written notice of such failure, or such longer period as Landlord reasonably
determines to be necessary to remedy such default, provided that Tenant shall
continuously and diligently pursue such remedy at all times until such default
is cured.
General Assignment. A general assignment by Tenant for the
benefit of creditors.
Bankruptcy. The filing of any voluntary petition in bankruptcy
by Tenant, or the filing of an involuntary petition by Tenant's creditors, which
involuntary petition remains undischarged for a period of thirty (30) days. In
the event that under applicable law, the trustee in bankruptcy or Tenant has the
right to affirm this Lease and continue to perform the obligation of Tenant
hereunder, such trustee or Tenant shall, in such time period as may be permitted
by the bankruptcy court having jurisdiction, cure all defaults of Tenant
hereunder outstanding as of the date of the affirmance of this Lease and provide
to Landlord such adequate assurances as may be necessary to ensure Landlord of
the continued performance of Tenant's obligations under this Lease.
Receivership. The employment of a receiver to take possession
of substantially all of Tenant's assets of the Premises, if such attachment or
other seizure remains undismissed or undischarged for a period of ten (10) days
after the levy thereof.
Attachment. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets of the Premises, if such
attachment or other seizure remains undismissed or undischarged for a period of
ten (10) days after the levy thereof.
Remedies Upon Default.
Rent. All failures to pay any monetary obligation to be paid
by Tenant under this Lease shall be construed as obligations for payment of
Rent.
Termination. In the event of the occurrence of any event of
default, Landlord shall have the right, with or without notice or demand, to
immediately terminate this Lease, and at any time thereafter recover possession
of the Premises or any part thereof and expel and remove therefrom Tenant and
any other person occupying the same, by any lawful means, and again repossess
and enjoy the Premises without prejudice to any of the remedies that Landlord
may have under this Lease, or at law or equity by reason of Tenant's default or
of such termination.
Continuation After Default. Even though Tenant has breached
this Lease and/or abandoned the Premises, this Lease shall continue in effect
for so long as Landlord does not terminate Tenant's right to possession under
Paragraph 27.B(2) hereof, and Landlord may enforce all its rights and remedies
under this Lease, including, but without limitation, the right to recover Rent
as it becomes due, and Landlord, without
<PAGE>
terminating this Lease, may exercise all of the rights and remedies of a
Landlord under Section 1951.4 of the Civil Code of the State of California or
any successor code section. Acts of maintenance preservation or efforts to lease
the Premises or the appointment of a receiver upon application of Landlord to
protect Landlord's interest under this Lease shall not constitute an election to
terminate Tenant's right to possession.
Damages Upon Termination. Should Landlord terminate this
Lease pursuant to the provisions of Paragraph 27.B(2) hereof, Landlord shall
have all the rights and remedies of a Landlord provided by Section 1951.2 of the
Civil Code of the State of California, or successor code sections. Upon such
termination, in addition to any other rights and remedies to which Landlord may
be entitled under applicable law, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) 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 Rent loss that
the Tenant proves could have been reasonably avoided, (3) 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 Rent loss that the Tenant
proves could be reasonably avoided, and (4) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's failure
to perform its obligations under the Lease or which, in the ordinary course of
things, would be likely to result therefrom. The "worth at the time of award" of
the amounts referred to in (1) and (2) above shall be computed with interest at
the maximum rate allowed by law. The "worth at the time of award" of the amount
referred to in (3) above shall be computed by discounting such amount at the
Federal Discount Rate of the Federal Reserve Bank of San Francisco at the time
of the award plus one percent (1%).
Late Charge. In addition to its other remedies, Landlord
shall have the right without notice or demand to add to the amount of any
payment required to be made by Tenant hereunder, and which is not paid on or
before the date the same is due, an amount equal to five percent (5%) of the
delinquency for each month or portion thereof that the delinquency remains
outstanding to compensate Landlord for the loss of the use of the amount not
paid and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
difficult to compute and the amount stated herein represents a reasonable
estimate thereof.
Interest on Past Due Obligations. Any amount that is due to
Landlord and not paid when due shall bear interest from the date due at the
maximum rate then allowable by law; provided, however, that interest shall not
be payable on late charges incurred by Tenant. Payment of the interest shall not
cure any default by Tenant under this Lease.
Remedies Cumulative. All rights, privileges and elections of
remedies of the parties are cumulative and not alternative to the extent
permitted by law and except as otherwise provided herein.
<PAGE>
LIENS Tenant shall keep the Premises free from liens arising out of or related
to work performed, materials or supplies furnished or obligations incurred by
Tenant or in connection with work made, suffered or done by Tenant in or on the
Premises or Project. In the event that Tenant shall not, within ten (10) days
following the imposition of any such lien, cause the same to be released of
record by payment or posting of a proper bond, Landlord shall have, in addition
to all other remedies provided herein and by law, the right, but not the
obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All sums paid
by Landlord on behalf of Tenant and all expenses incurred by Landlord in
connection therewith shall be payable to Landlord by Tenant on demand with
interest at the maximum rate allowable by law. Landlord shall have the right at
all times to post and keep posted on the Premises any notices permitted or
required by law, or which Landlord shall deem proper, for the protection of
Landlord, the Premises, the Project and any other party having an interest
herein, from mechanics' and materialmen's liens, and Tenant shall give Landlord
not less than ten (10) business days prior written notice of the commencement of
any work in the Premises or Project which could lawfully give rise to a claim
for mechanics' or materialmen's lien.
SUBSTITUTION INTENTIONALLY OMITTED
TRANSFERS BY
LANDLORD In the event of a sale or conveyance by Landlord of the Project, the
same shall operate to release Landlord from any liability upon any of the
covenants or conditions, express or implied, herein contained in favor of Tenant
(provided that the transferee agrees to assume Landlord's obligations under the
Lease), and in such event Tenant agrees to look solely to the responsibility of
the successor in interest of Landlord in and to this Lease. This Lease shall not
be affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee.
RIGHT OF
LANDLORD TO
PERFORM TENANT'S
COVENANTS All covenants and agreements to be performed by Tenant under any of
the terms of this Lease shall be performed by Tenant, at Tenant's sole cost and
expense, and without any abatement of Rent. If Tenant shall fail to pay any sum
of money other than Rent, required to be paid by it hereunder, or shall fail to
perform any other act on its part to be performed hereunder, and such failure
shall continue for five (5) days after notice thereof by Landlord, Landlord may,
but shall not be obligated to do so, and without waiving or releasing Tenant
from any obligations of the Tenant, make any such payment or perform any such
act on the Tenant's part to be made or performed. All sums so paid by Landlord
and all necessary incidental costs together with interest thereon at the maximum
rate permitted by law from the date of such payment by the Landlord shall be
payable to Landlord on demand, and Tenant covenants to pay such sums, and
Landlord shall have, in addition to any other right or remedy of Landlord, the
same rights and remedies in the event of the nonpayment thereof by Tenant as in
the case of default by Tenant in the payment of Rent.
<PAGE>
WAIVER If Landlord waives the performance of any term, covenant or condition
contained in this Lease, such waiver shall not be deemed to be a waiver of any
subsequent breach of the same or any other term, covenant or condition contained
herein. The acceptance of Rent by Landlord shall not constitute a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
regardless of Landlord's knowledge of such preceding breach at the time Landlord
accepted such Rent. Failure by Landlord to enforce any of the terms, covenants
or conditions of this Lease for any length of time shall not be deemed to waive
or to decrease the right of Landlord to insist thereafter upon strict
performance by Tenant. Waiver of Landlord of any term, covenant or condition
contained in this Lease may only be made by a written document signed by
Landlord.
NOTICES Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to the sending,
mailing or delivery of any notice or the making of any payment by Landlord or
Tenant to the other shall be deemed to be complied with when and if the
following steps are taken:
All Rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address set forth in the
Basic Lease Information, or at such other address as Landlord may specify from
time to time by written notice delivered in accordance herewith. Tenant's
obligation to pay Rent and any other amounts to Landlord under the terms of this
Lease shall not be deemed satisfied until such Rent and other amounts have been
actually received by Landlord.
All notices, demands, consents and approvals which may or
are required to be given by either party to the other hereunder shall be in
writing and shall be deemed to have been fully given when deposited in the
United States mail, certified or registered, postage prepaid, and addressed to
the party to be notified at the address for such party specified in the Basic
Lease Information or to such other place as the party to be notified may from
time to time designate by at least fifteen (15) days notice to the notifying
party. Tenant appoints as its agent to receive the service of all default
notices and notice of commencement of unlawful detainer proceedings the person
in charge of or apparently in charge of or occupying the Premises at the time,
and, if there is no such person, then such service may be made by attaching the
same on the main entrance of the Premises (with a copy deposited in the United
States mail in accordance with this Paragraph).
ATTORNEY'S FEES In any action between the parties to enforce any of the terms of
this Lease (including, without limitation, the collection of Rent), to seek a
declaration of any rights under this Lease, or to recover damages for a breach
of this Lease, the prevailing party shall be entitled to recover reasonable
attorneys' fees, together with any costs and expenses, to resolve the dispute
and to enforce the final judgement.
SUCCESSORS
AND ASSIGNS This Lease shall be binding upon and inure to the benefit of
<PAGE>
Landlord and its successors and assigns, and shall be binding upon and inure to
the benefit of Tenant and its successors and assigns (as permitted under the
terms of this Lease).
FORCE MAJEURE Whenever a period of time is herein prescribed for action to be
taken by Landlord or Tenant, the party shall not be liable or responsible for,
and there shall be excluded from the computation for any such period of time,
any delays due to strike, riots, acts of God, shortages of labor or materials,
war, governmental laws, regulations or restrictions or any other causes of any
kind whatsoever which are beyond the control of such party.
MISCELLANEOUS The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their and each of their respective
successors, executors, administrators and permitted assigns, according to the
context hereof.
Time is of the essence regarding this Lease and all of its
provisions.
This Lease shall in all respects be governed by the laws of
the State of California.
This Lease, together with its exhibits, contains all the
agreements of the parties hereto and supersedes any previous negotiations.
There have been no representations made by the Landlord or
understandings made between the parties other than those set forth in this Lease
and its exhibits.
This Lease may not be modified except by a written
instrument by the parties hereto.
If, for any reason whatsoever, any of the provisions hereof
shall be unenforceable or ineffective, all of the other provisions shall be and
remain in full force and effect.
Lease Effective Date. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation or option
for lease, and it is not effective as a lease or otherwise until execution by
Landlord and Tenant.
ADDITIONAL
PROVISIONS Tenant Improvements. Tenant's initial improvements to the Premises
shall be built in accordance with the Tenant Improvements Work Letter.
Option to Extend. Landlord grants to Tenant the option to
extend the term of this Lease for one five (5) year period (the "Option Period")
commencing when the prior term expires upon each and all of the following terms
and conditions.
<PAGE>
(a) Tenant gives to Landlord and Landlord receives notice of the
exercise of the option to extend this Lease for the Option Period no later than
one hundred eighty (180) days prior to the time that the Option Period would
commence if the option were exercised, time being of the essence. If said
notification of the exercise of said option is not so given and received, this
option shall automatically expire;
(b) At the time said written notification of exercise of option is
given and received, Tenant shall not be in default under any of the material
obligations of this Lease to be performed by Tenant (beyond any applicable cure
period) and said Lease shall not have previously terminated nor terminated prior
to the commencement of the Option Period;
(c) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(d) The Base Rent for the Option Period shall be calculated as follows:
The rent payable by Tenant during the Option Period shall be ninety-five percent
(95%) of the fair market rental value of the Premises at the commencement date
of the Option Period. In no event shall the rent for the Option Period be less
than the rent paid by Tenant during the year immediately preceding the Option
Period. If Landlord and Tenant cannot agree on the fair market rental value of
the Premises for the Option Period within forty-five (45) days after Tenant has
notified Landlord of its exercise of the option, Landlord and Tenant shall each
select within forty-five (45) days of such notification, an appraiser who must
be a qualified M.A.I. Appraiser to determine said fair market rental value. If
one party fails to so designate an appraiser within the time required, the
determination of fair market rental value of the one appraiser who has been
designated by the other party hereto within the time required shall be binding
upon both parties. The appraisers shall submit their determinations of fair
market rental value to both parties within thirty (30) days after their
selection. If the difference between the two determinations is ten percent (10%)
or less of the higher appraisal, then the average between the two determinations
shall be the fair market rental value of the Premises. If said difference is
greater than ten percent (10%), then the two appraisers shall within twenty (20)
days of the date that the later submittal is submitted to the parties designate
a third appraiser who must also be a qualified M.A.I. Appraiser. The sole
responsibility of the third appraiser will be to determine which of the
determinations made by the first two appraisers is most accurate. The third
appraiser shall have no right to propose a middle ground or any modification of
either of the determinations made by the first two appraisers. The third
appraiser's choice shall be submitted to the parties within thirty (30) days
after his or her selection. Such determination shall bind both of the parties
and shall establish the fair market rental value of the Premises. Each party
shall pay equal shares of the fees and expenses of the third appraiser.
Fair market rental value for the purpose of this Lease shall mean the then
prevailing rent for premises comparable in size, quality, and orientation to the
demised Premises, located
<PAGE>
in buildings comparable in size to, and in the general vicinity of, the building
which the demised Premises are located, leased on terms comparable to the terms
contained in this Lease.
Right of First Refusal on Contiguous Space.
A. Landlord hereby grants to Tenant a right of first refusal, on the terms and
conditions herein set forth, to lease the approximately 12,862 square feet of
space of the Building identified on Exhibit A as the "First Refusal Area." If,
during the term of this Lease, Landlord receives a bona fide offer from any
third party to lease the First Refusal Area, Landlord shall, before accepting
such offer, offer to lease such area to Tenant on the terms and conditions set
forth in Paragraph 41.B below. Landlord shall give written notice to Tenant
stating the material terms and conditions contained in the bona fide offer (the
"Landlord's Notice"). Within five (5) business days after the Landlord's Notice
is given, Tenant may accept such offer by written notice to Landlord accompanied
by payment of one month's Base Rent for the First Refusal Area.
B. The terms and conditions upon which Tenant shall lease the First Refusal Area
shall be determined as set forth below:
(1) If Tenant exercises the right of first refusal during the first
twelve (12) months of the Term of this Lease, then the following shall apply:
(a) Tenant shall occupy the First Refusal Area upon the same
terms and conditions (including the Base Rent) as set forth in this Lease.
(b) The initial Term of this Lease shall be extended so that
the initial term of Tenant's occupancy of the Premises and the First Refusal
Area shall be five (5) years, measured from the date of Tenant's occupancy of
First Refusal Area; provided, however, that Base Rent for the additional months
added to the initial Term shall be $1.04 per square foot per month. By way of
example only, if the Term Commencement Date is March 1, 1998, and if Tenant
exercises the right of first refusal on September 1, 1998, then the new
Expiration Date of the initial Term of this Lease shall be extended to August
31, 2003, and Base Rent shall be payable as follows:
9/1/98 - 8/31/00 $0.94 per square foot per month (or $24,180.56 per month,
based on a total of approximately 25,724 square feet).
9/1/00 - 8/31/03 $1.04 per square foot per month (or $26,752.96 per month,
based on a total of approximately 25,724 square feet).
(2) If Tenant exercises the right of first refusal after the first
twelve (12) months of the Term of this Lease, within the time period specified
above, then Tenant shall lease the First Refusal Area on the same terms and
conditions as stated in Landlord's Notice; provided, however, that the
Expiration Date of the term of the lease for the First Refusal Area shall be the
Expiration Date of this Lease. If Tenant does not exercise its right of
<PAGE>
first refusal within the time period specified above, Landlord shall be free to
lease the First Refusal Area to the third party on the terms specified in
Landlord's Notice. If Landlord fails to enter into a lease a such third party on
the terms contained in Landlord's Notice within one hundred twenty (120) days
after Tenant's rejection of the First Refusal Area, Tenant's right of first
refusal described herein shall again be applicable to the First Refusal Area.
C. Notwithstanding any provisions of this Paragraph to the contrary, it is
understood and agreed that the right of refusal set forth in this Paragraph
shall, at Landlord's option, terminate and be of no further force or effect if:
(1) Landlord gives Tenant the Landlord's Notice, and Tenant does not
notify Landlord, in writing, of Tenant's acceptance of the First Refusal Area
when and as hereinabove provided, time being of the essence.
(2) At any time that the First Refusal Area becomes or is available
until an amendment to the Lease is executed incorporating the First Refusal Area
into the Premises, a default (beyond any applicable cure period) by Tenant
exists and is continuing.
(3) At any time provided herein for exercise of the right of refusal by
Tenant, any federal, state, or local law or regulation invalidates or modifies
any provision of the foregoing right of first refusal. It is understood and
agreed that if Tenant fails to exercise its right of refusal as to the First
Refusal Area, the right of refusal shall terminate completely and this Paragraph
shall be of no further force or effect.
(4) This Lease expires or is terminated.
Early Occupancy. Tenant will be allowed access to the Premises
two (2) weeks prior to the Scheduled Term Commencement Date in order to install
equipment and machinery required for Tenant's business (including, without
limitation, cabling, telephone systems, furniture and partitions). Landlord and
Tenant agree that all of the terms, conditions and covenants of the Lease will
have full effect as of the date Tenant is allowed access to the Premises, except
that Tenant will not be obligated to pay Rent until the Term Commencement Date.
Tenant understands that its early access to the Premises may cause some delay in
the construction of the tenant improvements and that any delay will not be a
cause for forgiveness of any Rent due under this Lease. Tenant also waives all
claims for loss or damages that Tenant may otherwise have against Landlord as a
result of any delay caused by Tenant's early access to the Premises.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date first
set forth above.
LANDLORD:
<PAGE>
THE JOSEPH AND EDA PELL
DATE:
--------------------------------
REVOCABLE TRUST DATED AUGUST 18, 1989
By: Signature illegible
------------------------------
Joseph Pell
By: ______________________________
Eda Pell
TENANT:
ADEPT TECHNOLOGY, INC.,
DATE: April 30, 1998
---------------------------------
a California corporation
By: /s/ Betsy A. Lange
------------------------------
[Printed Name] Betsy A. Lange
------------------------------
[Printed Title] CFO
------------------------------
By: /s/ Brian R. Carlisle
------------------------------
[Printed Name] Brian Carlisle
------------------------------
[Printed Title] CEO
------------------------------
EXHIBIT A
IDENTIFICATION OF THE PREMISES, THE BUILDING AND THE PROJECT
[graphic of site.]
EXHIBIT B
PLANS AND SPECIFICATIONS
<PAGE>
[TO FOLLOW]
EXHIBIT C
LEASE CONFIRMATION
To: ______________________________
[Name of Tenant]
RE: Lease dated _______________between The Joseph and Eda Pell Revocable Trust
Dated August 18, 1989, as Landlord, and ______________________________, as
Tenant
Please acknowledge that the Term Commencement Date of the
Lease is _______________ and that the Expiration Date of the Lease is _________.
Very truly yours,
THE JOSEPH AND EDA PELL REVOCABLE TRUST DATED AUGUST 18, 1989
By: ______________________________
[Printed Name] _______________________________
[Printed Title] ______________________________
Tenant hereby confirms the information set forth above, and
further acknowledges that Landlord has fulfilled its obligations under the
above-referenced Lease accruing prior to the Term Commencement Date. Tenant
hereby accepts the Premises in the condition existing as of the Term
Commencement Date.
[Name of Tenant] _________________________________
By: ______________________________________________
<PAGE>
[Printed Name] _________________________________
[Printed Title] ________________________________
EXHIBIT D
RULES AND REGULATIONS
1. No person shall use any roadway or walkway located within the Industrial
Center except as a means of egress from or ingress to the Buildings, the
Premises and the parking areas within the Industrial Center, or adjacent public
streets. Such use shall be in an orderly manner, in accordance with the
directional or other signs or guides. Roadways within the Industrial Center
shall not be used at a speed in excess of the lesser of the posted speed limit
or 20 miles per hour and shall not be used for parking or stopping, except for
the immediate loading or unloading of passengers. No walkway shall be used for
any purpose other than pedestrian travel.
2. No person shall use any parking area within the Industrial Center except for
the parking of motor vehicles during the time that the occupants of such
vehicles are working at the Premises or are customers or invitees within the
Industrial Center. All vehicles shall be parked in an orderly manner within the
painted lines defining the individual parking spaces. During peak periods of
business activity, limitations may be imposed as to the length of time for
parking use. Such limitations may be made in specified areas. No vehicles shall
be left in the parking areas overnight and no extended term storage of vehicles
shall be permitted. All directional signs and arrows must be observed.
3. No person shall use any utility area, truck court or other area reserved for
use in connection with the conduct of business, except for the specific purpose
for which permission to use such area is given.
4. Sidewalks and walkways shall not be obstructed by Tenant or used by Tenant to
display, store or replace any merchandise, equipment or devices. The exterior
areas immediately adjoining the Premises shall be kept clean and free from dirt
and rubbish by Tenant to the satisfaction of Landlord.
5. No person, without the written consent of Landlord, shall in or on any part
of the Common Areas:
(a) Vend, peddle or solicit orders for sale or distribution of any
merchandise, device, service, periodical, book, pamphlet or other matter.
(b) Exhibit any sign, placard, banner, notice or other written
material.
<PAGE>
(c) Distribute any circular, booklet, handbill, placard or other
material.
(d) Solicit membership in any organization, group or association or
contribution for any purpose.
(e) Parade, rally, patrol, picket, demonstrate or engage in any conduct
that might tend to interfere with or impede the use of any of the Common Areas
by any Industrial Center customer or occupant, create a disturbance, attract
attention or harass, annoy, disparage or be detrimental to the interest of any
of the establishments within the Industrial Center.
(f) Use any Common Areas for any purpose when none of the
establishments within the Industrial Center is open for business or employment.
(g) Throw, discard or deposit paper, glass or extraneous matter, except
in designated receptacles, or create litter hazards.
(h) Use any sound-making device or create or produce, in any manner,
noise or sound that is annoying, unpleasant, or distasteful.
The listing of specific items as being prohibited is not intended to be
exclusive, but to indicate in general the manner in which the right to use the
Common Areas solely as a means of access and convenience in egressing and
ingressing to the establishments in the Industrial Center is limited and
controlled by Landlord.
Landlord shall have the right to remove or exclude from or to restrain (or take
legal action to do so) any unauthorized person from, or from coming upon, the
Industrial Center, and prohibit, abate and recover damages arising from any
unauthorized act, whether or not such act is in express violation of the
prohibitions listed above.
6. All trash, refuse and waste materials shall be stored (a) in adequate
containers, which containers shall be located so as not to be visible to the
general public at the Industrial Center, and (b) so as not to constitute any
health or fire hazard, or nuisance. Tenant shall not burn any trash or garbage
of any kind in or about the Premises or the Building.
7. The Premises shall not be used for lodging or sleeping, and no cooking shall
be done or permitted by Tenant at the Premises, except that the preparation of
coffee, tea, hot chocolate and similar items for Tenant and its employees shall
be permitted.
8. No advertising medium shall be utilized which can be heard or experienced
outside of the Premises, including, without limiting the generality of the
foregoing, flashing lights (not including standard window marquees previously
approved by Landlord), searchlights, loud speakers, phonographs, radios or
televisions.
9. Tenant shall not, without the prior consent of Landlord, use or keep in the
<PAGE>
Premises or the Industrial Center any kerosene, gasoline, or flammable or
combustible fluid or materials or use any method of heating or air conditioning
other than that approved by Landlord. Tenant shall not use, keep or permit or
suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Industrial Center by reason
of noise, odors and/or vibrations, or interfere in any way with other tenants or
those having business in the Industrial Center.
10. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of these Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all of the tenants of the Industrial
Center.
11. Wherever the word "Tenant" occurs in these Rules and Regulations, it is
understood and agreed that it shall mean Tenant's assigns, directors, officers,
agents, clerks, employees and visitors. Wherever the word "Landlord" occurs in
these Rules and Regulations, it is understood and agreed that it shall mean
Landlord's assigns, directors, officers, agents, clerks, employees and visitors.
12. These Rules and Regulations are in addition to, and shall not be construed
in any way to modify, alter or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of any portion of the Industrial Center.
13. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgement may from time to time be needed for the safety,
care and cleanliness of the Industrial Center, and for the preservation of good
order therein.
EXHIBIT E
HAZARDOUS SUBSTANCES
NONE
EXHIBIT F
TENANT IMPROVEMENTS
WORK LETTER
This Tenant Improvements Work Letter entered into as of the date of the
Lease dated as of April 20, 1998 ("Lease") between THE JOSEPH PELL AND EDA PELL
REVOCABLE TRUST DATED AUGUST 18, 1989 ("Landlord"), and ADEPT TECHNOLOGY, INC.,
a California corporation ("Tenant") with respect to the Premises described in
the Lease. All capitalized terms not defined herein shall have the same meaning
ascribed to such terms in the Lease.
1. Landlord's Work. Landlord, at its sole cost and expense, shall
construct
<PAGE>
the shell of the building and all site work in connection therewith
(collectively, the "Building Shell") in accordance with the description set
forth on Exhibit H attached hereto. Landlord shall perform or cause to be
performed all work for Tenant's improvements in the Premises ("Landlord's Work")
pursuant to plans, specifications and working drawings to be prepared by
Landlord at Tenant's cost (which cost shall be deducted from the Allowance (as
hereinafter defined)), which plans and specifications shall be subject to
Tenant's approval.
2. Standards for Landlord's Work. Landlord's Work shall be completed
pursuant to the following provisions:
(a) Landlord shall prepare and submit to Tenant, at Tenant's
cost (which cost shall be deducted from the Allowance (as hereinafter defined)),
two (2) sets of final plans and specifications showing the architectural design
of the Premises, including the basic mechanical system and electrical system
within the Premises, plumbing, partitions and doors, complete fixturing
information, and material selections and finishes. Within ten (10) business days
after receipt of such final plans and specifications, Tenant shall approve or
suggest modifications to such final plans and specifications. Tenant shall not
unreasonably refuse or delay approval of the final plans and specifications.
Landlord may object to any of the suggested modifications by notice to Tenant
within ten (10) business days after receipt of such suggested modifications, and
unless Landlord so objects such suggested modifications shall be deemed approved
by Landlord. Tenant shall also submit all proposed change orders in writing
(with sufficient detail to enable Landlord to understand the nature of the
proposed change) to Landlord for Landlord's prior written approval, which shall
not be unreasonably refused or delayed. If Landlord approves the proposed change
order, Landlord shall notify Tenant of any increase in the cost of Tenant's
improvements and the additional time that would be required to complete Tenant's
improvements as a result of the change order. The individual with whom Tenant
shall communicate regarding permitting and construction shall be Karen Pell
(phone: 415-543-4330; fax: 415-227-0120).
(b) Landlord shall select a licensed general contractor (the
"Contractor") as the contractor for the construction of Tenant's improvements by
a process of competitive bidding among not less than three (3) qualified,
licensed general contractors reasonably experienced in the performance of
comparable work. Although the estimated construction costs set forth in the bids
may be a factor in Landlord's selection of the Contractor, Landlord shall not be
obligated to select the contractor that provides the lowest bid, and may take
into account such other factors as a commercially reasonable landlord may choose
to consider. Landlord shall instruct the Contractor to build Landlord's Work as
soon as reasonably possible at Tenant's sole and entire cost (subject to
Tenant's ability to utilize the Allowance to pay for such costs). Landlord will
not be entitled to any supervision fee in connection with the construction of
Tenant's improvements. Any failure by Tenant to comply with the dates and time
limits in this Work Letter, or failure to pay when due any sums due to the
Contractor, which causes a delay in such construction, shall automatically
constitute a "Tenant Delay." Tenant shall have the right to have the plans and
specifications redrawn, at Tenant's cost (which
<PAGE>
cost shall be deducted from the Allowance) if the estimated cost of construction
exceeds the Allowance; provided, however, that any delay caused by Tenant's
exercise of such right shall constitute a Tenant Delay.
(c) Tenant agrees and understands that Landlord shall not be
the guarantor of, nor responsible for, the correctness or accuracy of the plans
and specifications. Notwithstanding the foregoing, Landlord shall assign all
transferable claims and actions (in contract and/or in tort) and all warranties
and guaranties or enforce for Tenant's benefit, at Tenant's sole cost and
expense, all such claims, actions, warranties and guaranties, if any, obtained
by Landlord in connection with the preparation of the plans and specifications
and the construction of Landlord's Work and the Building Shell. Landlord shall
obtain from the general contractor a one-year warranty for defects in material
and workmanship.
(d) Any change which Tenant makes to the final plans and
specifications as approved by Tenant that delays Landlord in causing the
Premises to become ready for occupancy beyond the time that it would have
otherwise taken to cause the Premises to become ready for occupancy shall also
constitute a Tenant Delay.
(e) Tenant shall be solely responsible for the adequacy of the
final plans and specifications for Tenant's use of the Premises, including,
without limitation, any special requirements of Tenant's proposed equipment or
machines with respect to ambient temperatures, electrical use or current, or
water availability. Tenant acknowledges that in connection with Landlord's
preparation of the final plans and specifications, Tenant may provide Landlord
with certain information regarding its specific needs relating to the Premises
in developing plans and specifications for Landlord's Work and that Tenant may
provide some of its own equipment for installation in the Premises. Tenant
further acknowledges that Landlord will make no independent review of any such
information and that Landlord does not warrant, either expressly or impliedly,
the adequacy of the plans and specifications, the adequacy of Landlord's Work or
Tenant's equipment for Tenant's intended purpose.
3. Construction. Landlord, as soon as practicable after the Lease and
this Work Letter is executed, shall make arrangements to obtain all necessary
governmental approvals and permits (but shall have no liability to Tenant for
any inability to obtain necessary approvals or permits) and shall construct,
consistent with industry custom and practice, the improvements indicated on the
plans and specifications. Landlord, through the Contractor, shall construct
Tenant's improvements and the Building Shell in a good and workmanlike manner,
in compliance with all laws and using new material of good quality. Landlord
will pay an amount equal to Two Hundred Fifty Seven Thousand Two Hundred Forty
Dollars ($257,240.00) (the "Allowance") toward the cost of the design and
construction of Tenant's improvements including, without limitation,
architectural and engineering fees and costs and governmental permit fees and
costs (the "Total Cost"). The Total Cost shall not include the following: (a)
costs arising from changes to the final plans and specifications not approved by
Tenant (unless the same are required by applicable laws or in connection with
governmental approvals or permits); (b)
<PAGE>
wages, labor and overhead for overhead and premium time unless requested by
Tenant or required due to Tenant Delays; (c) interest and fees for construction
financing; (d) bonds premiums (provided the same are not requested by Tenant or
required due to Tenant Delays); and (e) costs for which Landlord receives
reimbursement from others (including, without limitation, insurers and
warrantors). If the Total Cost exceeds the Allowance, the difference shall be
paid by Tenant to Landlord at the time the construction contract is signed. If
the Total Cost is less than the Allowance (with such differential being referred
to herein as the "Under Budget Amount"), then Base Rent shall be reduced by
$0.015, per square foot, per month, for each $12,862.00 of the Under Budget
Amount. In the event that Tenant requests any changes to the plans and
specifications, Landlord shall not unreasonably withhold its consent to any such
changes, provided the changes do not adversely affect the Building's structure,
systems, equipment, security system or appearance, but if such changes cause the
Total Cost of Tenant's improvements to exceed the Allowance, Tenant shall pay
such increased costs to Landlord at such time as the request is approved by
Landlord. If such changes delay Landlord's completion of the work shown on the
plans and specifications, then such delay shall constitute Tenant Delays. Any
other actions of Tenant, or inaction by Tenant, that are inconsistent with
Tenant's obligations hereunder and which delay Landlord in completing Tenant's
improvements shown on such plans and specifications, shall also constitute
Tenant Delays. Landlord will utilize, for the construction of Tenant's
improvements, the items and materials designated in the plans and
specifications. However, whenever Landlord determines in its reasonable judgment
that it is not possible to use such materials, Landlord shall have the right,
upon receipt of Tenant's consent, which consent shall not be unreasonably
withheld or delayed, to substitute comparable items and materials. If Tenant
refuses to grant such consent, and Landlord is delayed in causing Tenant's
improvements to be Substantially Complete (as hereinafter defined) because of
Tenant's failure to permit the substitution of comparable items and materials,
such delay shall constitute Tenant Delays. In addition, and without limiting the
foregoing, Tenant shall in no event withhold its approval of any change required
to comply with applicable laws or in connection with governmental approvals or
permits.
4. Substantially Complete. The term "Substantially Complete" means that
Landlord has completed Tenant's improvements, other work that it is obligated to
perform pursuant to this Work Letter, and all paving of the parking areas and
the driveways of the Project, and a certificate of occupancy has been issued by
the appropriate government agency, notwithstanding the fact that minor details
of construction, mechanical adjustments or decorations which do not materially
interfere with Tenant's use of the Premises remain to be performed (items
normally referred to as "Punch-List Items"). The Premises shall be deemed
Substantially Complete even Tenant's furniture, telephones, telexes,
telecopiers, photocopy machines, computers and other business machines or
equipment have not been installed, the purchase and installation of which shall
be Tenant's sole responsibility. Landlord shall cause the Punch-List Items to be
corrected as soon as reasonably possible and practical.
LANDLORD:
<PAGE>
THE JOSEPH AND EDA PELL
REVOCABLE TRUST DATED AUGUST 18, 1989
By: Signature illegible.
------------------------------
Joseph Pell
By:
------------------------------
Eda Pell
TENANT:
ADEPT TECHNOLOGY, INC.,
a California corporation
By: /s/ Betsy A. Lange
------------------------------
[Printed Name] Betsy A. Lange
------------------------------
[Printed Title] CFO
------------------------------
By: /s/ Brian Carlisle
------------------------------
[Printed Name] Brian Carlisle
------------------------------
[Printed Title] CEO
------------------------------
EXHIBIT G
ARROYO BUSINESS PARK SIGN CRITERIA
I. General Requirements for Window Graphics
A. Only vinyl material will be allowed for all graphic letters.
B. All graphics must be submitted and approved by Landlord prior
to any installation.
C. Letter size shall not exceed 12" (inches) in height.
D. Logo size may not exceed 24" x 24" (inches) in size, if used.
Logos may
<PAGE>
be custom painted.
E. No window graphic area shall be larger than 3" x 5" (feet) in
total dimension.
F. All window graphics must be installed by a qualified graphic
or sign contractor.
G. It is the intent of this criteria to enhance the theme and
aesthetics of the Project.
EXHIBIT H
BUILDING SHELL
Landlord's costs shall include all "hard and soft" costs related to the
construction of the Project and the Building Shell (as defined below), including
architectural and engineering services, permits, and utility fees for
connections and meters for the standard Building Shell (but excluding any tenant
improvements).
The "Building Shell" shall mean the Building structure, exterior walls, glass,
floor slab, utilities (telephone, gas, electric, plumbing, fire and water)
stubbed to the Building, and roof. Work related to the Project shall include the
parking lot, parking lot lighting, and landscaping. Landlord shall also install
an electrical panel in the Premises and install the main fire sprinkler trunks
and a fully functional overhead system distributed throughout the Premises as
required by applicable law.
LEASE
BY AND BETWEEN
Technology Centre Associates LLC,
a California limited liability company
as Landlord
and
Adept Technology, Inc.,
a California corporation
as Tenant
June 1, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 REFERENCE............................................1
1.1 References...................................................1
ARTICLE 2 LEASED PREMISES, TERM AND POSSESSION.................2
2.1 Demise Of Leased Premises....................................2
2.2 Right To Use Outside Areas...................................2
2.3 Lease Commencement Date And Lease Term.......................2
2.4 Delivery Of Possession.......................................2
2.5 Performance Of Improvement Work; Acceptance Of Possession....2
2.6 Surrender Of Possession......................................2
ARTICLE 3 RENT, LATE CHARGES AND SECURITY DEPOSITS.............3
3.1 Base Monthly Rent............................................3
3.2 Additional Rent..............................................3
3.3 Year-End Adjustments.........................................4
3.4 Late Charge, And Interest On Rent In Default.................4
3.5 Payment Of Rent..............................................4
3.6 Prepaid Rent.................................................5
3.7 Security Deposit.............................................5
ARTICLE 4 USE OF LEASED PREMISES AND OUTSIDE AREA..............5
4.1 Permitted Use................................................5
4.2 General Limitations On Use...................................5
4.3 Noise And Emissions..........................................6
4.4 Trash Disposal...............................................6
4.5 Parking......................................................6
4.6 Signs........................................................6
4.7 Compliance With Laws And Private Restrictions................6
4.8 Compliance With Insurance Requirements.......................6
4.9 Landlord's Right To Enter....................................6
4.10 Use Of Outside Areas.........................................7
4.11 Environmental Protection.....................................7
4.12 Rules And Regulations........................................8
ARTICLE 5 REPAIRS, MAINTENANCE, SERVICES AND UTILITIES.........8
5.1 Repair And Maintenance.......................................8
5.2 Tenant's Obligations.........................................8
(a) Landlord's Obligation....................................9
5.3 Utilities....................................................9
5.4 Security.....................................................9
5.5 Energy And Resource Consumption..............................9
5.6 Limitation Of Landlord's Liability...........................9
ARTICLE 6 ALTERATIONS AND IMPROVEMENTS.........................9
6.1 By Tenant...................................................10
i
<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
6.2 Ownership Of Improvements...................................10
6.3 Alterations Required By Law.................................10
6.4 Liens.......................................................10
ARTICLE 7 ASSIGNMENT AND SUBLETTING BY TENANT.................10
7.1 By Tenant...................................................10
7.2 Merger Or Reorganization....................................11
7.3 Landlord's Election.........................................11
7.4 Conditions To Landlord's Consent............................12
7.5 Assignment Consideration And Excess Rentals Defined.........12
7.6 Payments....................................................13
7.7 Good Faith..................................................13
7.8 Effect Of Landlord's Consent................................13
ARTICLE 8 LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY....13
8.1 Limitation On Landlord's Liability And Release..............13
8.2 Tenant's Indemnification Of Landlord........................13
ARTICLE 9 INSURANCE...........................................14
9.1 Tenant's Insurance..........................................14
9.2 Landlord's Insurance........................................15
9.3 Mutual Waiver Of Subrogation................................15
ARTICLE 10 DAMAGE TO LEASED PREMISES...........................15
10.1 Landlord's Duty To Restore..................................15
10.2 Insurance Proceeds..........................................15
10.3 Landlord's Right To Terminate...............................15
10.4 Tenant's Right To Terminate.................................16
10.5 Tenant's Waiver.............................................16
10.6 Abatement Of Rent...........................................16
ARTICLE 11 CONDEMNATION........................................16
11.1 Tenant's Right To Terminate.................................16
11.2 Landlord's Right To Terminate...............................16
11.3 Restoration.................................................16
11.4 Temporary Taking............................................17
11.5 Division Of Condemnation Award..............................17
11.6 Abatement Of Rent...........................................17
11.7 Taking Defined..............................................17
ARTICLE 12 DEFAULT AND REMEDIES................................17
12.1 Events Of Tenant's Default..................................17
12.2 Landlord's Remedies.........................................18
12.3 Landlord's Default And Tenant's Remedies....................19
12.4 Limitation Of Tenant's Recourse.............................19
12.5 Tenant's Waiver.............................................19
ii
<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
ARTICLE 13 GENERAL PROVISIONS..................................19
13.1 Taxes On Tenant's Property..................................19
13.2 Holding Over................................................20
13.3 Subordination To Mortgages..................................20
13.4 Tenant's Attornment Upon Foreclosure........................20
13.5 Mortgagee Protection........................................20
13.6 Estoppel Certificate........................................20
13.7 Tenant's Financial Information..............................20
13.8 Transfer By Landlord........................................21
13.9 Force Majeure...............................................21
13.10 Notices.....................................................21
13.11 Attorneys' Fees.............................................21
13.12 Definitions.................................................21
(a) Real Property Taxes.....................................21
(b) Landlord's Insurance Costs..............................22
(c) Property Maintenance Costs..............................22
(d) Building Maintenance Costs..............................22
(e) Property Operating Expenses.............................22
(f) Law.....................................................22
(g) Lender..................................................22
(h) Private Restrictions....................................23
(i) Rent....................................................23
13.13 General Waivers.............................................23
13.14 Miscellaneous...............................................23
ARTICLE 14 CORPORATE AUTHORITY BROKERS AND ENTIRE AGREEMENT....23
14.1 Corporate Authority.........................................23
14.2 Brokerage Commissions.......................................23
14.3 Entire Agreement............................................23
14.4 Landlord's Representations..................................23
ARTICLE 15 OPTION TO EXTEND....................................24
ARTICLE 16 TELEPHONE SERVICE...................................25
iii
<PAGE>
LEASE
THIS LEASE, dated June 1, 1998 for reference purposes only, is made by
and between TECHNOLOGY CENTRE ASSOCIATES LLC, a California limited liability
company ("Landlord"), and ADEPT TECHNOLOGY, Inc., a California corporation
("Tenant"), to be effective and binding upon the parties as of the date the last
of the designated signatories to this Lease shall have executed this Lease (the
"Effective Date of this Lease").
ARTICLE 1
REFERENCE
1.1 References. All references in this Lease (subject to any further
clarifications contained in this Lease) to the following terms shall have the
following meaning or refer to the respective address, person, date, time period,
amount, percentage, calendar year or fiscal year as below set forth:
Tenant's Address for Notice: Adept Technology, Inc.
150 Rose Orchard Way
San Jose, California 95134
Tenant's Representative: Chief Financial Officer
Landlord's Address for Notices: c/o Menlo Equities LLC
525 University Avenue
Suite 100
Palo Alto, California 94301
Landlord's Representative: Henry Bullock/Richard Holmstrom
Phone Number: (650) 326-9300
Intended Commencement Date: September 1, 1998
Intended Term: 5 years, 3 months
Lease Expiration Date: December 31, 2003, unless
earlier terminated by Landlord
or Tenant in accordance with the
terms of this Lease, or extended
by Tenant pursuant to Article
15.
Options to Renew: 1 option to renew for a term of
five (5) years.
First Month's Prepaid Rent: None
Tenant's Security Deposit: $50,826.60
Late Charge Amount: Five Percent (5%) of the
Delinquent Amount
Tenant's Required Liability
Coverage: $3,000,000 Combined Single Limit
Broker(s): Bruce Horton, Grubb & Ellis
Property: That certain real property
situated in the City of San
Jose, County of Santa Clara,
State of California, as
presently improved with five
buildings, which real property
is shown on the Site Plan
attached hereto as Exhibit "A"
and is commonly known as or
otherwise described as follows:
Technology Centre, San Jose,
California.
Building: That certain building within the
Property in which the Leased
Premises are located (the
"Building"), which Building is
shown outlined on Exhibit "A"
hereto. The Building is commonly
known as or otherwise described
as follows: 180 Rose Orchard
Way, San Jose, California.
Outside Areas: The "Outside Areas" shall mean
all areas within the Property
which are located outside the
buildings, such as pedestrian
walkways, parking areas,
landscaped area, open areas and
enclosed trash disposal areas
and all areas within the
Building not leased to Tenant or
other tenants, such as
elevators, hallways and
entryways.
1.
<PAGE>
Leased Premises: The second floor of the
Building, including stairwells,
connecting walkways, and
atriums, consisting of
approximately 30,804 square feet
and, for purposes of this Lease,
agreed to contain said number of
square feet.
<TABLE>
Base Monthly Rent: The term "Base Monthly Rent"
shall mean the following:
<CAPTION>
During Period: Base Monthly Rent is:
<S> <C> <C>
Commencement Date through 12/31/98 $50,826.60
1/1/99 through 12/31/99 $50,826.60
1/1/2000 through 12/31/2000 $52,982.88
1/1/2001 through 12/31/2001 $55,139.16
1/1/2002 through 12/31/2002 $57,295.44
1/1/2003 through 12/31/2003 $59,451.72
</TABLE>
Permitted Use: Light Manufacturing, Assembly of
Industrial Products, General
Office, Warehouse, and Research
and Development.
Tenant's Project Proportionate Share: 9.89%
Tenant's Building Proportionate Share: 53.48%
Exhibits: The term "Exhibits" shall mean
the Exhibits of this Lease which
are described as follows:
Exhibit "A" - Site Plan showing
the Property and delineating the
Building in which the Leased
Premises are located.
Exhibit "B" - Floor Plan
outlining the Leased Premises
ARTICLE 2
LEASED PREMISES, TERM AND POSSESSION
2.1 Demise Of Leased Premises. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord for Tenant's own use in the conduct of Tenant's
business and not for purposes of speculating in real estate, for the Lease Term
and upon the terms and subject to the conditions of this Lease, that certain
interior space described in Article 1 as the Leased Premises, reserving and
excepting to Landlord the right to fifty percent (50%) of all assignment
consideration and excess rentals as provided in Article 7 below. Tenant's lease
of the Leased Premises, together with the appurtenant right to use the Outside
Areas as described in Paragraph 2.2 below, shall be subject to the continuing
compliance by Tenant with (i) all the terms and conditions of this Lease, (ii)
all Laws governing the use of the Leased Premises and the Property, (iii) all
Private Restrictions, easements and other matters now of public record
respecting the use of the Leased Premises and Property, and (iv) all reasonable
rules and regulations from time to time established by Landlord.
2.2 Right To Use Outside Areas. As an appurtenant right to Tenant's right to the
use and occupancy of the Leased Premises, Tenant shall have the right to use the
Outside Areas in conjunction with its use of the Leased Premises solely for the
purposes for which they were designated and intended and for no other purposes
whatsoever. Tenant's right to so use the Outside Areas shall be subject to the
limitations on such use as set forth in Article 1 and shall terminate
concurrently with any termination of this Lease.
2.3 Leased Commencement Date And Lease Term. Subject to Paragraph 2.4 below, the
term of this Lease shall begin, and the Lease Commencement Date shall be deemed
to have occurred, on the Intended Commencement Date, as set forth in Article 1
(the "Lease Commencement Date"). The term of this Lease shall in all events end
on the Lease Expiration Date (as set forth in Article 1). The Lease Term shall
be that period of time commencing on the Lease Commencement Date and ending on
the Lease Expiration Date (the "Lease Term").
2.4 Delivery Of Possession. Tenant is currently in possession of the Leased
Premises and acknowledges that on the Lease Commencement Date it shall take the
Leased Premises in their "as-is" condition.
2.5 Performance Of Improvement Work; Acceptance Of Possession. Tenant hereby
acknowledges that Tenant has inspected the Leased Premises and that Landlord
shall deliver the Leased Premises and all Building or operating systems to
Tenant (and Tenant hereby accepts them) in their then "AS IS" condition, with
all faults, subject to Landlord's maintenance and repair obligations under
Section 5.1(b) hereof.
2.6 Surrender Of Possession. Immediately prior to the expiration or upon the
sooner termination of this Lease, Tenant shall remove all of Tenant's signs from
the exterior of the Building and shall remove all of Tenant's equipment, trade
fixtures, furniture, supplies, wall decorations and other personal property from
within the Leased Premises, the Building and the Outside Areas, shall vacate and
surrender the Leased Premises, the Building, the Outside Areas and the Property
to Landlord in the same condition, broom clean, as existed at the Lease
2.
<PAGE>
Commencement Date, reasonable wear and tear excepted, and shall repair all
damage caused by such removal. Tenant shall repair all damage to the Leased
Premises, the exterior of the Building and the Outside Areas caused by Tenant's
removal of Tenant's property. Tenant shall patch and refinish, to Landlord's
reasonable satisfaction, all penetrations made by Tenant or its employees to the
floor, walls or ceiling of the Leased Premises, whether such penetrations were
made with Landlord's approval or not. Tenant shall repair or replace all stained
or damaged ceiling tiles, wall coverings and floor coverings to the reasonable
satisfaction of Landlord, to the extent of damage beyond reasonable wear and
tear. Tenant shall repair all damage to the exterior surface of the Building and
the paved surfaces of the Outside Areas caused by Tenant in connection with
removal activities and, where necessary, replace or resurface same, provided,
however, that if such damage is covered by Landlord's insurance, Tenant shall
only be responsible for the deductible amount, if any. Notwithstanding the
foregoing, Landlord reserves the right to require Tenant to remove any
specialized improvements, including raised floor computer areas, vaults, and
other improvements of such a nature as not likely to be generally usable by
likely future tenants of the Building. In the event Landlord requires such
removal, Tenant shall, upon the expiration or sooner termination of the Lease,
remove any such improvements and repair all damage caused by such removal.
Additionally, to the extent that Landlord shall have notified Tenant in writing
at the time any alterations, modifications or other improvements were completed
that it desired to have such alterations, modifications or other improvements
removed at the expiration or sooner termination of the Lease, Tenant shall, upon
the expiration or sooner termination of the Lease, remove any such alterations,
modifications or other improvements constructed or installed by Landlord or
Tenant and repair all damage caused by such removal. If the Leased Premises, the
Building, the Outside Areas and the Property are not surrendered to Landlord in
the condition required by this paragraph at the expiration or sooner termination
of this Lease, Landlord may, at Tenant's expense, so remove Tenant's signs,
property and/or improvements not so removed and make such repairs and
replacements not so made or hire, at Tenant's expense, independent contractors
to perform such work. Tenant shall be liable to Landlord for all costs incurred
by Landlord in returning the Leased Premises, the Building and the Outside Areas
to the required condition, together with interest on all costs so incurred from
the date paid by Landlord until paid, at the lesser of (i) maximum rate of
interest not prohibited or made usurious by law or (ii) the sum of that rate
quoted by Wells Fargo Bank, N.T. & S.A. from time to time as its prime rate,
plus three percent (3%). Tenant shall pay to Landlord the amount of all costs so
incurred plus such interest thereon, within ten (10) days of Landlord's billing
Tenant for same. Tenant shall indemnify Landlord against loss or liability
resulting from delay by Tenant in surrendering the Leased Premises, including,
without limitation, any claims made by any succeeding Tenant or any losses to
Landlord with respect to lost opportunities to lease to succeeding tenants.
ARTICLE 3
RENT, LATE CHARGES AND SECURITY DEPOSITS
3.1 Base Monthly Rent. Commencing on the Lease Commencement Date (as determined
pursuant to Paragraph 2.3 above) and continuing throughout the Lease Term,
Tenant shall pay to Landlord, without prior demand therefor, in advance on the
first day of each calendar month, the amount set forth as "Base Monthly Rent" in
Article 1 (the "Base Monthly Rent").
3.2 Additional Rent. Commencing on the Lease Commencement Date (as determined
pursuant to Paragraph 2.3 above) and continuing throughout the Lease Term, in
addition to the Base Monthly Rent and to the extent not required by Landlord to
be contracted for and paid directly by Tenant, Tenant shall pay to Landlord as
additional rent (the "Additional Rent") the following amounts:
(a) An amount equal to all Property Operating Expenses (as defined in
Article 13) incurred by Landlord. Payment shall be made by whichever of the
following methods (or combination of methods) is (are) from time to time
designated by Landlord:
(i) Landlord may forward invoices or bills for such expenses
to Tenant, and Tenant shall, no later than thirty (30) days prior to the due
date, pay such invoices or bills and deliver satisfactory evidence of such
payment to Landlord, and/or
(ii) Landlord may bill to Tenant, on a periodic basis not more
frequently than monthly, the amount of such expenses (or group of expenses) as
paid or incurred by Landlord, and Tenant shall pay to Landlord the amount of
such expenses within thirty (30) days after receipt of a written bill therefor
from Landlord, or prior to delinquency, whichever is earlier and/or
(iii) Landlord may deliver to Tenant Landlord's reasonable
estimate of any given expense (such as Landlord's Insurance Costs or Real
Property Taxes), or group of expenses, which it anticipates will be paid or
incurred for the ensuing calendar or fiscal year, as Landlord may determine, and
Tenant shall pay to Landlord an amount equal to the estimated amount of such
expenses for such year in equal monthly installments during such year with the
installments of Base Monthly Rent.
Landlord reserves the right to change from time to time the methods of billing
Tenant for any given expense or group of expenses or the periodic basis on which
such expenses are billed.
(b) Landlord's share of the consideration received by Tenant upon
certain assignments and sublettings as required by Article 7.
(c) Any legal fees and costs that Tenant is obligated to pay or
reimburse to Landlord pursuant to Article 13; and
3.
<PAGE>
(d) Any other charges or reimbursements due Landlord from Tenant
pursuant to the terms of this Lease.
Notwithstanding the foregoing, Landlord may elect by thirty (30) days written
notice to Tenant to have Tenant pay Real Property Taxes or any portion thereof
directly to the applicable taxing authority, in which case Tenant shall make
such payments and deliver satisfactory evidence of payment to Landlord no later
than ten (10) days before such Real Property Taxes become delinquent.
Tenant may cause an audit of Landlord's books and records to determine the
accuracy of Landlord's billings for Property Operating Expenses charges under
this Lease. If such audit reveals that the actual Property Operating Expenses
for any given year were less than the amount that Tenant paid for Property
Operating Expenses for any such year, then Landlord shall pay to Tenant the
excess. If such audit reveals a discrepancy of more than five (5%) percent of
the actual amount of any Property Operating Expenses charges, then Landlord
shall pay the cost of the audit.
Additionally, Tenant shall have the right, by appropriate proceedings, to
protest or contest any assessment, reassessment or allocation of Real Property
Taxes or any change therein or any application of any Law to the Leased Premises
or Tenant's use thereof. Landlord will reasonably cooperate with Tenant in the
contest or proceedings. If Tenant does not pay the Real Property Taxes when due
which are the subject of such protest or contest, Tenant shall post a bond in
lieu thereof in an amount reasonably determined by Landlord but not less than
one hundred twenty-five percent (125%) of the amount demanded by the taxing
authorities which holds Landlord and the Property harmless from any damage
arising out of the contest and ensuring the payment of any judgment than may be
rendered. With respect to any contest of Real Property Taxes or Laws, Tenant
shall hold Landlord and the Property harmless from any damage arising out of
such protest or contest and shall pay any judgment that may be rendered in
connection with such contest or protest. Any protest or contest conducted by
Tenant under this paragraph shall be at Tenant's expense and if interest or late
charges become payable as a result of such contest or protest, Tenant shall pay
the same. Tenant shall receive a proportionate share of any refund applicable to
the Lease Term based on the amount of Real Property Taxes paid by Tenant as
Tenant's Lot Proportionate Share.
3.3 Year-End Adjustments. If Landlord shall have elected to bill Tenant for the
Property Operating Expenses (or any group of such expenses) on an estimated
basis in accordance with the provisions of Paragraph 3.2(a)(iii) above, Landlord
shall furnish to Tenant within three months following the end of the applicable
calendar or fiscal year, as the case may be, a statement setting forth (i) the
amount of such expenses paid or incurred during the just ended calendar or
fiscal year, as appropriate, and (ii) the amount that Tenant has paid to
Landlord for credit against such expenses for such period. If Tenant shall have
paid more than its obligation for such expenses for the stated period, Landlord
shall, at its election, either (i) credit the amount of such overpayment toward
the next ensuing payment or payments of Additional Rent that would otherwise be
due or (ii) refund in cash to Tenant the amount of such overpayment. If such
year-end statement shall show that Tenant did not pay its obligation for such
expenses in full, then Tenant shall pay to Landlord the amount of such
underpayment within thirty (30) days from Landlord's billing of same to Tenant.
The provisions of this Paragraph shall survive the expiration or sooner
termination of this Lease.
3.4 Late Charge, And Interest On Rent In Default. Tenant acknowledges that the
late payment by Tenant of any monthly installment of Base Monthly Rent or any
Additional Rent will cause Landlord to incur certain costs and expenses not
contemplated under this Lease, the exact amounts of which are extremely
difficult or impractical to fix. Such costs and expenses will include without
limitation, administration and collection costs and processing and accounting
expenses. Therefor, if any installment of Base Monthly Rent is not received by
Landlord from Tenant within ten calendar days after the same becomes due, Tenant
shall immediately pay to Landlord a late charge in an amount equal to the amount
set forth in Article 1 as the "Late Charge Amount," and if any Additional Rent
is not received by Landlord within ten calendar days after same becomes due,
Tenant shall immediately pay to Landlord a late charge in an amount equal to 5%
of the Additional Rent not so paid, provided, however, that once but only once
in any twelve (12) month period during the Lease Term, Tenant shall be entitled
to written notice of non-receipt of Base Monthly Rent or Additional Rent from
Landlord, and Tenant shall not be liable for any Late Charge Amount or other
late charge hereunder if such installment of Base Monthly Rent or Additional
Rent is received by Landlord within ten (10) business days after Tenant's
receipt of such notice from Landlord. Landlord and Tenant agree that this late
charge represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the anticipated loss Landlord would suffer by
reason of Tenant's failure to make timely payment. In no event shall this
provision for a late charge be deemed to grant to Tenant a grace period or
extension of time within which to pay any rental installment or prevent Landlord
from exercising any right or remedy available to Landlord upon Tenant's failure
to pay each rental installment due under this Lease when due, including the
right to terminate this Lease. If any rent remains delinquent for a period in
excess of 10 calendar days, then, in addition to such late charge, Tenant shall
pay to Landlord interest on any rent that is not so paid from said tenth day at
the lesser of (i) the maximum rate of interest not prohibited or made usurious
by law or (ii) the sum of that rate quoted by Wells Fargo Bank, N.T. & S.A. from
time to time as its prime rate, plus three percent (3%).
3.5 Payment Of Rent. Except as specifically provided otherwise in this Lease,
all rent shall be paid in lawful money of the United States, without any
abatement, reduction or offset for any reason whatsoever, to Landlord at such
address as Landlord may designate from time to time. Tenant's obligation to pay
Base Monthly Rent and all Additional Rent shall be appropriately prorated at the
commencement and expiration of the Lease Term. The failure by Tenant to pay any
Additional Rent as required pursuant to this Lease when due shall be treated the
same as a failure by Tenant to pay Base Monthly Rent when due, and Landlord
shall have the same rights and remedies against Tenant as Landlord would have
had Tenant failed to pay the Base Monthly Rent when due.
4.
<PAGE>
3.6 Prepaid Rent. Tenant shall, upon execution of this Lease, pay to Landlord
the amount set forth in Article 1 as "First Month's Prepaid Rent" as prepayment
of rent for credit against the first full month's payment of Base Monthly Rent
due hereunder.
3.7 Security Deposit. Tenant has deposited with Landlord the amount set forth in
Article 1 as the "Security Deposit" as security for the performance by Tenant of
the terms of this Lease to be performed by Tenant, and not as prepayment of
rent. Landlord may apply such portion or portions of the Security Deposit as are
reasonably necessary for the following purposes: (i) to remedy any default by
Tenant in the payment of Base Monthly Rent or Additional Rent or a late charge
or interest on defaulted rent, or any other monetary payment obligation of
Tenant under this Lease; (ii) to repair damage to the Leased Premises, the
Building or the Outside Areas caused or permitted to occur by Tenant; provided,
however, that if damage shall occur during the term of the Lease, and such
damage has not resulted in a dangerous, unsafe or unsanitary condition, Landlord
shall first notify Tenant of such damage and Tenant shall have 30 days from the
date of such notification to repair such damage at its own expense; (iii) to
clean and restore and repair the Leased Premises, the Building or the Outside
Areas following their surrender to Landlord if not surrendered in the condition
required pursuant to the provisions of Article 2, and (iv) to remedy any other
default of Tenant to the extent permitted by Law including, without limitation,
paying in full on Tenant's behalf any sums claimed by materialmen or contractors
of Tenant to be owing to them by Tenant for work done or improvements made at
Tenant's request to the Leased Premises. In this regard, Tenant hereby waives
any restriction on the uses to which the Security Deposit may be applied as
contained in Section 1950.7(c) of the California Civil Code and/or any successor
statute. In the event the Security Deposit or any portion thereof is so used,
Tenant shall pay to Landlord, promptly upon demand, an amount in cash sufficient
to restore the Security Deposit to the full original sum. If Tenant fails to
promptly restore the Security Deposit and if Tenant shall have paid to Landlord
any sums as "Last Month's Prepaid Rent," Landlord may, in addition to any other
remedy Landlord may have under this Lease, reduce the amount of Tenant's Last
Month's Prepaid Rent by transferring all or portions of such Last Month's
Prepaid Rent to Tenant's Security Deposit until such Security Deposit is
restored to the amount set forth in Article 1. Landlord shall not be deemed a
trustee of the Security Deposit. Landlord may use the Security Deposit in
Landlord's ordinary business and shall not be required to segregate it from
Landlord's general accounts. Tenant shall not be entitled to any interest on the
Security Deposit. If Landlord transfers the Building or the Property during the
Lease Term, Landlord may pay the Security Deposit to any subsequent owner in
conformity with the provisions of Section 1950.7 of the California Civil Code
and/or any successor statute, in which event the transferring landlord shall be
released from all liability for the return of the Security Deposit or Landlord
may return to Tenant the amount of the Security Deposit remaining after any
deductions made pursuant to this section. Tenant specifically grants to Landlord
(and Tenant hereby waives the provisions of California Civil Code Section 1950.7
to the contrary) a period of ninety days following a surrender of the Leased
Premises by Tenant to Landlord within which to inspect the Leased Premises, make
required restorations and repairs, receive and verify workmen's billings
therefor, and prepare a final accounting with respect to the Security Deposit.
In no event shall the Security Deposit or any portion thereof, be considered
prepaid rent.
ARTICLE 4
USE OF LEASED PREMISES AND OUTSIDE AREA
4.1 Permitted Use. Tenant shall be entitled to use the Leased Premises solely
for the "Permitted Use" as set forth in Article 1 and for no other purpose
whatsoever. Tenant shall continuously and without interruption use the Leased
Premises for such purpose for the entire Lease Term. Any discontinuance of such
use for a period of sixty consecutive calendar days shall be, at Landlord's
election, a default by Tenant under the terms of this Lease, provided, however,
that such discontinuance shall not be a default hereunder if Tenant maintains
the Leased Premises as if fully occupied and as otherwise required by the terms
of this Lease and if such discontinuance is not due to the material diminution
in financial strength of the Tenant. Tenant shall have the right to use the
Outside Areas in conjunction with its Permitted Use of the Leased Premises
solely for the purposes for which they were designed and intended and for no
other purposes whatsoever.
4.2 General Limitations On Use. Tenant shall not do or permit anything to be
done in or about the Leased Premises, the Building, the Outside Areas or the
Property which does or could (i) jeopardize the structural integrity of the
Building or (ii) cause damage to any part of the Leased Premises, the Building,
the Outside Areas or the Property. Tenant shall not operate any equipment within
the Leased Premises which does or could (i) injure, vibrate or shake the Leased
Premises or the Building, (ii) damage, overload or impair the efficient
operation of any electrical, plumbing, heating, ventilating or air conditioning
systems within or servicing the Leased Premises or the Building, or (iii) damage
or impair the efficient operation of the sprinkler system (if any) within or
servicing the Leased Premises or the Building. Tenant shall not install any
equipment or antennas on or make any penetrations of the exterior walls or roof
of the Building or affix any equipment to or make any penetrations or cuts in
the floor, ceiling, walls or roof of the Leased Premises without the Landlord's
written approval, which approval shall not unreasonably be withheld or delayed,
but which approval shall be conditioned upon Tenant's compliance with Article 2
hereof. Tenant shall not place any loads upon the floors, walls, ceiling or roof
systems which could endanger the structural integrity of the Building or damage
its floors, foundations or supporting structural components. Tenant shall not
place any explosive, flammable or harmful fluids or other waste materials in the
drainage systems of the Leased Premises, the Building, the Outside Areas or the
Property. Tenant shall not drain or discharge any fluids in the landscaped areas
or across the paved areas of the Property. Tenant shall not use any of the
Outside Areas for the storage of its materials, supplies, inventory or equipment
and all such materials, supplies, inventory or equipment shall at all times be
stored within the Leased Premises. Tenant shall not commit nor permit to be
committed any waste in or about the Leased Premises, the Building, the Outside
Areas or the Property.
5.
<PAGE>
4.3 Noise And Emissions. All noise generated by Tenant in its use of the Leased
Premises shall be confined or muffled so that it does not interfere with the
businesses of or annoy the occupants and/or users of adjacent properties. All
dust, fumes, odors and other emissions generated by Tenant's use of the Leased
Premises shall be sufficiently dissipated in accordance with sound environmental
practice and exhausted from the Leased Premises in such a manner so as not to
interfere with the businesses of or annoy the occupants and/or users of adjacent
properties, or cause any damage to the Leased Premises, the Building, the
Outside Areas or the Property or any component part thereof or the property of
adjacent property owners.
4.4 Trash Disposal. Tenant shall provide trash bins or other adequate garbage
disposal facilities within the trash enclosure areas provided or permitted by
Landlord outside the Leased Premises sufficient for the interim disposal of all
of its trash, garbage and waste. All such trash, garbage and waste temporarily
stored in such areas shall be stored in such a manner so that it is not visible
from outside of such areas, and Tenant shall cause such trash, garbage and waste
to be regularly removed from the Property in a clean, sanitary and neat
condition free and clear of all trash, garbage, waste and/or boxes, pallets and
containers containing same at all times.
4.5 Parking. Tenant shall not, at any time, park or permit to be parked any
recreational vehicles, inoperative vehicles or equipment in the Outside Areas or
on any portion of the Property. Tenant agrees to assume responsibility for
compliance by its employees and invitees with the parking provisions contained
herein. If Tenant or its employees park any vehicle within the Property in
violation of these provisions, then Landlord may, upon prior written notice to
Tenant giving Tenant one (1) day (or any applicable statutory notice period, if
longer than one (1) day) to remove such vehicle(s), in addition to any other
remedies Landlord may have under this Lease, charge Tenant, as Additional Rent,
and Tenant agrees to pay, as Additional Rent, Twenty Five Dollars ($25) per day
for each day or partial day that each such vehicle is so parked within the
Property.
4.6 Signs. Tenant shall not place or install on or within any portion of the
Leased Premises, the exterior of the Building, the Outside Areas or the Property
any sign, advertisement, banner, placard, or picture which is visible from the
exterior of the Leased Premises. Tenant shall not place or install on or within
any portion of the Leased Premises, the exterior of the Building, the Outside
Areas or the Property any business identification sign which is visible from the
exterior of the Leased Premises until Landlord shall have approved in writing
and in its reasonable discretion the location, size, content, design, method of
attachment and material to be used in the making of such sign; provided,
however, that so long as such signs are normal and customary business
directional or identification signs within the Building, Tenant shall not be
required to obtain Landlord's approval. Any sign, once approved by Landlord,
shall be installed at Tenant's sole cost and expense and only in strict
compliance with Landlord's approval, using a person approved by Landlord to
install same. Landlord may remove any signs (which have not been approved in
writing by Landlord), advertisements, banners, placards or pictures so placed by
Tenant on or within the Leased Premises, the exterior of the Building, the
Outside Areas or the Property and charge to Tenant the cost of such removal,
together with any costs incurred by Landlord to repair any damage caused
thereby, including any cost incurred to restore the surface (upon which such
sign was so affixed) to its original condition. Tenant shall remove all of
Tenant's signs, repair any damage caused thereby, and restore the surface upon
which the sign was affixed to its original condition, all to Landlord's
reasonable satisfaction, upon the termination of this Lease.
4.7 Compliance With Laws And Private Restrictions. Subject to Section 6.3
hereof, Tenant shall abide by and shall promptly observe and comply with, at its
sole cost and expense, all Laws and Private Restrictions respecting the use and
occupancy of the Leased Premises, the Building, the Outside Areas or the
Property including, without limitation, all Laws governing the use and/or
disposal of hazardous materials, and shall defend with competent counsel,
indemnify and hold Landlord harmless from any claims, damages or liability
resulting from Tenant's failure to so abide, observe, or comply. Tenant's
obligation hereunder shall survive the termination of the Lease. Landlord hereby
represents that it has not recorded or caused to be recorded any Private
Restrictions which have not been disclosed to Tenant prior to the date hereof
and which affect the Leased Premises and would have a material negative impact
on the Tenant or the Leased Premises.
4.8 Compliance With Insurance Requirements. With respect to any insurance
policies required or permitted to be carried by Landlord in accordance with the
provision of this Lease, copies of which have been or will, upon Tenant's
written request therefor, be provided to Tenant, Tenant shall not conduct nor
permit any other person to conduct any activities nor keep, store or use (or
allow any other person to keep, store or use) any item or thing within the
Leased Premises, the Building, the Outside Areas or the Property which (i) is
prohibited under the terms of any such policies, (ii) could result in the
termination of the coverage afforded under any of such policies, (iii) could
give to the insurance carrier the right to cancel any of such policies, or (iv)
could cause an increase in the rates (over standard rates) charged for the
coverage afforded under any of such policies. Tenant shall comply with all
requirements of any insurance company, insurance underwriter, or Board of Fire
Underwriters which are necessary to maintain, at standard rates, the insurance
coverages carried by either Landlord or Tenant pursuant to this Lease; provided,
however, that if insurance company, insurance underwriter, or Board of Fire
Underwriters requires any modification, alteration or improvement to the Leased
Premises which is of a capital nature, Landlord shall make such modification,
alteration or improvement and recover the cost from Tenant as a Property
Operating Expense pursuant to Article 3 and Section 13.12.
4.9 Landlord's Right To Enter. Landlord and its agents shall have the right to
enter the Leased Premises during normal business hours after giving Tenant at
least twenty four (24) hours prior notice (except in the event of an emergency
when no notice shall be required) notice and subject to Tenant's reasonable
security measures for the purpose of (i) inspecting the same; (ii) showing the
Leased Premises to prospective purchasers, mortgagees or tenants; (iii) making
necessary alterations, additions or repairs; and (iv) performing any of Tenant's
obligations when Tenant has failed to do so. Landlord shall have the right to
enter the Leased Premises during normal business hours (or as otherwise agreed),
subject to Tenant's reasonable security measures, for purposes of supplying any
6.
<PAGE>
maintenance or services agreed to be supplied by Landlord. Landlord shall have
the right to enter the Outside Areas during normal business hours for purposes
of (i) inspecting the exterior of the Building and the Outside Areas; (ii)
posting notices of nonresponsibility (and for such purposes Tenant shall provide
Landlord at least thirty days' prior written notice of any work to be performed
on the Leased Premises); and (iii) supplying any services to be provided by
Landlord. Any entry into the Leased Premises or the Outside Areas obtained by
Landlord in accordance with this paragraph shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a detainer of,
the Leased Premises, or an eviction, actual or constructive of Tenant from the
Leased Premises or any portion thereof; provided, however, that at all times
during any such entry, Landlord and its agents shall use commercially reasonable
efforts to minimize any disruption or interference with access to and use of the
Leased Premises.
4.10 Use Of Outside Areas. Tenant, in its use of the Outside Areas, shall at all
times keep the Outside Areas in a safe condition free and clear of all
materials, equipment, debris, trash (except within existing enclosed trash
areas), inoperable vehicles, and other items which are not specifically
permitted by Landlord to be stored or located thereon by Tenant. If, in the
opinion of Landlord, unauthorized persons are using any of the Outside Areas by
reason of, or under claim of, the express or implied authority or consent of
Tenant, then Tenant, upon demand of Landlord, shall restrain, to the fullest
extent then allowed by Law, such unauthorized use, and shall initiate such
appropriate proceedings as may be required to so restrain such use.
4.11 Environmental Protection. Tenant's obligations under this Section 4.11
shall survive the expiration or termination of this Lease.
(a) As used herein, the term "Hazardous Materials" shall mean any toxic
or hazardous substance, material or waste or any pollutant or infectious or
radioactive material, including but not limited to those substances, materials
or wastes regulated now or in the future under any of the following statutes or
regulations and any and all of those substances included within the definitions
of "hazardous substances," "hazardous materials," "hazardous waste," "hazardous
chemical substance or mixture," "imminently hazardous chemical substance or
mixture," "toxic substances," "hazardous air pollutant," "toxic pollutant," or
"solid waste" in the (a) Comprehensive Environmental Response, Compensation and
Liability Act of 1990 ("CERCLA" or "Superfund"), as amended by the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C. ss. 9601 et seq.,
(b) Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. ss. 6901
et seq., (c) Federal Water Pollution Control Act ("FSPCA"), 33 U.S.C. ss. 1251
et seq., (d) Clean Air Act ("CAA"), 42 U.S.C. ss. 7401 et seq., (e) Toxic
Substances Control Act ("TSCA"), 14 U.S.C. ss. 2601 et seq., (f) Hazardous
Materials Transportation Act, 49 U.S.C. ss. 1801, et seq., (g)
Carpenter-Presley-Tanner Hazardous Substance Account Act ("California
Superfund"), Cal. Health & Safety Code ss. 25300 et seq., (h) California
Hazardous Waste Control Act, Cal. Health & Safety code ss. 25100 et seq., (i)
Porter-Cologne Water Quality Control Act ("Porter-Cologne Act"), Cal. Water Code
ss. 13000 et seq., (j) Hazardous Waste Disposal Land Use Law, Cal. Health &
Safety codes ss. 25220 et seq., (k) Safe Drinking Water and Toxic Enforcement
Act of 1986 ("Proposition 65"), Cal. Health & Safety code ss. 25249.5 et seq.,
(l) Hazardous Substances Underground Storage Tank Law, Cal. Health & Safety code
ss. 25280 et seq., (m) Air Resources Law, Cal. Health & Safety Code ss. 39000 et
seq., and (n) regulations promulgated pursuant to said laws or any replacement
thereof, or as similar terms are defined in the federal, state and local laws,
statutes, regulations, orders or rules. Hazardous Materials shall also mean any
and all other biohazardous wastes and substances, materials and wastes which
are, or in the future become, regulated under applicable Laws for the protection
of health or the environment, or which are classified as hazardous or toxic
substances, materials or wastes, pollutants or contaminants, as defined, listed
or regulated by any federal, state or local law, regulation or order or by
common law decision, including, without limitation, (i) trichloroethylene,
tetrachloroethylene, perchloroethylene and other chlorinated solvents, (ii) any
petroleum products or fractions thereof, (iii) asbestos, (iv) polychlorinted
biphenyls, (v) flammable explosives, (vi) urea formaldehyde, (vii) radioactive
materials and waste, and (viii) materials and wastes that are harmful to or may
threaten human health, ecology or the environment.
(b) Notwithstanding anything to the contrary in this Lease, Tenant, at
its sole cost, shall comply with all Laws relating to the storage, use and
disposal of Hazardous Materials in connection with the Property; provided,
however, that Tenant shall not be responsible for contamination of the Leased
Premises or Outside Areas by Hazardous Materials existing as of the date the
Leased Premises are delivered to Tenant (whether before or after the Scheduled
Delivery Date) unless caused by Tenant. Tenant shall not store, use or dispose
of any Hazardous Materials except for those Hazardous Materials listed in a
Hazardous Materials management plan ("HMMP") which Tenant shall deliver to
Landlord upon execution of this Lease and update at least annually with Landlord
("Permitted Materials") which may be used, stored and disposed of provided (i)
such Permitted Materials are used, stored, transported, and disposed of in
strict compliance with applicable laws, (ii) such Permitted Materials shall be
limited to the materials listed on and may be used only in the quantities
specified in the HMMP, and (iii) Tenant shall provide Landlord with copies of
all material safety data sheets and other documentation required under
applicable Laws in connection with Tenant's use of Permitted Materials as and
when such documentation is provided to any regulatory authority having
jurisdiction, in no event shall Tenant cause or permit to be discharged into the
plumbing or sewage system of the Building or onto the land underlying or
adjacent to the Building any Hazardous Materials. Tenant shall be solely
responsible for and shall defend, indemnify, and hold Landlord and its agents
harmless from and against all claims, costs and liabilities, including
attorneys' fees and costs, arising out of or in connection with Tenant's
storage, use and/or disposal of Hazardous Materials. If the presence of
Hazardous Materials on the Leased Premises caused or permitted by Tenant results
in contamination or deterioration of water or soil, then Tenant shall promptly
take any and all action necessary to clean up such contamination, but the
foregoing shall in no event be deemed to constitute permission by Landlord to
allow the presence of such Hazardous Materials. At any time prior to the
expiration of the Lease Term if Tenant has a reasonable basis to suspect that
there has been any release or the presence of Hazardous Materials in the ground
or ground water on the Premises which did not exist upon commencement of the
Lease Term, Tenant shall have the right to conduct appropriate tests of water
and
7.
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soil and to deliver to Landlord the results of such tests to demonstrate that no
contamination in excess of permitted levels has occurred as a result of Tenant's
use of the Leased Premises. Tenant shall further be solely responsible for, and
shall defend, indemnify, and hold Landlord and its agents harmless from and
against all claims, costs and liabilities, including attorneys' fees and costs,
arising out of or in connection with any removal, cleanup and restoration work
and materials required hereunder to return the Leased Premises and any other
property of whatever nature to their condition existing prior to the appearance
of the Hazardous Materials, except such Hazardous Materials as exist on the
Leased Premises because of migration to the Leased Premises from an offsite
source, in which case Landlord may undertake any removal, cleanup, or
restoration work, the cost of which shall be included in Property Operating
Expenses as defined in Section 13.12.
(c) Upon termination or expiration of the Lease, Tenant at its sole
expense shall cause all Hazardous Materials placed in or about the Leased
Premises, the Building and/or the Property by Tenant, its agents, contractors,
or invitees, and all installations (whether interior or exterior) made by or on
behalf of Tenant relating to the storage, use, disposal or transportation of
Hazardous Materials to be removed from the property and transported for use,
storage or disposal in accordance and compliance with all Laws and other
requirements respecting Hazardous Materials used or permitted to be used by
Tenant. Tenant shall apply for and shall obtain from all appropriate regulatory
authorities (including any applicable fire department or regional water quality
control board) all permits, approvals and clearances necessary for the closure
of the Property and shall take all other actions as may be required to complete
the closure of the Building and the Property. In addition, prior to vacating the
Premises, Tenant shall undertake and submit to Landlord an environmental site
assessment from an environmental consulting company reasonably acceptable to
Landlord which site assessment shall evidence Tenant's compliance with this
Paragraph 4.11.
(d) At any time prior to expiration of the Lease term, subject to
reasonable prior notice (not less than forty-eight (48) hours) and Tenant's
reasonable security requirements and provided such activities do not
unreasonably interfere with the conduct of Tenant's business at the Leased
Premises, Landlord shall have the right to enter in and upon the Property,
Building and Leased Premises in order to conduct appropriate tests of water and
soil to determine whether levels of any Hazardous Materials in excess of legally
permissible levels has occurred as a result of Tenant's use thereof. Landlord
shall furnish copies of all such test results and reports to Tenant and, at
Tenant's option and cost, shall permit split sampling for testing and analysis
by Tenant. Such testing shall be at Tenant's expense if Landlord has a
reasonable basis for suspecting and confirms the presence of Hazardous Materials
in the soil or surface or ground water in, on, under, or about the Property, the
Building or the Leased Premises, which has been caused by or resulted from the
activities of Tenant, its agents, contractors, or invitees.
(e) Landlord may voluntarily cooperate in a reasonable manner with the
efforts of all governmental agencies in reducing actual or potential
environmental damage. Tenant shall not be entitled to terminate this Lease or to
any reduction in or abatement of rent by reason of such compliance or
cooperation. Tenant agrees at all times to cooperate fully with the requirements
and recommendations of governmental agencies regulating, or otherwise involved
in, the protection of the environment.
4.12 Rules And Regulations. Landlord have the right from time to time to
establish reasonable rules and regulations and/or amendments or additions
thereto respecting the use of the Leased Premises and the Outside Areas for the
care and orderly management of the Property. Upon delivery to Tenant of a copy
of such rules and regulations or any amendments or additions thereto, Tenant
shall comply with such rules and regulations. A violation by Tenant of any of
such rules and regulations shall constitute a default by Tenant under this Lease
provided Tenant has received notice of such default and has not remedied such
default within the applicable cure period. If there is a conflict between the
rules and regulations and any of the provisions of this Lease, the provisions of
this Lease shall prevail. Landlord shall not be responsible or liable to Tenant
for the violation of such rules and regulations by any other tenant of the
Property.
ARTICLE 5
REPAIRS, MAINTENANCE, SERVICES AND UTILITIES
5.1 Repair And Maintenance. Except in the case of damage to or destruction of
the Leased Premises, the Building, the Outside Areas or the Property caused by
an act of God other peril or condemnation, in which case the provisions of
Article 10 and Article 11 shall control, the parties shall have the following
obligations and responsibilities with respect to the repair and maintenance of
the Leased Premises, the Building, the Outside Areas, and the Property.
5.2 (a) Tenant's Obligations. Tenant shall, at all times during the Lease Term
and at its sole cost and expense, regularly clean and continuously keep and
maintain in good order, condition and repair (unless such repair is occasioned
by the active or gross negligence of Landlord) the Leased Premises and every
part thereof including, without limiting the generality of the foregoing, (i)
all interior walls, floors and ceilings, (ii) all windows, doors and skylights,
(iii) all electrical wiring, conduits, connectors and fixtures, (iv) all
plumbing, pipes, sinks, toilets, faucets and drains, (v) all lighting fixtures,
bulbs and lamps and all heating, ventilating and air conditioning equipment, and
(vi) all entranceways to the Leased Premises. Tenant, if requested to do so by
Landlord, shall hire, at Tenant's sole cost and expense, a licensed heating,
ventilating and air conditioning contractor to regularly and periodically (not
less frequently than every three months) inspect and perform required
maintenance on the heating, ventilating and air conditioning equipment and
systems serving the Leased Premises, or alternatively, Landlord may, at its
election, contract in its own name for such regular and periodic inspections of
and maintenance on such heating, ventilating and air conditioning equipment and
systems and charge to Tenant, as Additional Rent, the cost thereof. Tenant, if
requested to do so by Landlord, shall hire, at Tenant's sole cost and expense, a
licensed roofing contractor to
8.
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regularly and periodically (not less frequently than every three months) inspect
and perform required maintenance on the roof of the Leased Premises, or
alternatively, Landlord may, at its election, contract in its own name for such
regular and periodic inspections of and maintenance on the roof and charge to
Tenant, as Additional Rent, the cost thereof. Tenant shall, at all times during
the Lease Term, keep in a clean and safe condition the Outside Areas. Tenant
shall regularly and periodically sweep and clean the driveways and parking
areas. Tenant shall, at its sole cost and expense, repair all damage to the
Leased Premises, the Building, the Outside Areas or the Property caused by the
activities of Tenant, its employees, invitees or contractors promptly following
written notice from Landlord to so repair such damages. If Tenant shall fail to
perform the required maintenance or fail to make repairs required of it pursuant
to this paragraph within a reasonable period of time following notice from
Landlord to do so, then Landlord may, at its election and without waiving any
other remedy it may otherwise have under this Lease or at law, perform such
maintenance or make such repairs and charge to Tenant, as Additional Rent, the
costs so incurred by Landlord for same. All glass within or a part of the Leased
Premises, both interior and exterior, is at the sole risk of Tenant and any
broken glass shall promptly be replaced by Tenant at Tenant's expense with glass
of the same kind, size and quality. Tenant shall be entitled to the benefit of
any warranties in favor of Landlord applicable to Tenant's obligations under
Section 5.1(a). Notwithstanding the foregoing, if any of Tenant's obligations in
this Section 5.2(a) requires Tenant to make a capital improvement, Landlord
shall make such capital improvement and recover the cost from Tenant as a
Property Operating Expense pursuant to Article 3 and Section 13.12.
(b) Landlord's Obligation. Landlord shall maintain the Outside Areas
and public areas of the Property, including lobbies, stairs, elevators,
corridors and restrooms of the Building, and all exterior landscaping, in
reasonably god order and condition, except for damage occasioned by the act or
omission of Tenant, its employees, contractors, agents or invitees, which damage
shall be repaired by Landlord at Tenant. Landlord shall, at all times during the
Lease Term, maintain in good condition and repair the foundation, roof
structure, load-bearing and exterior walls of the Building. The provisions of
this subparagraph (b) shall in no way limit the right of Landlord to charge to
Tenant, as Additional Rent pursuant to Article 3 (to the extent permitted
pursuant to Article 3), the costs incurred by Landlord in performing such
maintenance and/or making such repairs.
5.3 Utilities. Tenant shall arrange at its sole cost and expense and in its own
name, for the supply of gas and electricity to the Leased Premises. In the event
that such services are not separately metered, Tenant shall, at its sole
expense, cause such meters to be installed. Landlord shall maintain the water
meter(s) in its own name; provided, however, that if at any time during the
Lease Term Landlord shall require Tenant to put the water service in Tenant's
name, Tenant shall do so at Tenant's sole cost. Tenant shall be responsible for
determining if the local supplier of water, gas and electricity can supply the
needs of Tenant and whether or not the existing water, gas and electrical
distribution systems within the Building and the Leased Premises are adequate
for Tenant's needs. Tenant shall be responsible for determining if the existing
sanitary and storm sewer systems now servicing the Leased Premises and the
Property are adequate for Tenant's needs. Tenant shall pay all charges for
water, gas, electricity and storm and sanitary sewer services as so supplied to
the Leased Premises, irrespective of whether or not the services are maintained
in Landlord's or Tenant's name.
5.4 Security. Tenant acknowledges that Landlord has not undertaken any duty
whatsoever to provide security for the Leased Premises, the Building, the
Outside Areas or the Property and, accordingly, Landlord is not responsible for
the security of same or the protection of Tenant's property or Tenant's
employees, invitees or contractors. To the extent Tenant determines that such
security or protection services are advisable or necessary, Tenant shall arrange
for and pay the costs of providing same.
5.5 Energy And Resource Consumption. Landlord may voluntarily cooperate in a
reasonable manner with the efforts of governmental agencies and/or utility
suppliers in reducing energy or other resource consumption within the Property.
Tenant shall not be entitled to terminate this Lease or to any reduction in or
abatement of rent by reason of such compliance or cooperation. Tenant agrees at
all times to cooperate fully with Landlord and to abide by all reasonable rules
established by Landlord (i) in order to maximize the efficient operation of the
electrical, heating, ventilating and air conditioning systems and all other
energy or other resource consumption systems with the Property given Tenant's
Permitted Use and/or (ii) in order to comply with the reasonable requirements of
utility suppliers and governmental agencies regulating the consumption of energy
and/or other resources.
5.6 Limitation Of Landlord's Liability. Landlord shall not be liable to Tenant
for injury to Tenant, its employees, agents, invitees or contractors, damage to
Tenant's property or loss of Tenant's business or profits, nor shall Tenant be
entitled to terminate this Lease or to any reduction in or abatement of rent by
reason of (i) Landlord's failure to provide security services or systems within
the Property for the protection of the Leased Premises, the Building or the
Outside Areas, or the protection of Tenant's property or Tenant's employees,
invitees, agents or contractors, or (ii) Landlord's failure to perform any
maintenance or repairs to the Leased Premises, the Building, the Outside Areas
or the Property until Tenant shall have first notified Landlord, in writing, of
the need for such maintenance or repairs, and then only after Landlord shall
have had a reasonable period of time following its receipt of such notice within
which to perform such maintenance or repairs, or (iii) any failure,
interruption, rationing or other curtailment in the supply of water, electric
current, gas or other utility service to the Leased Premises, the Building, the
Outside Areas or the Property from whatever cause (other than Landlord's active
or gross negligence or willful misconduct), or (iv) the unauthorized intrusion
or entry into the Leased Premises by third parties (other than Landlord, its
agents or contractors).
ARTICLE 6
ALTERATIONS AND IMPROVEMENTS
9.
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6.1 By Tenant. Tenant shall not make any alterations to or modifications of the
Leased Premises or construct any improvements within the Leased Premises until
Landlord shall have first approved, in writing, the plans and specifications
therefor, which approval shall not be unreasonably withheld or delayed. All such
modifications, alterations or improvements, once so approved, shall be made,
constructed or installed by Tenant at Tenant's expense (including all permit
fees and governmental charges related thereto), using a licensed contractor
first reasonably approved by Landlord, in substantial compliance with the
Landlord-approved plans and specifications therefor. All work undertaken by
Tenant shall be done in accordance with all Laws and in a good and workmanlike
manner using new materials of good quality. Tenant shall not commence the making
of any such modifications or alterations or the construction of any such
improvements until (i) all required governmental approvals and permits shall
have been obtained, (ii) all requirements regarding insurance imposed by this
Lease have been satisfied, (iii) Tenant shall have given Landlord at lease five
business days prior written notice of its intention to commence such work so
that Landlord may post and file notices of non-responsibility, and (iv) if
requested by Landlord, Tenant shall have obtained contingent liability and broad
form builder's risk insurance in an amount satisfactory to Landlord in its
reasonable discretion to cover any perils relating to the proposed work not
covered by insurance carried by Tenant pursuant to Article 9. In no event shall
Tenant make any modification, alterations or improvements whatsoever to the
Outside Areas or the exterior or structural components of the Building
including, without limitation, any cuts or penetrations in the floor, roof or
exterior walls of the Leased Premises without Landlord's written approval, which
approval shall not be unreasonably withheld or delayed. As used in this Article,
the term "modifications, alterations and/or improvements" shall include, without
limitation, the installation of additional electrical outlets, overhead lighting
fixtures, drains, sinks, partitions, doorways, or the like. Notwithstanding the
foregoing, Tenant, without Landlord's prior written consent, shall be permitted
to make non-structural alterations to the Building, provided that: (a) such
alterations do not exceed $25,000 individually or $50,000 in the aggregate in
any twelve month period, (b) Tenant shall timely provide Landlord the notice
required pursuant to Paragraph 4.9 above, (c) Tenant shall notify Landlord in
writing within thirty (30) days of completion of the alteration and deliver to
Landlord a set of the plans and specifications therefor, either "as built" or
marked to show construction changes made, and (d) Tenant shall, upon Landlord's
request, remove the alteration at the termination of the Lease and restore the
Leased Premises to their condition prior to such alteration.
6.2 Ownership Of Improvements. All modifications, alterations and improvements
made or added to the Leased Premises by Tenant shall remain the property of
Tenant during the Lease. Any such modifications, alterations or improvements,
once completed, shall not be altered or removed from the Leased Premises during
the Lease Term without Landlord's written approval first obtained in accordance
with the provisions of Paragraph 6.1 above. At the expiration or sooner
termination of this Lease, all such modifications, alterations and improvements
and all of Tenant's inventory, equipment, movable furniture, wall decorations
and trade fixtures, shall be removed from the Property, subject to Tenant's
obligations under Article 2 to repair all damage caused by such removal.
Landlord shall have no obligations to reimburse Tenant for all or any portion of
the cost or value of any such modifications, alterations or improvements so
surrendered to Landlord. All modifications, alterations or improvements which
are installed or constructed on or attached to the Leased Premises by Landlord
and/or at Landlord's expense shall be deemed real property and a part of the
Leased Premises and shall be property of Landlord. All lighting, plumbing,
electrical, heating, ventilating and air conditioning fixtures, partitioning,
window coverings, wall coverings and floor coverings installed by Tenant shall
be deemed improvements to the Leased Premises and not trade fixtures of Tenant.
6.3 Alterations Required By Law. Tenant shall make all modifications,
alterations and improvements to the Leased Premises, at its sole cost, that are
required by any Law because of (i) Tenant's use or occupancy of the Leased
Premises, the Building, the Outside Areas or the Property, provided, however,
that any modifications, alterations or improvement which are capital
improvements and which are not required because of Tenant's particular use of
the Leased Premises, the Building, the Outside Areas or the Property shall be
made by Landlord and Landlord shall recover the costs of such capital
improvements from Tenant in accordance with Section 13.12 and Article 3, (ii)
Tenant's application for any permit or governmental approval, or (iii) Tenant's
making of any modifications, alterations or improvements to or within the Leased
Premises. If Landlord shall, at any time during the Lease Term, be required by
any governmental authority to make any modifications, alterations or
improvements to the Building or the Property, the cost incurred by Landlord in
making such modifications, alterations or improvements, including interest at a
rate equal to the greater of (a) 12%, or (b) the sum of that rate quoted by
Wells Fargo Bank, N.T. & S.A. from time to time as its prime rate, plus two
percent (2%) ("Wells Prime Plus Two"), shall be amortized by Landlord over the
useful life of such modifications, alterations or improvements, as determined in
accordance with generally accepted accounting principles, and the monthly
amortized cost of such modifications, alterations and improvements as so
amortized shall be considered a Property Maintenance Cost during the Lease Term
or any extension thereof.
6.4 Liens. Tenant shall keep the Property and every part thereof free from any
lien, and shall pay when due all bills arising out of any work performed,
materials furnished, or obligations incurred by Tenant, its agents, employees or
contractors relating to the Property. If any such claim of lien is recorded
against Tenant's interest in this Lease, the Property or any part thereof,
Tenant shall bond against, discharge or otherwise cause such lien to be entirely
released within ten days after the Tenant has received notice from the Landlord,
a contractor, or any other third party. Tenant's failure to do so shall be
conclusively deemed a material default under the terms of this Lease.
ARTICLE 7
ASSIGNMENT AND SUBLETTING BY TENANT
7.1 By Tenant. Tenant shall not sublet the Leased Premises or any portion
thereof or assign its interest in this Lease, whether voluntarily or by
operation of Law, without Landlord's prior written consent which shall not be
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unreasonably withheld. Any attempted subletting or assignment without Landlord's
prior written consent, at Landlord's election, shall constitute a default by
Tenant under the terms of this Lease. The acceptance of rent by Landlord from
any person or entity other than Tenant, or the acceptance of rent by Landlord
from Tenant with knowledge of a violation of the provisions of this paragraph,
shall not be deemed to be a waiver by Landlord of any provision of this Article
or this Lease or to be a consent to any subletting by Tenant or any assignment
of Tenant's interest in this Lease. Without limiting the circumstances in which
it may be reasonable for Landlord to withhold its consent to an assignment or
subletting, Landlord and Tenant acknowledge that it shall be reasonable for
Landlord to withhold its consent in the following instances:
(a) the proposed assignee or sublessee is a governmental agency;
(b) in Landlord's reasonable judgment, the use of the Premises by the
proposed assignee or sublessee would involve occupancy by other than a Permitted
Use as set forth in Article 1, would entail any alterations which would lessen
the value of the leasehold improvements in the Premises, or would require
increased services by Landlord;
(c) in Landlord's reasonable judgment, the financial worth of the
proposed assignee is less than that of Tenant or does not meet the credit
standards applied by Landlord;
(d) the proposed assignee or sublessee (or any of its affiliates) has
been in material default under a lease, has been in litigation with a previous
landlord, or in the ten years prior to the assignment or sublease has filed for
bankruptcy protection, has been the subject of an involuntary bankruptcy, or has
been adjudged insolvent;
(e) Landlord has experienced a previous default by or is in litigation
with the proposed assignee or sublessee;
(f) in Landlord's reasonable judgment, the Premises, or the relevant
part thereof, will be used in a manner that will violate any negative covenant
as to use contained in this Lease;
(g) the use of the Premises by the proposed assignee or sublessee will
violate any applicable law, ordinance or regulation;
(h) the proposed assignee or sublessee is, as of the date of this
Lease, a tenant in the Building;
(i) the proposed assignment or sublease fails to include all of the
terms and provisions required to be included therein pursuant to this Article 7;
(j) Tenant is in default of any monetary or material non-monetary
obligation of Tenant under this Lease, or Tenant has defaulted under this Lease
on three or more occasions during the 12 months preceding the date that Tenant
shall request consent; or
(k) in the case of a subletting of less than the entire Premises, if
the subletting would result in the division of the Premises into more than two
subparcels or would require improvements to be made outside of the Premises.
Notwithstanding the foregoing, Landlord approves of Ascent Logic, Inc.
("Ascent") as a subtenant of Tenant, subject to Landlord's review and approval
of a sublease between Tenant and Ascent, execution by Landlord of its standard
form of consent and further subject to Tenant's compliance with all other
provisions of this Article 7. Landlord shall not be entitled to terminate this
Lease pursuant to Section 7.3 below for any proposed sublease to Ascent.
7.2 Merger Or Reorganization. If Tenant is a corporation, any dissolution,
merger, consolidation or other reorganization of Tenant, or the sale or other
transfer in the aggregate over the Lease Term of a controlling percentage of the
capital stock of Tenant, shall be deemed a voluntary assignment of Tenant's
interest in this Lease except that any public offering of capital stock or sales
of stock (other than a block trade) through an over-the-counter market or
recognized national or international exchange shall not included in determining
whether a controlling percentage of the capital stock of Tenant has been
transferred. The phrase "controlling percentage" means the ownership of and the
right to vote stock possessing more than fifty percent of the total combined
voting power of all classes of Tenant's capital stock issued, outstanding and
entitled to vote for the election of directors. If Tenant is a partnership, a
withdrawal or change, voluntary, involuntary or by operation of Law, of any
general partner, or the dissolution of the partnership, shall be deemed a
voluntary assignment of Tenant's interest in this Lease. Notwithstanding the
foregoing, Tenant may, without Landlord's prior written consent and without
being subject to any of the provisions of this Article 7, including without
limitation, Landlord's right to recapture any portion of the Property, sublet
the Premises or assign this Lease to (individually, a "Permitted Assignee,"
collectively, "Permitted Assignees"): (i) a subsidiary, affiliate, division,
corporation or joint venture controlling, controlled by or under common control
with Tenant; (ii) a successor corporation related to Tenant by merger,
consolidation, nonbankruptcy reorganization, or government action; or (iii) a
purchaser of substantially all of Tenant's assets located in the Leased
Premises, provided that any Permitted Assignee under (ii) or (iii) above has a
net worth equal to or greater than Tenant and does not have any contingent or
off-balance sheet liabilities that make it less credit worthy than Tenant.
7.3 Landlord's Election. If Tenant shall desire to assign its interest under the
Lease or to sublet the Leased Premises, Tenant must first notify Landlord, in
writing, of its intent to so assign or sublet, at least thirty (30) days in
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advance of the date it intends to so assign its interest in this Lease or sublet
the Leased Premises but not sooner than one hundred eighty days in advance of
such date, specifying in detail the terms of such proposed assignment or
subletting, including the name of the proposed assignee or sublessee, the
property assignee's or sublessee's intended use of the Leased Premises, current
financial statements (including a balance sheet, income statement and statement
of cash flow, all prepared in accordance with generally accepted accounting
principles) of such proposed assignee or sublessee, the form of documents to be
used in effectuating such assignment or subletting and such other information as
Landlord may reasonably request. Landlord shall have a period of ten (10)
business days following receipt of such notice and the required information
within which to do one of the following: (i) consent to such requested
assignment or subletting subject to Tenant's compliance with the conditions set
forth in Paragraph 7.4 below, or (ii) refuse to so consent to such requested
assignment or subletting, provided that such consent shall not be unreasonably
refused, or (iii) terminate this Lease as to the portion (including all) of the
Leased Premises that is the subject of the proposed assignment or subletting.
During such ten (10) business day period, Tenant covenants and agrees to supply
to Landlord, upon request, all necessary or relevant information which Landlord
may reasonably request respecting such proposed assignment or subletting and/or
the proposed assignee or sublessee. Notwithstanding the foregoing, if Landlord
elects to terminate the Lease as provided herein, Landlord shall notify Tenant
thereof during such ten (10) business day period and Tenant shall have ten (10)
business days thereafter to either (i) accept Landlord's termination or (ii)
rescind its request for consent to the assignment or subletting, in which case
the Lease shall continue in full force and effect between Tenant and Landlord.
7.4 Conditions To Landlord's Consent. If Landlord elects to consent, or shall
have been ordered to so consent by a court of competent jurisdiction, to such
requested assignment or subletting, such consent shall be expressly conditioned
upon the occurrence of each of the conditions below set forth, and any purported
assignment or subletting made or ordered prior to the full and complete
satisfaction of each of the following conditions shall be void and, at the
election of Landlord, which election may be exercised at any time following such
a purported assignment or subletting but prior to the satisfaction of each of
the stated conditions, shall constitute a material default by Tenant under this
Lease until cured by satisfying in full each such condition by the assignee or
sublessee. The conditions are as follows:
(a) Landlord having approved in form and substance the assignment or
sublease agreement and any ancillary documents, which approval shall not be
unreasonably withheld by Landlord if the requirements of this Article 7 are
otherwise complied with.
(b) Each such sublessee or assignee having agreed, in writing
satisfactory to Landlord and its counsel and for the benefit of Landlord, to
assume, to be bound by, and to perform the obligations of this Lease to be
performed by Tenant which relate to space being subleased.
(c) Tenant having fully and completely performed all of its obligations
under the terms of this Lease through and including the date of such assignment
or subletting.
(d) Tenant having reimbursed to Landlord all reasonable costs and
reasonable attorneys' fees incurred by Landlord in conjunction with the
processing and documentation of any such requested subletting or assignment.
(e) Tenant having delivered to Landlord a complete and fully-executed
duplicate original of such sublease agreement or assignment agreement (as
applicable) and all related agreements.
(f) Tenant having paid, or having agreed in writing to pay as to future
payments, to Landlord fifty percent (50%) of all assignment consideration or
excess rentals to be paid to Tenant or to any other on Tenant's behalf or for
Tenant's benefit for such assignment or subletting as follows:
(i) If Tenant assigns its interest under this Lease and if all
or a portion of the consideration for such assignment is to be paid by the
assignee at the time of the assignment, that Tenant shall have paid to Landlord
and Landlord shall have received an amount equal to fifty percent (50%) of the
assignment consideration so paid or to be paid (whichever is the greater) at the
time of the assignment by the assignee; or
(ii) If Tenant assigns its interest under this Lease and if
Tenant is to receive all or a portion of the consideration for such assignment
in future installments, that Tenant and Tenant's assignee shall have entered
into a written agreement with and for the benefit of Landlord satisfactory to
Landlord and its counsel whereby Tenant and Tenant's assignee jointly agree to
pay to Landlord an amount equal to fifty percent (50%) of all such future
assignment consideration installments to be paid by such assignee as and when
such assignment consideration is so paid.
(iii) If Tenant subleases the Leased Premises, that Tenant and
Tenant's sublessee shall have entered into a written agreement with and for the
benefit of Landlord satisfactory to Landlord and its counsel whereby Tenant and
Tenant's sublessee jointly agree to pay to Landlord fifty percent (50%) of all
excess rentals to be paid by such sublessee as and when such excess rentals are
so paid.
7.5 Assignment Consideration And Excess Rentals Defined. For purposes of this
Article, including any amendment to this Article by way of addendum or other
writing, the term "assignment consideration" shall mean all consideration to be
paid by the assignee to Tenant or to any other party on Tenant's behalf or for
Tenant's benefit as consideration for such assignment, after deduction for any
commissions paid by Tenant or any other costs or expenses (including, without
limitation, tenant improvements, capital improvements, building upgrades, permit
fees, attorneys' fees, and other consultants' fees) incurred by Tenant in
connection with such assignment, and the term "excess rentals" shall mean all
consideration to be paid by the sublessee to Tenant or to any other party on
Tenant's
12.
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behalf or for Tenant's benefit for the sublease of the Leased Premises in excess
of the rent due to Landlord under the terms of this Lease for the same period,
after deduction for any commissions paid by Tenant or any other costs or
expenses (including, without limitation, tenant improvements, capital
improvements, building upgrades, permit fees, attorneys' fees, and other
consultants' fees) incurred by Tenant in connection with such sublease. Tenant
agrees that the portion of any assignment consideration and/or excess rentals
arising from any assignment or subletting by Tenant which is to be paid to
Landlord pursuant to this Article now is and shall then be the property of
Landlord and not the property of Tenant.
7.6 Payments. All payments required by this Article to be made to Landlord shall
be made in cash in full as and when they become due. At the time Tenant,
Tenant's assignee or sublessee makes each such payment to Landlord, Tenant or
Tenant's assignee or sublessee, as the case may be, shall deliver to Landlord an
itemized statement in reasonable detail showing the method by which the amount
due Landlord was calculated and certified by the party making such payment as
true and correct.
7.7 Good Faith. The rights granted to Tenant by this Article are granted in
consideration of Tenant's express covenant that all pertinent allocations which
are made by Tenant between the rental value of the Leased Premises and the value
of any of Tenant's personal property which may be conveyed or leased generally
concurrently with and which may reasonably be considered a part of the same
transaction as the permitted assignment or subletting shall be made fairly,
honestly and in good faith. If Tenant shall breach this covenant, Landlord may
immediately declare Tenant to be in material default under the terms of this
Lease and terminate this Lease and/or exercise any other rights and remedies
Landlord has under Article 12 of this Lease.
7.8 Effect Of Landlord's Consent. No subletting or assignment, even with the
consent of Landlord, shall relieve Tenant of its personal and primary obligation
to pay rent and to perform all of the other obligations to be performed by
Tenant hereunder. Consent by Landlord to one or more assignments of Tenant's
interest in this Lease or to one or more sublettings of the Leased Premises
shall not be deemed to be a consent to any subsequent assignment or subletting.
If Landlord shall have been ordered by a court of competent jurisdiction to
consent to a requested assignment or subletting, or such an assignment or
subletting shall have been ordered by a court of competent jurisdiction over the
objection of Landlord, such assignment or subletting shall not be binding
between the assignee (or sublessee) and Landlord until such time as all
conditions set forth in Paragraph 7.4 above have been fully satisfied (to the
extent not then satisfied) by the assignee or sublessee, including, without
limitation, the payment to Landlord of all agreed assignment considerations
and/or excess rentals then due Landlord.
ARTICLE 8
LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY
8.1 Limitation On Landlord's Liability And Release. Landlord shall not be liable
to Tenant for, and Tenant hereby releases Landlord and its partners, principals,
members, officers, agents, employees, lenders, attorneys, and consultants from,
any and all liability, whether in contract, tort or on any other basis, for any
injury to or any damage sustained by Tenant, Tenant's agents, employees,
contractors or invitees, any damage to Tenant's property, or any loss to
Tenant's business, loss of Tenant's profits or other financial loss of Tenant
resulting from or attributable to the condition of, the management of, the
repair or maintenance of, the protection of, the supply of services or utilities
to, the damage in or destruction of the Leased Premises, the Building, the
Property or the Outside Areas, including without limitation (i) the failure,
interruption, rationing or other curtailment or cessation in the supply of
electricity, water, gas or other utility service to the Property, the Building
or the Leased Premises; (ii) the vandalism or forcible entry into the Building
or the Leased Premises; (iii) the penetration of water into or onto any portion
of the Leased Premises; (iv) the failure to provide security and/or adequate
lighting in or about the Property, the Building or the Leased Premises, (v) the
existence of any design or construction defects within the Property, the
Building or the Leased Premises; (vi) the failure of any mechanical systems to
function properly (such as the HVAC systems); (vii) the blockage of access to
any portion of the Property, the Building or the Leased Premises, except that
Tenant does not so release Landlord from such liability to the extent such
damage was proximately caused by Landlord's or its agent's or contractors'
active or gross negligence, willful misconduct, or Landlord's failure to perform
an obligation expressly undertaken pursuant to this Lease after a reasonable
period of time shall have lapsed following receipt of written notice from Tenant
to so perform such obligation. In this regard, Tenant acknowledges that it is
fully apprised of the provisions of Law relating to releases, and particularly
to those provisions contained in Section 1542 of the California Civil Code which
reads as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
Notwithstanding such statutory provision, and for the purpose of implementing a
full and complete release and discharge, Tenant hereby (i) waives the benefit of
such statutory provision and (ii) acknowledges that, subject to the exceptions
specifically set forth herein, the release and discharge set forth in this
paragraph is a full and complete settlement and release and discharge of all
claims and is intended to include in its effect, without limitation, all claims
which Tenant, as of the date hereof, does not know of or suspect to exist in its
favor.
8.2 Tenant's Indemnification Of Landlord. Tenant shall defend with competent
counsel satisfactory to Landlord any claims made or legal actions filed or
threatened against Landlord with respect to the violation of any Law, or the
death, bodily injury, personal injury, property damage, or interference with
contractual or property rights suffered by any third party occurring within the
Leased Premises or resulting from Tenant's use or occupancy of the Leased
Premises, the Building or the Outside Areas, or resulting from Tenant's
activities in or about the Leased
13.
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Premises, the Building, the Outside Areas or the Property, and Tenant shall
indemnify and hold Landlord, Landlord's partners, principals, members,
employees, agents and contractors harmless from any loss liability, penalties,
or expense whatsoever (including any loss attributable to vacant space which
otherwise would have been leased, but for such activities) resulting therefrom,
except to the extent proximately caused by the negligence or willful misconduct
of Landlord, its agents or contractors. This indemnity agreement shall survive
until the latter to occur of (i) the date of the expiration, or sooner
termination, of this Lease, or (ii) the date Tenant actually vacates the Leased
Premises.
ARTICLE 9
INSURANCE
9.1 Tenant's Insurance. Tenant shall maintain insurance complying with all of
the following:
(a) Tenant shall procure, pay for and keep in full force and effect, at
all times during the Lease Term, the following:
(i) Comprehensive general liability insurance insuring Tenant
against liability for personal injury, bodily injury, death and damage to
property occurring within the Leased Premises, or resulting from Tenant's use or
occupancy of the Leased Premises, the Building, the Outside Areas or the
Property, or resulting from Tenant's activities in or about the Leased Premises
or the Property, with coverage in an amount equal to Tenant's Required Liability
Coverage (as set forth in Article 1), which insurance shall contain a "broad
form liability" endorsement insuring Tenant's performance of Tenant's
obligations to indemnify Landlord as contained in this Lease.
(ii) Fire and property damage insurance in so-called "fire and
extended coverage" form insuring Tenant against loss from physical damage to
Tenant's personal property, inventory, trade fixtures and improvements within
the Leased Premises with coverage for the full actual replacement cost thereof;
(iii) Plate glass insurance, at actual replacement cost;
(iv) Boiler insurance, if applicable;
(v) Workers' compensation insurance and any other employee
benefit insurance sufficient to comply with all laws; and
(vi) With respect to making of alterations or the construction
of improvements or the like undertaken by Tenant, contingent liability and
builder's risk insurance, in an amount and with coverage reasonably satisfactory
to Landlord.
(b) Each policy of liability insurance required to be carried by Tenant
pursuant to this paragraph or actually carried by Tenant with respect to the
Leased Premises or the Property: (i) shall, except with respect to insurance
required by subparagraph (a)(vi) above, name Landlord, and such others as are
designated by Landlord, as additional insureds; (ii) shall be primary insurance
providing that the insurer shall be liable for the full amount of the loss, up
to and including the total amount of liability set forth in the declaration of
coverage, without the right of contribution from or prior payment by any other
insurance coverage of Landlord; (iii) shall be in a form reasonably satisfactory
to Landlord; (iv) shall be carried with companies reasonably acceptable to
Landlord with Best's ratings of at least A and XI; (v) shall provide that such
policy shall not be subject to cancellation, lapse or change except after at
least thirty days prior written notice to Landlord, and (vi) shall contain a
so-called "severability" or "cross liability" endorsement. Each policy of
property insurance maintained by Tenant with respect to the Leased Premises or
the Property or any property therein (i) shall provide that such policy shall
not be subject to cancellation or lapse except after at least thirty days prior
written notice to Landlord and (ii) shall contain a waiver and/or a permission
to waive by the insurer of any right of subrogation against Landlord, its
partners, principals, members, officers, employees, agents and contractors,
which might arise by reason of any payment under such policy or by reason of any
act or omission of Landlord, its partners, principals, members, officers,
employees, agents and contractors.
(c) Prior to the time Tenant or any of its contractors enters the
Leased Premises, Tenant shall deliver to Landlord, with respect to each policy
of insurance required to be carried by Tenant pursuant to this Article, a copy
of such policy (appropriately authenticated by the insurer as having been
issued, premium paid) or a certificate of the insurer certifying in form
satisfactory to Landlord that a policy has been issued, premium paid, providing
the coverage required by this Paragraph and containing the provisions specified
herein. With respect to each renewal or replacement of any such insurance, the
requirements of this Paragraph must be complied with not less than thirty days
prior to the expiration or cancellation of the policies being renewed or
replaced. Landlord may, at any time and from time to time, inspect and/or copy
any and all insurance certificates evidencing the insurance required to be
carried by Tenant pursuant to this Article. If Landlord's Lender, insurance
broker, advisor or counsel reasonably determines at any time that the amount of
coverage set forth in Paragraph 9.1(a) for any policy of insurance Tenant is
required to carry pursuant to this Article is not adequate, then Tenant shall
increase the amount of coverage for such insurance to such greater amount as
Landlord's Lender, insurance broker, advisor or counsel reasonably deems
adequate.
14.
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9.2 Landlord's Insurance. With respect to insurance maintained by Landlord:
(a) Landlord shall maintain, as the minimum coverage required of it by
this Lease, fire and property damage insurance in so-called "fire and extended
coverage" form insuring Landlord (and such others as Landlord may designate)
against loss from physical damage to the Building with coverage of not less than
one hundred percent (100%) of the full actual replacement cost thereof and
against loss of rents for a period of not less than six months. Such fire and
property damage insurance, at Landlord's election but without any requirements
on Landlord's behalf to do so, (i) may be written in so-called "all risk" form,
excluding only those perils commonly excluded from such coverage by Landlord's
then property damage insurer; (ii) may provide coverage for physical damage to
the improvements so insured for up to the entire full actual replacement cost
thereof; (iii) may be endorsed to cover loss or damage caused by any additional
perils against which Landlord may elect to insure, including earthquake and/or
flood; and/or (iv) may provide coverage for loss of rents for a period of up to
twelve months. Landlord shall not be required to cause such insurance to cover
any of Tenant's personal property, inventory, and trade fixtures, or any
modifications, alterations or improvements made or constructed by Tenant to or
within the Leased Premises. Landlord shall use commercially reasonable efforts
to obtain such insurance at competitive rates.
(b) Landlord shall maintain comprehensive general liability insurance
insuring Landlord (and such others as are designated by Landlord) against
liability for personal injury, bodily injury, death, and damage to property
occurring in, on or about, or resulting from the use or occupancy of the
Property, or any portion thereof, with combined single limit coverage of at
least Three Million Dollars ($3,000,000). Landlord may carry such greater
coverage as Landlord or Landlord's Lender, insurance broker, advisor or counsel
may from time to time determine is reasonably necessary for the adequate
protection of Landlord and the Property.
(c) Landlord may maintain any other insurance which in the opinion of
its insurance broker, advisor or legal counsel is prudent in carry under the
given circumstances, provided such insurance is commonly carried by owners of
property similarly situated and operating under similar circumstances.
9.3 Mutual Waiver Of Subrogation. Notwithstanding anything to the contrary
contained herein, Landlord hereby releases Tenant, and Tenant hereby releases
Landlord and each of their respective partners, principals, members, officers,
agents, employees and servants, from any and all liability for loss, damage or
injury to the property of the other in or about the Leased Premises or the
Property which is caused by or results from a peril or event or happening which
is covered by insurance actually carried and in force at the time of the loss or
required to be carried under this Lease by the party sustaining such loss. Each
of Landlord and Tenant shall use commercially reasonable efforts to obtain from
the insurance carrier issuing any property insurance policy required to be
carried by this Lease, a waiver of all right of recovery by way of subrogation
as required herein in connection with any injury or damage covered by such
policy. Failure of either Tenant or Landlord to obtain such a waiver shall not
be deemed a violation of this Lease or a default hereunder.
ARTICLE 10
DAMAGE TO LEASED PREMISES
10.1 Landlord's Duty To Restore. If the Leased Premises, the Building or the
Outside Area are damaged by any peril after the Effective Date of this Lease,
Landlord shall restore the same, as and when required by this paragraph, unless
this Lease is terminated by Landlord pursuant to Paragraph 10.3 or by Tenant
pursuant to Paragraph 10.4. If this Lease is not so terminated, then upon the
issuance of all necessary governmental permits, Landlord shall commence and
diligently prosecute to completion the restoration of the Leased Premises, the
Building or the Outside Area, as the case may be, to the extent then allowed by
law, to substantially the same condition in which it existed as of the Lease
Commencement Date. Landlord's obligation to restore shall be limited to actual
receipt of insurance proceeds and to the improvements constructed by Landlord,
except if lack of insurance proceeds is due to Landlord's failure to carry the
insurance required to be carried by Landlord under this Lease. Landlord shall
have no obligation to restore any Improvements made by Tenant to the Leased
Premises or any of Tenant's personal property, inventory or trade fixtures. If
the Lease has not been terminated as provided herein, upon completion of the
restoration by Landlord, Tenant shall forthwith replace or fully repair all of
Tenant's personal property, inventory, trade fixtures and other improvements
constructed by Tenant to like or similar conditions as existed at the time
immediately prior to such damage or destruction.
10.2 Insurance Proceeds. All insurance proceeds available from the fire and
property damage insurance carried by Landlord shall be paid to and become the
property of Landlord. If this Lease is terminated pursuant to either Paragraph
10.3 or 10.4, all insurance proceeds available from insurance carried by Tenant
which cover loss of property that is Landlord's property or would become
Landlord's property on termination of this Lease shall be paid to and become the
property of Landlord, and the remainder of such proceeds shall be paid to and
become the property of Tenant. If this Lease is not terminated pursuant to
either Paragraph 10.3 or 10.4, all insurance proceeds available from insurance
carried by Tenant which cover loss to property that is Landlord's property shall
be paid to and become the property of Landlord, and all proceeds available from
such insurance which cover loss to property which would only become the property
of Landlord upon the termination of this Lease shall be paid to and remain the
property of Tenant. The determination of Landlord's property and Tenant's
property shall be made pursuant to Paragraph 6.2.
10.3 Landlord's Right To Terminate. Landlord shall have the option to terminate
this Lease in the event any of the following occurs, which option may be
exercised only by delivery to Tenant of a written notice of election to
terminate within thirty days after the date of such damage or destruction:
15.
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(a) The Building is damaged by any peril covered by valid and
collectible insurance actually carried by Landlord and in force at the time of
such damage or destruction (an "insured peril") to such an extent that the
estimated cost to restore the Building exceeds the lesser of (i) the insurance
proceeds available from insurance actually carried by Landlord after payment of
any deductible (except if lack of insurance proceeds is due to Landlord's
failure to carry the insurance required to be carried under this Lease),
provided, however, that Tenant may elect to fund any shortfall in insurance
proceeds, in which case, Landlord may not terminate the Lease pursuant to the
foregoing provision, or (ii) fifty percent of the then actual replacement cost
thereof;
(b) The Building is damaged by an uninsured peril, which peril Landlord
was not required to insure against pursuant to the provisions of Article 9 of
this Lease.
(c) The Building is damaged by any peril and, because of the laws then
in force, the Building (i) cannot be restored at reasonable cost or (ii) if
restored, cannot be used for the same use being made thereof before such damage.
10.4 Tenant's Right To Terminate. If the Leased Premises, the Building or the
Outside Area are damaged by any peril and Landlord does not elect to terminate
this Lease or is not entitled to terminate this Lease pursuant to this Article,
then as soon as reasonably practicable, Landlord shall furnish Tenant with the
written opinion of Landlord's architect or construction consultant as to when
the restoration work required of Landlord may be complete. Tenant shall have the
option to terminate this Lease in the event any of the following occurs, which
option may be exercised only by delivery to Landlord of a written notice of
election to terminate within ten (10) business days after Tenant receives from
Landlord the estimate of the time needed to complete such restoration:
(a) If the time estimated to substantially complete or actually
complete the restoration exceeds 180 days, extended for Force Majeure from and
after the date the architect's or construction consultant's written opinion is
delivered, provided, however, if Tenant intends to terminate hereunder because
the restoration has not been completed within 180 days (as extended for Force
Majeure), Tenant shall first give Landlord written notice of its intention to
terminate, and then Landlord shall have an additional sixty (60) days to
complete restoration; or
(b) If the damage occurred within twelve months of the last day of the
Lease Term and the time estimated to substantially complete the restoration
exceeds one hundred eighty days from and after the date such restoration is
commenced, or
(c) a spill of or contamination from Hazardous Materials causes the
public health authorities or the Fire Department to prevent access to Leased
Premises for a period in excess of 180 days.
10.5 Tenant's Waiver. Landlord and Tenant agree that the provisions of Paragraph
10.4 above, captioned "Tenant's Right To Terminate", are intended to supersede
and replace the provisions contained in California Civil Code, Section 1932,
Subdivision 2, and California Civil Code, Section 1934, and accordingly, Tenant
hereby waives the provisions of such Civil Code Sections and the provisions of
any successor Civil Code Sections or similar laws hereinafter enacted.
10.6 Abatement Of Rent. In the event of damage to the Leased Premises, the Base
Monthly Rent (and any Additional Rent) shall be temporarily abated from the date
such damage occurs through the period of restoration in proportion in the degree
to which Tenant's use of the Leased Premises is impaired by such damage.
ARTICLE 11
CONDEMNATION
11.1 Tenant's Right To Terminate. Except as otherwise provided in Paragraph 11.4
below regarding temporary takings, Tenant shall have the option to terminate
this Lease if, as a result of any taking, (i) all of the Leased Premises is
taken, or (ii) twenty-five percent (25%) or more of the Leased Premises or fifty
percent (50%) of the parking area is taken and the part of the Leased Premises
that remains cannot, within a reasonable period of time, be made reasonably
suitable for the continued operation of Tenant's business. Tenant must exercise
such option within a reasonable period of time, to be effective on the later to
occur of (i) the date that possession of that portion of the Leased Premises
that is condemned is taken by the condemnor or (ii) the date Tenant vacated the
Leased Premises.
11.2 Landlord's Right To Terminate. Except as otherwise provided in Paragraph
11.4 below regarding temporary takings, Landlord shall have the option to
terminate this Lease if, as a result of any taking, (i) all of the Leased
Premises is taken, (ii) twenty-five percent (25%) or more of the Leased Premises
is taken and the part of the Leased Premises that remains cannot, within one (1)
year from the date of the taking, be made reasonably suitable for the continued
operation of Tenant's business, or (iii) because of the laws then in force, the
Leased Premises may not be used for the same use being made before such taking,
whether or not restored as required by Paragraph 11.3 below. Any such option to
terminate by Landlord must be exercised within a reasonable period of time, to
be effective as of the date possession is taken by the condemnor.
11.3 Restoration. If any part of the Leased Premises or the Building is taken
and this Lease is not terminated, then Landlord shall, to the extent not
prohibited by laws then in force, repair any damage occasioned thereby to the
remainder thereof to a condition reasonably suitable for Tenant's continued
operations and otherwise, to the extent practicable, in the manner and to the
extent provided in Paragraph 10.1.
16.
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11.4 Temporary Taking. If a portion of the Leased Premises is temporarily taken
for a period of 180 days or less and such period does not extend beyond the
Lease Expiration Date, this Lease shall remain in effect. If any portion of the
Leased Premises is temporarily taken for a period which exceeds one year or
which extends beyond the Lease Expiration Date, then the rights of Landlord and
Tenant shall be determined in accordance with Paragraphs 11.1 and 11.2 above.
11.5 Division Of Condemnation Award. Any award made for any taking of the
Property, the Building, or the Leased Premises, or any portion thereof, shall
belong to and be paid to Landlord, and Tenant hereby assigns to Landlord all of
its right, title and interest in any such award; provided, however, that Tenant
shall be entitled to receive any portion of the award that is made specifically
(i) for the taking of personal property, inventory or trade fixtures belonging
to Tenant, (ii) for the interruption of Tenant's business or its moving costs,
or (iii) for the value of any leasehold improvements installed and paid for by
Tenant. The rights of Landlord and Tenant regarding any condemnation shall be
determined as provided in this Article, and each party hereby waives the
provisions of Section 1265.130 of the California Code of Civil Procedure, and
the provisions of any similar law hereinafter enacted, allowing either party to
petition the Supreme Court to terminate this Lease and/or otherwise allocate
condemnation awards between Landlord and Tenant in the event of a taking of the
Leased Premises. In the event of a temporary taking, Tenant shall receive the
entire condemnation award, provided that Tenant is not in default hereunder and
continues pay all rent (including Base Monthly Rent and Additional Rent) due
under this Lease.
11.6 Abatement Of Rent. In the event of a taking of the Leased Premises (other
than a temporary taking), then, as of the date possession is taken by the
condemning authority, the Base Monthly Rent shall be reduced in the same
proportion that the area of that part of the Leased Premises so taken (less any
addition to the area of the Leased Premises by reason of any reconstruction)
bears to the area of the Leased Premises immediately prior to such taking.
11.7 Taking Defined. The term "taking" or "taken" as used in this Article 11
shall mean any transfer or conveyance of all or any portion of the Property to a
public or quasi-public agency or other entity having the power of eminent domain
pursuant to or as a result of the exercise of such power by such an agency,
including any inverse condemnation and/or any sale or transfer by Landlord of
all or any portion of the Property to such an agency under threat of
condemnation or the exercise of such power.
ARTICLE 12
DEFAULT AND REMEDIES
12.1 Events Of Tenant's Default. Tenant shall be in default of its obligations
under this Lease if any of the following events occur:
(a) Tenant shall have failed to pay Base Monthly Rent or any Additional
Rent when due provided, however, that once but only once in any twelve (12)
month period during the Lease Term, Tenant shall be entitled to written notice
of non-receipt of Base Monthly Rent or Additional Rent from Landlord, and Tenant
shall not be in default for such delinquency if such installment of Base Monthly
Rent or Additional Rent is received by Landlord within ten (10) business days
after Tenant's receipt of such notice from Landlord; or
(b) Tenant shall have done or permitted to be done any act, use or
thing in its use, occupancy or possession of the Leased Premises or the Building
or the Outside Areas which is prohibited by the terms of this Lease and such
failure continues for more than five (5) days after notice thereof by Landlord
or such longer period as is reasonably required in the event such default is
curable but not within such five (5) day period, provided such cure is promptly
commenced within such five (5) day period and is thereafter diligently
prosecuted to completion; or
(c) Tenant shall have failed to perform any term, covenant or condition
of this Lease (except those requiring the payment of Base Monthly Rent or
Additional Rent, which failures shall be governed by subparagraph (a) above)
within thirty (30) days after written notice from Landlord to Tenant specifying
the nature of such failure and requesting Tenant to perform same or within such
longer period as is reasonably required in the event such default is curable but
not within such thirty (30) day period, provided such cure is promptly commenced
within such thirty (30) day period and is thereafter diligently prosecuted to
completion; or
(d) Tenant shall have sublet the Leased Premises or assigned or
encumbered its interest in this Lease in violation of the provisions contained
in Article 7, whether voluntarily or by operation of law; or
(e) Tenant shall have abandoned the Leased Premises; or
(f) Tenant or any guarantor of this Lease shall have permitted or
suffered the sequestration or attachment of, or execution on, or the appointment
of a custodian or receiver with respect to, all or any substantial part of the
property or assets of Tenant (or such guarantor) or any property or asset
essential to the conduct of Tenant's (or such guarantor's) business, and Tenant
(or such guarantor) shall have failed to obtain a return or release of the same
within sixty (60) days thereafter, or prior to sale pursuant to such
sequestration, attachment or levy, whichever is earlier; or
(g) Tenant or any guarantor of this Lease shall have made a general
assignment of all or a substantial part of its assets for the benefit of its
creditors; or
(h) Tenant or any guarantor of this Lease shall have allowed (or
sought) to have entered against it a decree or order which: (i) grants or
constitutes an order for relief, appointment of a trustee, or condemnation or a
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reorganization plan under the bankruptcy laws of the United States; (ii)
approves as properly filed a petition seeking liquidation or reorganization
under said bankruptcy laws or any other debtor's relief law or similar statute
of the United States or any state thereof; or (iii) otherwise directs the
winding up or liquidation of Tenant; provided, however, if any decree or order
was entered without Tenant's consent or over Tenant's objection, Landlord may
not terminate this Lease pursuant to this Subparagraph if such decree or order
is rescinded or reversed within sixty (60) days after its original entry; or
(i) Tenant or any guarantor of this Lease shall have availed itself of
the protection of any debtor's relief law, moratorium law or other similar law
which does not require the prior entry of a decree or order.
12.2 Landlord's Remedies. In the event of any default by Tenant, and without
limiting Landlord's right to indemnification as provided in Article 8.2,
Landlord shall have the following remedies, in addition to all other rights and
remedies provided by law or otherwise provided in this Lease, to which Landlord
may resort cumulatively, or in the alternative:
(a) Landlord may, at Landlord's election, keep this Lease in effect and
enforce, by an action at law or in equity, all of its rights and remedies under
this Lease including, without limitation, (i) the right to recover the rent and
other sums as they become due by appropriate legal action, (ii) the right to
make payments required by Tenant, or perform Tenant's obligations and be
reimbursed by Tenant for the cost thereof with interest at the then maximum rate
of interest not prohibited by law from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant, and (iii) the remedies of injunctive
relief and specific performance to prevent Tenant from violating the terms of
this Lease and/or to compel Tenant to perform its obligations under this Lease,
as the case may be.
(b) Landlord may, at Landlord's election, terminate this Lease by
giving Tenant written notice of termination, in which event this Lease shall
terminate on the date set forth for termination in such notice. Any termination
under this subparagraph shall not relieve Tenant from its obligation to pay to
Landlord all Base Monthly Rent and Additional Rent then or thereafter due, or
any other sums due or thereafter accruing to Landlord, or from any claim against
Tenant for damages previously accrued or then or thereafter accruing. In no
event shall any one or more of the following actions by Landlord, in the absence
of a written election by Landlord to terminate this Lease constitute a
termination of this Lease:
(i) Appointment of a receiver or keeper in order to protect
Landlord's interest hereunder;
(ii) Consent to any subletting of the Leased Premises or
assignment of this Lease by Tenant, whether pursuant to the provisions hereof or
otherwise; or
(iii) Any action taken by Landlord or its partners,
principals, members, officers, agents, employees, or servants, which is intended
to mitigate the adverse effects of any breach of this Lease by Tenant,
including, without limitation, any action taken to maintain and preserve the
Leased Premises on any action taken to relet the Leased Premises or any portion
thereof for the account at Tenant and in the name of Tenant.
(c) In the event Tenant is in default under this Lease and abandons the
Leased Premises, Landlord may terminate this Lease, but this Lease shall not
terminate unless Landlord gives Tenant written notice of termination. If
Landlord does not terminate this Lease by giving written notice of termination,
Landlord may enforce all its rights and remedies under this Lease, including the
right and remedies provided by California Civil Code Section 1951.4 ("lessor may
continue lease in effect after lessee's breach and abandonment and recover rent
as it becomes due, if lessee has right to sublet or assign, subject only to
reasonable limitations"), as in effect on the Effective Date of this Lease.
(d) In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to the rights and remedies provided in
California Civil Code Section 1951.2, as in effect on the Effective Date of this
Lease. For purposes of computing damages pursuant to Section 1951.2, an interest
rate equal to the maximum rate of interest then not prohibited by law shall be
used where permitted. Such damages shall include, without limitation:
(i) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided,
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco, at the time of award plus one percent; and
(ii) Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom, including without limitation, the following: (i) expenses for
cleaning, repairing or restoring the Leased Premises, (ii) expenses for
altering, remodeling or otherwise improving the Leased Premises for the purpose
of reletting, including removal of existing leasehold improvements and/or
installation of additional leasehold improvements (regardless of how the same is
funded, including reduction of rent, a direct payment or allowance to a new
tenant, or otherwise), (iii) broker's fees allocable to the remainder of the
term of this Lease, advertising costs and other expenses of reletting the Leased
Premises; (iv) costs of carrying and maintaining the Leased Premises, such as
taxes, insurance premiums, utility charges and security precautions, (v)
expenses incurred in removing, disposing of and/or storing any of Tenant's
personal property, inventory or trade fixtures remaining therein; (vi)
reasonable attorney's fees, expert witness fees, court costs and other
reasonable expenses incurred by Landlord (but not limited to taxable costs) in
retaking possession of the Leased Premises, establishing
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damages hereunder, and releasing the Leased Premises; and (vii) any other
expenses, costs or damages otherwise incurred or suffered as a result of
Tenant's default.
12.3 Landlord's Default And Tenant's Remedies. In the event Landlord fails to
perform its obligations under this Lease, Landlord shall nevertheless not be in
default under the terms of this Lease until such time as Tenant shall have first
given Landlord written notice specifying the nature of such failure to perform
its obligations, and then only after Landlord shall have had thirty (30) days
following its receipt of such notice within which to perform such obligations;
provided that, if longer than thirty (30) days is reasonably required in order
to perform such obligations, Landlord shall have such reasonably longer period
provided that the Landlord is proceeding with due diligence to perform such
obligations. In the event of Landlord's default as above set forth, then, and
only then, Tenant may then (i) proceed in equity or at law to compel Landlord to
perform its obligations and/or to recover damages proximately caused by such
failure to perform (except as and to the extent Tenant has waived its right to
damages as provided in this Lease) or (ii) perform such obligations on behalf of
Landlord and then proceed at law to recover damages proximately caused by
Landlord's failure to perform and Tenant's subsequent performance of such
obligations (except as and to the extent Tenant has waived its right to damages
as provided in this Lease).
12.4 Limitation Of Tenant's Recourse. Tenant's recourse shall be limited to
Landlord's interest in the Property. In addition, if Landlord is a corporation,
trust, partnership, joint venture, limited liability company, unincorporated
association, or other form of business entity, Tenant agrees that (i) the
obligations of Landlord under this Lease shall not constitute personal
obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals of such business entity, and
(ii) Tenant shall have no recourse to the assets of such officers, directors,
trustees, partners, joint venturers, members, owners, stockholders or
principals. Additionally, if Landlord is a partnership or limited liability
company, then Tenant covenants and agrees:
(a) No partner or member of Landlord shall be sued or named as a party
in any suit or action brought by Tenant with respect to any alleged breach of
this Lease (except to the extent necessary to secure jurisdiction over the
partnership and then only for that sole purpose);
(b) No service of process shall be made against any partner or member
of Landlord except for the sole purpose of securing jurisdiction over the
partnership; and
(c) No writ of execution will ever be levied against the assets of any
partner or member of Landlord other than to the extent of his or her interest in
the assets of the partnership or limited liability company constituting
Landlord.
Tenant further agrees that each of the foregoing covenants and agreements shall
be enforceable by Landlord and by any partner or member of Landlord and shall be
applicable to any actual or alleged misrepresentation or nondisclosure made
regarding this Lease or the Leased Premises or any actual or alleged failure,
default or breach of any covenant or agreement either expressly or implicitly
contained in this Lease or imposed by statute or at common law.
12.5 Tenant's Waiver. Landlord and Tenant agree that the provisions of Paragraph
12.3 above are intended to supersede and replace the provisions of California
Civil Code Sections 1932(1), 1941 and 1942, and accordingly, Tenant hereby
waives the provisions of California Civil Code Sections 1932(1), 1941 and 1942
and/or any similar or successor law regarding Tenant's right to terminate this
Lease or to make repairs and deduct the expenses of such repairs from the rent
due under this Lease.
ARTICLE 13
GENERAL PROVISIONS
13.1 Taxes On Tenant's Property. Tenant shall pay before delinquency any and all
taxes, assessments, license fees, use fees, permit fees and public charges of
whatever nature or description levied, assessed or imposed against Tenant or
Landlord by a governmental agency arising out of, caused by reason of or based
upon Tenant's estate in this Lease, Tenant's ownership of property, improvements
made by Tenant to the Leased Premises or the Outside Areas, improvements made by
Landlord for Tenant's use within the Leased Premises or the Outside Areas,
Tenant's use (or estimated use) of public facilities or services or Tenant's
consumption (or estimated consumption) of public utilities, energy, water or
other resources (collectively, "Tenant's Interest"). Upon demand by Landlord,
Tenant shall furnish Landlord with satisfactory evidence of these payments. If
any such taxes, assessments, fees or public charges are levied against Landlord,
Landlord's property related to the Property, the Building or the Property, or if
the assessed value of the Building or the Property is increased by the inclusion
therein of a value placed upon Tenant's Interest, regardless of the validity
thereof, Landlord shall have the right to require Tenant to pay such taxes, and
if not paid and satisfactory evidence of payment delivered to Landlord at least
ten days prior to delinquency, then Landlord shall have the right to pay such
taxes on Tenant's behalf and to invoice Tenant for the same. Tenant shall,
within the earlier to occur of (a) thirty (30) days of the date it receives an
invoice from Landlord setting forth the amount of such taxes, assessments, fees,
or public charge so levied, or (b) the due date of such invoice (which shall be
no earlier than ten (10) days after receipt by Tenant), pay to Landlord, as
Additional Rent, the amount set forth in such invoice. Failure by Tenant to pay
the amount so invoiced within such time period shall be conclusively deemed a
default by Tenant under this Lease. Tenant shall have the right to bring suit in
any court of competent jurisdiction to recover from the taxing authority the
amount of any such taxes, assessments, fees or public charges so paid.
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13.2 Holding Over. This Lease shall terminate without further notice on the
Lease Expiration Date (as set forth in Article 1). Any holding over by Tenant
after expiration of the Lease Term shall neither constitute a renewal nor
extension of this Lease nor give Tenant any rights in or to the Leased Premises
except as expressly provided in this Paragraph. Any such holding over to which
Landlord has consented shall be construed to be a tenancy from month to month,
on the same terms and conditions herein specified insofar as applicable, except
that the Base Monthly Rent shall be increased to an amount equal to one hundred
fifty percent (150%) of the Base Monthly Rent payable during the last full month
immediately preceding such holding over.
13.3 Subordination To Mortgages. This Lease is subject to and subordinate to all
ground leases, mortgages and deeds of trust which affect the Building or the
Property and which are of public record as of the Effective Date of this Lease,
and to all renewals, modifications, consolidations, replacements and extensions
thereof. However, if the lessor under any such ground lease or any lender
holding any such mortgage or deed of trust shall advise Landlord that it desires
or requires this Lease to be made prior and superior thereto, then, upon written
request of Landlord to Tenant, Tenant shall promptly execute, acknowledge and
deliver any and all customary or reasonable documents or instruments which
Landlord and such lessor or lender deems necessary or desirable to make this
Lease prior thereto. Tenant hereby consents to Landlord's ground leasing the
land underlying the Building or the Property and/or encumbering the Building or
the Property as security for future loans on such terms as Landlord shall
desire, all of which future ground leases, mortgages or deeds of trust shall be
subject to and subordinate to this Lease. However, if any lessor under any such
future ground lease or any lender holding such future mortgage or deed of trust
shall desire or require that this Lease be made subject to and subordinate to
such future ground lease, mortgage or deed of trust, then Tenant agrees, within
ten days after Landlord's written request therefor, to execute, acknowledge and
deliver to Landlord any and all documents or instruments requested by Landlord
or by such lessor or lender as may be necessary or proper to assure the
subordination of this Lease to such future ground lease, mortgage or deed of
trust, but only if such lessor or lender agrees to recognize Tenant's rights
under this Lease and agrees not to disturb Tenant's quiet possession of the
Leased Premises so long as Tenant is not in default under this Lease. If
Landlord assigns the Lease as security for a loan, Tenant agrees to execute such
documents as are reasonably requested by the lender and to provide reasonable
provisions in the Lease protecting such lender's security interest which are
customarily required by institutional lenders making loans secured by a deed of
trust provided that such documents do not materially increase Tenant's
obligations under this Lease. Landlord agrees to use commercially reasonable
efforts to obtain a Subordination Nondisturbance and Attornment Agreement
("SNDA") from Metropolitan Life Insurance Company in substantially the same form
as the SNDA signed by Tenant on January 13, 1997.
13.4 Tenant's Attornment Upon Foreclosure. Tenant shall, upon request, attorn
(i) to any purchaser of the Building or the Property at any foreclosure sale or
private sale conducted pursuant to any security instruments encumbering the
Building or the Property, (ii) to any grantee or transferee designated in any
deed given in lieu of foreclosure of any security interest encumbering the
Building or the Property, or (iii) to the lessor under an underlying ground
lease of the land underlying the Building or the Property, should such ground
lease be terminated; provided that such purchaser, grantee or lessor recognizes
Tenant's rights under this Lease.
13.5 Mortgagee Protection. In the event of any default on the part of Landlord,
Tenant will give notice by registered mail to any Lender or lessor under any
underlying ground lease who shall have requested, in writing, to Tenant that it
be provided with such notice, and Tenant shall offer such Lender or lessor a
reasonable opportunity to cure the default, including time to obtain possession
of the Leased Premises by power of sale or judicial foreclosure or other
appropriate legal proceedings if reasonably necessary to effect a cure.
13.6 Estoppel Certificate. Tenant will, following any request by Landlord,
promptly execute and deliver to Landlord an estoppel certificate (i) certifying
that this Lease is unmodified and in full force and effect, or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect, (ii) stating the date to which the rent
and other charges are paid in advance, if any, (iii) acknowledging that there
are not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed, and (iv) certifying
such other information about this Lease as may be reasonably requested by
Landlord, its Lender or prospective lenders, investors or purchasers of the
Building or the Property. Tenant's failure to execute and deliver such estoppel
certificate within ten (10) days after Landlord's request therefor shall be a
material default by Tenant under this Lease, and Landlord shall have all of the
rights and remedies available to Landlord as Landlord would otherwise have in
the case of any other material default by Tenant, including the right to
terminate this Lease and sue for damages proximately caused thereby, it being
agreed and understood by Tenant that Tenant's failure to so deliver such
estoppel certificate in a timely manner could result in Landlord being unable to
perform committed obligations to other third parties which were made by Landlord
in reliance upon this covenant of Tenant. Landlord and Tenant intend that any
statement delivered pursuant to this paragraph may be relied upon by any Lender
or purchaser or prospective Lender or purchaser of the Building, the Property,
or any interest in them.
13.7 Tenant's Financial Information. Tenant shall, within ten (10) business days
after Landlord's request therefor deliver to Landlord a copy of Tenant's (and
any guarantor's) current financial statements (including a balance sheet, income
statement and statement of cash flow, all prepared in accordance with generally
accepted accounting principles) and any such other information reasonably
requested by Landlord regarding Tenant's financial condition, provided, however,
that if Landlord requests such statements and information for its own use and
not in connection with a sale, refinancing, or for a potential investor in
Landlord or the Property, Landlord shall not request such statements and
information more than twice in any calendar year. Landlord shall be entitled to
disclose such financial statements or other information to its Lender, to any
present or prospective principal of or investor in Landlord, or to any
prospective Lender or purchaser of the Building, the Property, or any portion
thereof or interest therein. Any such financial statement or other information
which is marked "confidential" or "company secrets" (or is otherwise similarly
marked by Tenant) shall be confidential and shall not be disclosed by Landlord
to
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any third party except as specifically provided in this paragraph, unless the
same becomes a part of the public domain without the fault of Landlord.
13.8 Transfer By Landlord. Landlord and its successors in interest shall have
the right to transfer their interest in the Building, the Property, or any
portion thereof at any time and to any person or entity. In the event of any
such transfer, the Landlord originally named herein (and in the case of any
subsequent transfer, the transferor), from the date of such transfer, (i) shall
be automatically relieved, without any further act by any person or entity, of
all liability for the performance of the obligations of the Landlord hereunder
which may accrue after the date of such transfer and (ii) shall be relieved of
all liability for the performance of the obligations of the Landlord hereunder
which have accrued before the date of transfer if its transferee agrees to
assume in writing and perform all such prior obligations of the Landlord
hereunder. Tenant shall attorn to any such transferee. After the date of any
such transfer, the term "Landlord" as used herein shall mean the transferee of
such interest in the Building or the Property.
13.9 Force Majeure. The obligations of each of the parties under this Lease
(other than the obligations to pay money) shall be temporarily excused if such
party is prevented or delayed in performing such obligations by reason of any
strikes, lockouts or labor disputes; government restrictions, regulations,
controls, action or inaction; civil commotion; or extraordinary weather, fire or
other acts of God.
13.10 Notices. Any notice required or desired to be given by a party regarding
this Lease shall be in writing and shall be personally served, or in lieu of
personal service may be given by reputable overnight courier service or
certified mail, postage prepaid, addressed to the other party as follows:
If to Landlord: Technology Centre Associates LLC
c/o Menlo Equities LLC
525 University Avenue
Suite 100
Palo Alto, California 94301
Attention: Henry Bullock/Richard Holmstrom
with a copy to: Cooley Godward LLP
One Maritime Plaza
20th Floor
San Francisco, California 94111
Attention: Paul Churchill
If to Tenant: Adept Technology, Inc.
150 Rose Orchard Way
San Jose, California 95134
Attention: Chief Financial Officer
with a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: Real Estate Department
Any notice given in accordance with the foregoing shall be deemed received upon
actual receipt or refusal to accept delivery.
13.11 Attorney's Fees. In the event any party shall bring any action,
arbitration proceeding or legal proceeding alleging a breach of any provision of
this Lease, to recover rent, to terminate this Lease, or to enforce, protect,
determine or establish any term or covenant of this Lease or rights or duties
hereunder of either party, the prevailing party shall be entitled to recover
from the non-prevailing party as a part of such action or proceeding, or in a
separate action for that purpose brought within one year from the determination
of such proceeding, reasonable attorneys' fees, expert witness fees, court costs
and other reasonable expenses incurred by the prevailing party.
13.12 Definitions. Any term that is given a special meaning by any provision in
this Lease shall, unless otherwise specifically stated, have such meaning
wherever used in this Lease or in any Addenda or amendment hereto. In addition
to the terms defined in Article 1, the following terms shall have the following
meanings:
(a) Real Property Taxes. The term "Real Property Tax" or "Real Property
Taxes" shall each mean Tenant's Project Percentage Share of (i) all taxes,
assessments, levies and other charges of any kind or nature whatsoever, general
and special, foreseen and unforeseen (including all instruments of principal and
interest required to pay any general or special assessments for public
improvements and any increases resulting from reassessments caused by any change
in ownership or new construction), now or hereafter imposed by any governmental
or quasi-governmental authority or special district having the direct or
indirect power to tax or levy assessments, which are levied or assessed for
whatever reason against the Property or any portion thereof, or Landlord's
interest herein, or the fixtures, equipment and other property of Landlord that
is an integral part of the Property and located thereon, or Landlord's business
of owning, leasing or managing the Property or the gross receipts, income or
rentals from the Property, (ii) all charges, levies or fees imposed by any
governmental authority against Landlord by reason of or based upon the use of or
number of parking spaces within the Property, the amount of public services or
public utilities used or consumed (e.g. water, gas, electricity, sewage or waste
water disposal) at the Property, the number of person employed by tenants of the
Property, the size (whether measured in area,
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volume, number of tenants or whatever) or the value of the Property, or the type
of use or uses conducted within the Property, and all costs and fees (including
attorneys' fees) reasonably incurred by Landlord in contesting any Real Property
Tax and in negotiating with public authorities as to any Real Property Tax, and
(iii) all tax increases due to improvements made to the Leased Premises by
Tenant or by Landlord on behalf of Tenant. If, at any time during the Lease
Term, the taxation or assessment of the Property prevailing as of the Effective
Date of this Lease shall be altered so that in lieu of or in addition to any the
Real Property Tax described above there shall be levied, awarded or imposed
(whether by reason of a change in the method of taxation or assessment, creation
of a new tax or charge, or any other cause) an alternate, substitute, or
additional use or charge (i) on the value, size, use or occupancy of the
Property or Landlord's interest therein or (ii) on or measured by the gross
receipts, income or rentals from the Property, or on Landlord's business of
owning, leasing or managing the Property or (iii) computed in any manner with
respect to the operation of the Property, then any such tax or charge, however
designated, shall be included within the meaning of the terms "Real Property
Tax" or "Real Property Taxes" for purposes of this Lease. If any Real Property
Tax is partly based upon property or rents unrelated to the Property, then only
that part of such Real Property Tax that is fairly allocable to the Property
shall be included within the meaning of the terms "Real Property Tax" or "Real
Property Taxes." Notwithstanding the foregoing, the terms "Real Property Tax" or
"Real Property Taxes" shall not include (i) estate, sales, inheritance,
transfer, gift or franchise taxes of Landlord or the federal or state income tax
imposed on Landlord's income from all sources; (ii) any Real Property Taxes
occasioned by or relating to assessments and other fees for improvements and
services which do not benefit the Property; (iii) any penalties resulting from
Landlord's failure to pay Real Property Taxes before delinquency (unless Tenant
has failed to pay Landlord hereunder or if Tenant has assumed responsibility for
payment of such taxes directly); or (iv) any increase in Real Property Taxes due
to improvements made to buildings on the Property other than the Building.
Landlord agrees that where permitted to do so without penalty, Landlord shall
pay Real Property Taxes in installments.
(b) Landlord's Insurance Costs. The term "Landlord's Insurance Costs"
shall mean Tenant's Project Proportionate Share of the costs to Landlord to
carry and maintain the policies of fire and property damage insurance for the
Building and the Property and general liability and any other insurance required
or permitted to be carried by Landlord pursuant to Article 9, together with any
deductible amounts paid by Landlord upon the occurrence of any insured casualty
or loss, provided that any deductible amounts applicable to a casualty of a
capital nature shall be amortized over the useful life of the capital
replacement.
(c) Property Maintenance Costs. The term "Property Maintenance Costs"
shall mean Tenant's Project Proportionate Share of all costs and expenses
(except Landlord's Insurance Costs, Real Property Taxes and Building Maintenance
Costs) paid or incurred by Landlord in protecting, operating, maintaining,
repairing and preserving the Property and all parts thereof, including without
limitation, (i) market rate professional management fees, (ii) the amortizing
portion of any costs incurred by Landlord in the making of any modifications,
alterations or improvements required by any governmental authority as set forth
in Article 6, Section 4.8, and Section 5.1, which are so amortized during the
Lease Term, and (iii) such other costs as may be paid or incurred with respect
to operating, maintaining, and preserving the Property, repairing and
resurfacing paved areas, and any other maintenance and repair Landlord is
required to perform under this Lease, provided that Landlord shall recover only
the amortizing portion of the costs incurred by Landlord in the making of any
modification, alteration, improvement or repair which is of a capital nature.
Any modification, alteration, improvement or repair which is of a capital nature
shall be amortized over its useful life and at the rate which is the greater of
(i) twelve percent (12%) or (ii) the sum of that rate quoted by Wells Fargo
Bank, N.T. & S.A. from time to time as its prime rate, plus two percent (2%).
Notwithstanding the foregoing, "Property Maintenance Costs" shall not include
and Tenant shall in no event have any obligation to perform or to pay directly,
or to reimburse Landlord for, all or any portion of the following: (i) costs for
which Landlord has received reimbursement from others; (ii) depreciation,
amortization or other expense reserves (except when such reserves are actually
expended for Property Maintenance Costs); (iii) mortgages, interest, charges and
fees incurred on debt, payments on mortgages and rent under ground leases; (iv)
leasing costs (including from disputes) for the leasing of the Property to other
tenants; or (v) capital expenditures completely allocable to buildings on the
Property other than the Building.
(d) Building Maintenance Costs. The term "Building Maintenance Costs"
shall mean Tenant's Building Proportionate Share of all capital expenditures
allocable to the Building and all other costs as may be incurred with respect to
operating, maintaining and preserving the Building including, without
limitation, repair and resurfacing the exterior surfaces of the Building
(including costs), repairing and replacing structural parts of the Building, and
repairing and replacing, when necessary, electrical, plumbing, heating,
ventilating and air conditioning systems serving the Building.
(e) Property Operating Expenses. The term "Property Operating Expenses"
shall mean and include all Real Property Taxes, plus all Landlord's Insurance
Costs, plus all Property Maintenance Costs and Building Maintenance Costs.
(f) Law. The term "Law" shall mean any judicial decisions and any
statute, constitution, ordinance, resolution, regulation, rule, administrative
order, or other requirements of any municipal, county, state, federal, or other
governmental agency or authority having jurisdiction over the parties to this
Lease, the Leased Premises, the Building or the Property, or any of them, in
effect either at the Effective Date of this Lease or at any time during the
Lease Term, including, without limitation, any regulation, order, or policy of
any quasi-official entity or body (e.g. a board of fire examiners or a public
utility or special district).
(g) Lender. The term "Lender" shall mean the holder of any promissory
note or other evidence of indebtedness secured by the Property or any portion
thereof.
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(h) Private Restrictions. The term "Private Restrictions" shall mean
(as they may exist from time to time) any and all covenants, conditions and
restrictions, private agreements, easements, and any other recorded documents or
instruments affecting the use of the Property, the Building, the Leased
Premises, or the Outside Areas.
(i) Rent. The term "Rent" shall mean collectively Base Monthly Rent and
all Additional Rent.
13.13 General Waivers. One party's consent to or approval of any act by the
other party requiring the first party's consent or approval shall not be deemed
to waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. No waiver of any provision hereof, or
any waiver of any breach of any provision hereof, shall be effective unless in
writing and signed by the waiving party. The receipt by Landlord of any rent or
payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach. No waiver of any provision of
this Lease shall be deemed a continuing waiver unless such waiver specifically
states so in writing and is signed by both Landlord and Tenant. No delay or
omission in the exercise of any right or remedy accruing to either party upon
any breach by the other party under this Lease shall impair such right or remedy
or be construed as a waiver of any such breach theretofore or thereafter
occurring. The waiver by either party of any breach of any provision of this
Lease shall not be deemed to be a waiver of any subsequent breach of the same or
any other provisions herein contained.
13.14 Miscellaneous. Should any provisions of this Lease prove to be invalid or
illegal, such invalidity or illegality shall in no way affect, impair or
invalidate any other provisions hereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor. Any copy of this Lease which is executed by the parties shall be deemed
an original for all purposes. This Lease shall, subject to the provisions
regarding assignment, apply to and bind the respective heirs, successors,
executors, administrators and assigns of Landlord and Tenant. The term "party"
shall mean Landlord or Tenant as the context implies. If Tenant consists of more
than one person or entity, then all members of Tenant shall be jointly and
severally liable hereunder. This Lease shall be construed and enforced in
accordance with the Laws of the State in which the Leased Premises are located.
The captions in this Lease are for convenience only and shall not be construed
in the construction or interpretation of any provision hereof. When the context
of this Lease requires, the neuter gender includes the masculine, the feminine,
a partnership, corporation, limited liability company, joint venture, or other
form of business entity, and the singular includes the plural. The terms "must,"
"shall," "will," and "agree" are mandatory. The term "may" is permissive. When a
party is required to do something by this Lease, it shall do so at its sole cost
and expense without right of reimbursement from the other party unless specific
provision is made therefor. Where Landlord's consent is required hereunder, the
consent of any Lender shall also be required. Landlord and Tenant shall both be
deemed to have drafted this Lease, and the rule of construction that a document
is to be construed against the drafting party shall not be employed in the
construction or interpretation of this Lease. Where Tenant is obligated not to
perform any act or is not permitted to perform any act, Tenant is also obligated
to restrain any others reasonably within its control, including agents,
invitees, contractors, subcontractors and employees, from performing such act.
Landlord shall not become or be deemed a partner or a joint venturer with Tenant
by reason of any of the provisions of this Lease.
ARTICLE 14
CORPORATE AUTHORITY
BROKERS AND ENTIRE AGREEMENT
14.1 Corporate Authority. If Tenant is a corporation, each individual executing
this Lease on behalf of such corporation represents and warrants that Tenant is
validly formed and duly authorized and existing, that Tenant is qualified to do
business in the State in which the Leased Premises are located, that Tenant has
the full right and legal authority to enter into this Lease, and that he or she
is duly authorized to execute and deliver this Lease on behalf of Tenant in
accordance with its terms. Tenant shall, within thirty days after Tenant's
receipt of a written request from Landlord, deliver to Landlord a certified copy
of the resolution of its board of directors authorizing or ratifying the
execution of this Lease and if Tenant fails to do so, Landlord at its sole
election may elect to terminate this Lease.
14.2 Brokerage Commissions. Landlord and Tenant each represents, warrants and
agrees that it has not had any dealings with any real estate broker(s), leasing
agent(s), finder(s) or salesmen, other than the Broker (as named in Article 1)
with respect to the lease by it of the Leased Premises pursuant to this Lease,
and that it will indemnify, defend with competent counsel, and hold the other
party harmless from any liability for the payment of any real estate brokerage
commissions, leasing commissions or finder's fees claimed by any real estate
broker(s), leasing agent(s), finder(s), or salesmen other than the Broker to be
earned or due and payable by reason of the indemnifying party's agreement or
promise (implied or otherwise) to pay (or to have the other party pay) such a
commission or finder's fee by reason of its leasing the Leased Premises pursuant
to this Lease.
14.3 Entire Agreement. This Lease and the Exhibits (as described in Article 1),
which Exhibits are by this reference incorporated herein, constitute the entire
agreement between the parties, and there are no other agreements, understandings
or representations between the parties relating to the lease by Landlord of the
Leased Premises to Tenant, except as expressed herein. No subsequent changes,
modifications or additions to this Lease shall be binding upon the parties
unless in writing and signed by both Landlord and Tenant.
14.4 Landlord's Representations. Tenant acknowledges that neither Landlord nor
any of its agents made any representations or warranties respecting the
Property, the Building or the Leased Premises, upon which Tenant relied in
entering into the Lease, which are not expressly set forth in this Lease. Tenant
further acknowledges that neither Landlord nor any of its agents made any
representations as to (i) whether the Leased Premises may be used for
23.
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Tenant's intended use under existing Law, or (ii) the suitability of the Leased
Premises for the conduct of Tenant's business, or (iii) the exact square footage
of the Leased Premises, and that Tenant relies solely upon its own
investigations with respect to such matters. Tenant expressly waives any and all
claims for damage by reason of any statement, representation, warranty, promise
or other agreement of Landlord or Landlord's agent(s), if any, not contained in
this Lease or in any Exhibit attached hereto.
ARTICLE 15
OPTION TO EXTEND
15.1 So long as Adept Technology, Inc., a California corporation (or its
Permitted Assignee, as defined in Section 7.2), is the Tenant hereunder and
occupies the entirety of the Leased Premises, and subject to the condition set
forth in clause (b) below, Tenant shall have one option to extend the term of
this Lease with respect to the entirety of the Leased Premises, for a period of
five (5) years from the expiration of the initial Lease Term (the "Extension
Period"), subject to the following conditions:
(a) The option to extend shall be exercised, if at all, by notice of
exercise given to Landlord by Tenant not more than fifteen months nor less than
nine months prior to the expiration of the initial Lease Term;
(b) Anything herein to the contrary notwithstanding, if Tenant is in
default under any of the monetary or material non-monetary terms, covenants or
conditions of this Lease, either at the time Tenant exercises the extension
option or on the commencement date of the Extension Period, Landlord shall have,
in addition to all of Landlord's other rights and remedies provided in this
Lease, the right to terminate such option to extend upon notice to Tenant.
15.2 In the event the option is exercised in a timely fashion, the Lease shall
be extended for the term of the Extension Period upon all of the terms and
conditions of this Lease, provided that the Base Monthly Rent for the Extension
Period shall be the "Fair Market Rent" for the Leased Premises, increased
annually on each anniversary of the commencement date of the Extension Period to
reflect the change in the Consumer Price Index for the San Francisco
Metropolitan Area, All Items (the "CPI"), for the twelve (12) month period
ending sixty (60) days prior to the subject adjustment date, but in no event
shall Base Monthly Rent be increased less than 4.00% per annum, nor more than
7.00% per annum for such twelve (12) month period. Base Monthly Rent shall be so
adjusted at the end of each twelve (12) month period during the Lease Term. For
purposes hereof, "Fair Market Rent" shall mean the Base Monthly Rent determined
pursuant to the process described below. In no event, however, shall any
adjustment of Base Monthly Rent pursuant to this paragraph result in a decrease
of the Base Monthly Rent for the Premises below the amount due from Tenant for
the preceding portion of the initial Lease Term for which Base Monthly Rent had
been fixed.
15.3 Within 30 days after receipt of Tenant's notice of exercise, Landlord shall
notify Tenant in writing of Landlord's estimate of the Base Monthly Rent for the
applicable extension period, based on the provisions of Paragraph 15.2 above.
Within 30 days after receipt of such notice from Landlord, Tenant shall have the
right either to (i) accept Landlord's statement of Base Monthly Rent as the Base
Monthly Rent for the applicable extension period; or (ii) elect to arbitrate
Landlord's estimate of Fair Market Rent, such arbitration to be conducted
pursuant to the provisions hereof; or (iii) rescind Tenant's exercise of the
extension option. Failure on the part of Tenant to require arbitration of Fair
Market Rent within such 30-day period or rescind its exercise of the extension
option shall constitute acceptance of the Base Monthly Rent for the applicable
extension period as calculated by Landlord. If Tenant elects arbitration, the
arbitration shall be concluded within 90 days after the date of Tenant's
election, subject to extension for an additional 30-day period if a third
arbitrator is required and does not act in a timely manner. To the extent that
arbitration has not been completed prior to the expiration of any preceding
period for which Base Monthly Rent has been determined, Tenant shall pay Base
Monthly Rent at the rate calculated by Landlord, with the potential for an
adjustment to be made once Fair Market Rent is ultimately determined by
arbitration.
15.4 In the event of arbitration, the judgment or the award rendered in any such
arbitration may be entered in any court having jurisdiction and shall be final
and binding between the parties. The arbitration shall be conducted and
determined in the County of Santa Clara in accordance with the then prevailing
rules of the American Arbitration Association or its successor for arbitration
of commercial disputes except to the extent that the procedures mandated by such
rules shall be modified as follows:
(a) Tenant shall make demand for arbitration in writing within 30 days
after service of Landlord's determination of Fair Market Rent given under
Paragraph 15.3 above, specifying therein the name and address of the person to
act as the arbitrator on its behalf. The arbitrator shall be qualified as a real
estate appraiser familiar with the Fair Market Rent of similar industrial,
research and development, or office space in the Silicon Valley area who would
qualify as an expert witness over objection to give opinion testimony addressed
to the issue in a court of competent jurisdiction. Failure on the part of Tenant
to make a proper demand in a timely manner for such arbitration shall constitute
a waiver of the right thereto. Within 15 days after the service of the demand
for arbitration, Landlord shall give notice to Tenant, specifying the name and
address of the person designated by Landlord to act as arbitrator on its behalf
who shall be similarly qualified. If Landlord fails to notify Tenant of the
appointment of its arbitrator, within or by the time above specified, then the
arbitrator appointed by Tenant shall be the arbitrator to determine the issue.
(b) In the event that two arbitrators are chosen pursuant to Paragraph
15.4(a) above, the arbitrators so chosen shall, within 15 days after the second
arbitrator is appointed determine the Fair Market Rent. If the two arbitrators
shall be unable to agree upon a determination of Fair Market Rent within such
15-day period, they,
24.
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themselves, shall appoint a third arbitrator, who shall be a competent and
impartial person with qualifications similar to those required of the first two
arbitrators pursuant to Paragraph 15.4(a). In the event they are unable to agree
upon such appointment within seven days after expiration of such 15-day period,
the third arbitrator shall be selected by the parties themselves, if they can
agree thereon, within a further period of 15 days. If the parties do not so
agree, then either party, on behalf of both, may request appointment of such a
qualified person by the then Chief Judge of the United States District Court
having jurisdiction over the County of Santa Clara, acting in his private and
not in his official capacity, and the other party shall not raise any question
as to such Judge's full power and jurisdiction to entertain the application for
and make the appointment. The three arbitrators shall decide the dispute if it
has not previously been resolved by following the procedure set forth below.
(c) Where an issue cannot be resolved by agreement between the two
arbitrators selected by Landlord and Tenant or settlement between the parties
during the course of arbitration, the issue shall be resolved by the three
arbitrators within 15 days of the appointment of the third arbitrator in
accordance with the following procedure. The arbitrator selected by each of the
parties shall state in writing his determination of the Fair Market Rent
supported by the reasons therefor with counterpart copies to each party. The
arbitrators shall arrange for a simultaneous exchange of such proposed
resolutions. The role of the third arbitrator shall be to select which of the
two proposed resolutions most closely approximates his determination of Fair
Market Rent. The third arbitrator shall have no right to propose a middle ground
or any modification of either of the two proposed resolutions. The resolution he
chooses as most closely approximating his determination shall constitute the
decision of the arbitrators and be final and binding upon the parties.
(d) In the event of a failure, refusal or inability of any arbitrator
to act, his successor shall be appointed by him, but in the case of the third
arbitrator, his successor shall be appointed in the same manner as provided for
appointment of the third arbitrator. The arbitrators shall decide the issue
within 15 days after the appointment of the third arbitrator. Any decision in
which the arbitrator appointed by Landlord and the arbitrator appointed by
Tenant concur shall be binding and conclusive upon the parties. Each party shall
pay the fee and expenses of its respective arbitrator and both shall share the
fee and expenses of the third arbitrator, if any, and the attorneys' fees and
expenses of counsel for the respective parties and of witnesses shall be paid by
the respective party engaging such counsel or calling such witnesses.
(e) The arbitrators shall have the right to consult experts and
competent authorities to obtain factual information or evidence pertaining to a
determination of Fair Market Rent, but any such consultation shall be made in
the presence of both parties with full right on their part to cross-examine. The
arbitrators shall render their decision and award in writing with counterpart
copies to each party. The arbitrators shall have no power to modify the
provisions of this Lease.
ARTICLE 16
TELEPHONE SERVICE
Notwithstanding any other provision of this Lease to the contrary:
(a) So long as the entirety of the Leased Premises is leased to Tenant:
(i) Landlord shall have no responsibility for providing to
Tenant any telephone equipment, including wiring, within the Leased Premises or
for providing telephone service or connections from the utility to the Leased
Premises; and
(ii) Landlord makes no warranty as to the quality, continuity
or availability of the telecommunications services in the Building, and Tenant
hereby waives any claim against Landlord for any actual or consequential damages
(including damages for loss of business) in the event Tenant's
telecommunications services in any way are interrupted, damaged or rendered less
effective, except to the extent caused by the grossly negligent or willful act
or omission by Landlord, its agents or contractors. Tenant accepts the telephone
equipment (including, without limitation, the INC, as defined below) in its
"AS-IS" condition, and Tenant shall be solely responsible for contracting with a
reliable third party vendor to assume responsibility for the maintenance and
repair thereof (which contract shall contain provisions requiring such vendor to
inspect the INC periodically (the frequency of such inspections to be determined
by such vendor based on its experience and professional judgment), and requiring
such vendor to meet local and federal requirements for telecommunications
material and workmanship). Landlord shall not be liable to Tenant and Tenant
waives all claims against Landlord whatsoever, whether for personal injury,
property damage, loss of use of the Leased Premises, or otherwise, due to the
interruption or failure of telephone services to the Leased Premises. Tenant
hereby holds Landlord harmless and agrees to indemnify, protect and defend
Landlord from and against any liability for any damage, loss or expense due to
any failure or interruption of telephone service to the Leased Premises for any
reason except to the extent caused by gross negligence or willful misconduct of
Landlord. Tenant agrees to obtain loss of rental insurance adequate to cover any
damage, loss or expense occasioned by the interruption of telephone service.
(b) At such time as the entirety of the Leased Premise is no longer
leased to Tenant, Landlord shall in its sole discretion have the right, by
written notice to Tenant, to elect to assume limited responsibility for INC, as
provided below, and upon such assumption of responsibility by Landlord, this
subparagraph (b) shall apply prospectively.
(i) Landlord shall provide Tenant access to such quantity of
pairs in the Building intra-building network cable ("INC") as is determined to
be available by Landlord in its reasonable discretion. Tenant's
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access to the INC shall be solely by arrangements made by Tenant, as Tenant may
elect, directly with Pacific Bell or Landlord (or such vendor as Landlord may
designate), and Tenant shall pay all reasonable charges as may be imposed in
connection therewith. Pacific Bell's charges shall be deemed to be reasonable.
Subject to the foregoing, Landlord shall have no responsibility for providing to
Tenant any telephone equipment, including wiring, within the Leased Premises or
for providing telephone service or connections from the utility to the Leased
Premises, except as required by law.
(ii) Tenant shall not alter, modify, add to or disturb any
telephone wiring in the Leased Premises or elsewhere in the Building without the
Landlord's prior written consent. Tenant shall be liable to Landlord for any
damage to the telephone wiring in the Building due to the act, negligent or
otherwise, of Tenant or any employee, contractor or other agent of Tenant.
Tenant shall have no access to the telephone closets within the Building, except
in the manner and under procedures established by Landlord. Tenant shall
promptly notify Landlord of any actual or suspected failure of telephone service
to the Leased Premises.
(iii) All costs incurred by Landlord for the installation,
maintenance, repair and replacement of telephone wiring in the Building shall be
a Property Maintenance Cost.
(iv) Landlord makes no warranty as to the quality, continuity
or availability of the telecommunications services in the Building, and Tenant
hereby waives any claim against Landlord for any actual or consequential damages
(including damages for loss of business) in the event Tenant's
telecommunications services in any way are interrupted, damaged or rendered less
effective, except to the extent caused by the grossly negligent or willful act
or omission by Landlord, its agents or employees. Tenant acknowledges that
Landlord meets its duty of care to Tenant with respect to the Building INC by
contracting with a reliable third party vendor to assume responsibility for the
maintenance and repair thereof (which contract shall contain provisions
requiring such vendor to inspect the INC periodically (the frequency of such
inspections to be determined by such vendor based on its experience and
professional judgment), and requiring such vendor to meet local and federal
requirements for telecommunications material and workmanship). Subject to the
foregoing, Landlord shall not be liable to Tenant and Tenant waives all claims
against Landlord whatsoever, whether for personal injury, property damage, loss
of use of the Leased Premises, or otherwise, due to the interruption or failure
of telephone services to the Leased Premises. Tenant hereby holds Landlord
harmless and agrees to indemnify, protect and defend Landlord from and against
any liability for any damage, loss or expense due to any failure or interruption
of telephone service to the Leased Premises for any reason. Tenant agrees to
obtain loss of rental insurance adequate to cover any damage, loss or expense
occasioned by the interruption of telephone service.
26.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the respective dates below set forth with the intent to be legally bound thereby
as of the Effective Date of this Lease first above set forth.
LANDLORD:
TECHNOLOGY CENTRE ASSOCIATES LLC, a
California limited liability company
By: Menlo Equities LLC, a
California limited liability company,
its Managing Member
Dated: June 3, 1998 By: Signature illegible, Member
-------------------------- ---------------------------
TENANT:
ADEPT TECHNOLOGY, INC., a
California corporation
Dated: By:
-------------------------- ---------------------------
Title: President
Dated: June 2, 1998 By: /s/ Betsy A. Lange
-------------------------- ---------------------------
Title: Chief Financial Officer
27.
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EXHIBIT A
SITE PLAN
1.
[Graphic of proposed site]
<PAGE>
EXHIBIT B
FLOOR PLAN
1.
[Graphic of floor plan]
FIRST AMENDMENT TO LEASE
(180 Rose Orchard Way)
This FIRST AMENDMENT TO LEASE (this "Amendment") is dated as of this
9th day of July, 1998, by and between TECHNOLOGY CENTRE ASSOCIATES LLC, a
California limited liability company ("Landlord"), and ADEPT TECHNOLOGY, INC., a
California corporation ("Tenant").
RECITALS
A. Landlord and Tenant entered into a Lease dated June 1, 1998 (the
"Lease"), for premises within a building with a street address of 180 Rose
Orchard Way, San Jose, California, and more particularly described in the Lease;
B. Landlord and Tenant now desire to amend the Lease on the terms and
conditions set forth herein. Capitalized terms used in this Amendment and not
otherwise defined shall have the meanings assigned to them in the Lease.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
1. Amendment to Lease. Section 1.1 of the Lease is hereby amended to
delete the words "September 1, 1998" after the term "Intended Commencement
Date:" and to insert the words "October 1, 1998" in their place.
2. Ratification. The Lease, as amended by this Amendment, is hereby
ratified by Landlord and Tenant and Landlord and Tenant hereby agree that the
Lease, as so amended, shall continue in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the date first written above.
LANDLORD:
TECHNOLOGY CENTRE ASSOCIATES LLC, a
California limited liability company
By: Menlo Equities LLC, a
California limited liability company,
its Managing Member
By: /s/ Richard Holmstrom
------------------------------------
Richard Holmstrom, Member
TENANT:
ADEPT TECHNOLOGY, INC., a
California corporation
By: /s/ Betsy A. Lange
------------------------------------
Title: Chief Financial Officer
SUBLEASE
THIS SUBLEASE ("Sublease") is dated as of July 31, 1998, and is made by
and between Adept Technology, Inc., a California corporation ("Sublessor"), and
Ascent Logic Corporation, a Delaware corporation ("Sublessee"). Sublessor and
Sublessee hereby agree as follows:
1. Recitals: This Sublease is made with reference to the fact that
Technology Center Associates LLC, a California limited liability company,
("Master Lessor"), as Landlord, and Sublessor, as Tenant, entered that certain
Lease, dated , 1998 ("Master Lease"), with respect to that certain real property
commonly known as the entire second floor (the "Premises") of the building
("Building") located at 180 Rose Orchard Way, San Jose, CA, which is a portion
of the five building complex commonly known as Technology Center, San Jose, CA
(the "Property"), as more particularly described in the Master Lease. A copy of
the Master Lease is attached hereto as Exhibit "A" and incorporated by reference
herein.
2. Premises: Sublessor hereby subleases to Sublessee, and Sublessee
hereby subleases from Sublessor, a portion of the Premises, deemed to be ( )
square feet of space ("Subleased Premises"). The Subleased Premises are more
particularly described on Exhibit "B" attached hereto and incorporated by
reference herein.
3. Term: The term of this Sublease ("Term") shall be for that (12)
month Term commencing on October 1, 1998 ("Commencement Date"), and ending on
September 30, 1999 ("Termination Date"), unless this Sublease is sooner
terminated pursuant to its terms or the Master Lease is sooner terminated
pursuant to its terms. The parties acknowledge that Sublessee has no option to
extend the Term of this Sublease.
4. Rent:
A. Monthly Base Rent. Sublessee shall pay to Sublessor as
monthly base rent ("Monthly Base Rent") for the Subleased Premises equal monthly
installments as follows:
Months Rent/Month
------ ----------
10/98-9/99 $34,657.90
As used herein, the word "month" shall mean a period beginning on the first
(1st) day of a month and ending on the last day of that month. Rent (as defined
in Paragraph 4.B) shall be paid on or before three (3) days prior to the first
(1st) day
<PAGE>
of each calendar month during the Term. Rent for any period during the term
hereof which is for less than one month of the Term shall be a pro rata portion
of the monthly installment based on a thirty (30)-day month. Rent shall be
payable without notice or demand and without any deduction, offset, or
abatement, in lawful money of the United States of America. Rent shall be paid
directly to Sublessor at 150 Rose Orchard Way, San Jose, CA 95134, Attn: Chief
Financial Officer, or such other address as may be designated in writing by
Sublessor.
B. Additional Rent. All monies required to be paid by
Sublessee under this Sublease (excluding Monthly Base Rent pursuant to Paragraph
4.A), including, without limitation, any amounts payable by Sublessor to Master
Lessor under the Master Lease (including, without limitation, Property Operating
Expenses, as defined in Section 13.12 of the Master Lease), shall be deemed
additional rent ("Additional Rent"). Monthly Base Rent and Additional Rent
hereinafter collectively shall be referred to as "Rent". Sublessee and Sublessor
agree, as a material part of the consideration given by Sublessee to Sublessor
for this Sublease, that from and after the Commencement Date, Sublessee shall
pay all costs, expenses, taxes, insurance, maintenance and other charges of
every kind and nature arising in connection with this Sublease, the Master Lease
or the Subleased Premises; in this regard Sublessee shall pay sixty-eight
percent (68%) of Sublessor's (i) Property Proportionate share of Real Property
Taxes, Landlord's Insurance Costs and Property Maintenance Costs, and (ii)
Building Proportionate Share of Building Maintenance Costs. Additionally,
Sublessee shall pay __________ percent (_______%) of the gas and electrical
utility charges for the Premises if and to the extent any such utilities are not
separately metered to the Premises. Notwithstanding anything to the contrary set
forth in this Sublease, Sublessee's obligation to pay Additional Rent
(attributable to the Term) shall survive the expiration or earlier termination
of this Sublease, and if Sublessor is unable to determine the amount of
Additional Rent due and payable by Sublessee at the expiration or earlier
termination of this Sublease, then the parties shall make an adjusting payment
between them when the correct amount can be determined.
5. Security Deposit: Upon execution hereof by Sublessee, Sublessee
shall deposit with Sublessor, in cash, the sum of Thirty-Four Thousand Six
Hundred Fifty-Seven and 90/100 Dollars ($34,657.90), as security for the
performance by Sublessee of the terms and conditions of this Sublease. If
Sublessee fails to pay Rent or other charges due hereunder or otherwise defaults
with respect to any provision of this Sublease, then Sublessor may draw upon,
use, apply or retain all or any portion of the security deposit for the payment
of any Rent or other charge in default, for the payment of any other sum which
Sublessor has become obligated to pay by reason of Sublessee's default, or to
compensate Sublessor for any loss or damage which Sublessor has suffered
thereby. If Sublessor so uses or applies all or any portion of the security
deposit, then Sublessee shall, within five (5) days after demand therefor,
deposit cash with Sublessor in the amount required to restore the deposit to the
full amount stated above. Within thirty (30) days after the expiration or
earlier termination of this Sublease, if Sublessee is not in default, Sublessor
shall return to Sublessee (without interest) so much of the security deposit as
has not been applied by Sublessor pursuant to this Paragraph, or which is not
otherwise required to cure Sublessee's defaults.
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<PAGE>
6. Late Charge: If Sublessee fails to pay Sublessor any amount due
hereunder on or before the date when such payment is due, Sublessee shall pay to
Sublessor upon demand a late charge equal to five percent (5%) of the delinquent
amount. The parties agree that the foregoing late charge represents a reasonable
estimate of the cost and expense which Sublessor will incur in processing each
delinquent payment. Sublessor's acceptance of any interest or late charge shall
not waive Sublessee's default in failing to pay the delinquent amount.
7. Repairs: Sublessee is currently occupying the Subleased Premises
pursuant to a separate lease between Sublessee and Master Lessor and is fully
aware of condition of the Premises. Accordingly, Sublessee shall accept the
Subleased Premises in their "as is" condition and Sublessor shall have no
obligation whatsoever to make or pay the cost of any alterations, improvements
or repairs to the Subleased Premises, including, without limitation, any
improvement or repair required to comply with any law, regulation, building code
or ordinance (including, without limitation, the Americans With Disabilities Act
of 1990 ("ADA")). Sublessee shall look solely to the Master Lessor for
performance of any repairs required to be performed by Master Lessor under the
terms of the Master Lease.
8. Indemnity: Except to the extent caused by Sublessor's active
negligence or willful misconduct, Sublessee shall indemnify, protect, defend
with counsel reasonably acceptable to Sublessor and hold Sublessor harmless
against any and all claims, liabilities, judgments, causes of action, damages,
costs, and expenses (including reasonable attorneys' and experts' fees), caused
by or arising in connection with: (i) the use, occupancy or condition of the
Subleased Premises; (ii) the negligence or willful misconduct of Sublessee or
its employees, contractors, agents or invitees; (iii) a breach of Sublessee's
obligations under this Sublease; and (iv) a breach of Sublessee's obligations
under the Master Lease.
9. Right to Cure Defaults: If Sublessee fails to pay any sum of money
to Sublessor, or fails to perform any other act on its part to be performed
hereunder, then Sublessor may, but shall not be obligated to, make such payment
or perform such act. All such sums paid, and all costs and expenses of
performing any such act, shall be deemed Additional Rent payable by Sublessee to
Sublessor upon demand. In addition, Sublessee shall pay to Sublessor interest on
all amounts due, at the rate quoted by Wells Fargo Bank N.T. & S.A. (or any
successor thereto) as its prime rate, plus three percent (3%) or the maximum
rate allowed by law, whichever is less (the "Interest Rate"), from the due date
to and including the date of the payment, from the date of the expenditure until
repaid.
10. Assignment and Subletting: Sublessee may not assign this Sublease,
sublet the Subleased Premises, transfer any interest of Sublessee therein, or
permit any use of the Subleased Premises by another party ("Transfer"), without
the prior written consent of Sublessor, which consent may be denied by Sublessor
in its sole and absolute discretion, if Master Lessor elects to terminate the
Master Lease (in accordance with Section 7.3 of the Master Lease) as to the
portion of the Subleased Premises Sublessee is seeking to Transfer; otherwise,
Sublessee's consent to a Transfer shall be given or withheld in accordance with
the provisions of Article 7 of the Master
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<PAGE>
Lease as incorporated herein, and modified by the provisions set forth below. A
consent to one Transfer shall not be deemed to be a consent to any subsequent
Transfer. Any Transfer without such consent shall be void and shall, at the
option of Sublessor, terminate this Sublease. Sublessor's waiver or consent to
any assignment or subletting shall be ineffective unless set forth in writing,
and Sublessee shall not be relieved from any of its obligations under this
Sublease, unless the consent expressly so provides. Notwithstanding anything to
the contrary contained in this Sublease or in the Master Lease, at Sublessor's
sole option, Sublessor shall have the right to terminate this Sublease if
Sublessee requests Sublessor's consent to an assignment of this Sublease or a
sublet of all or any portion of the Subleased Premises.
11. Use: Sublessee may use the Subleased Premises only for general
office and administration uses and for no other purpose. With respect to
Hazardous Materials (defined below), Sublessee shall not engage in or permit any
activities in or about the Premises or Property which involve the use or
presence of Hazardous Materials. Sublessee shall not do or permit anything to be
done in or about the Subleased Premises which would (i) injure the Subleased
Premises, or (ii) vibrate, shake, overload, or impair the efficient operation of
the Subleased Premises or the sprinkler systems, heating, ventilating or air
conditioning equipment, or utilities systems located therein. Sublessee shall
not store any materials, supplies, finished or unfinished products, or articles
of any nature outside of the Subleased Premises. Sublessee shall comply with all
reasonable rules and regulations promulgated from time to time by Sublessor and
Master Lessor.
12. Effect of Conveyance: As used in this Sublease, the term
"Sublessor" means the holder of the tenant's interest under the Master Lease. In
the event of any transfer of said tenant's interest, Sublessor shall be and
hereby is entirely relieved of all covenants and obligations of Sublessor
hereunder, and it shall be deemed and construed, without further agreement
between the parties, that the transferee has assumed and shall carry out all
covenants and obligations thereafter to be performed by Sublessor hereunder.
Sublessor may transfer and deliver any security of Sublessee to the transferee
of said tenant's interest in the Master Lease, and thereupon Sublessor shall be
discharged from any further liability with respect thereto.
13. Acceptance: By taking possession of the Subleased Premises,
Sublessee shall conclusively be deemed to have accepted the Subleased Premises
in their "as-is," then-existing condition and Sublessee shall promptly refund to
Sublessor all monies and other deposits of Sublessor that Sublessee is holding
under that certain Sublease between the parties dated as of October 19, 1995,
with respect to the remainder of the Premises.
14. Improvements: No alterations or improvements shall be made to the
Subleased Premises, except in accordance with this Sublease and the Master
Lease, and with the prior written consent, when required, of both Master Lessor
and Sublessor. Sublessor shall not be required to provide a tenant improvement
allowance to Sublessee in connection with Sublessee's construction of any
improvements to the Subleased Premises.
-4-
<PAGE>
15. Default: Sublessee's performance of each of its obligations under
this Sublease constitutes a condition as well as a covenant, and Sublessee's
right to continue in possession of the Subleased Premises is conditioned upon
such performance. In addition, Sublessee shall be in material default of its
obligations under this Sublease if Sublessee is responsible for the occurrence
of any of the events of default set forth Section 12.1 of the Master Lease.
16. Remedies: In the event of any default by Sublessee under this
Sublease (including, without limitation, a default pursuant to Section 12.1 of
the Master Lease), Sublessor shall have all remedies provided by applicable law,
including, without limitation, all rights pursuant to Section 12.2 of the Master
Lease and under California Civil Code Sections 1951.2 and 1951.4. Sublessor may
resort to its remedies cumulatively or in the alternative.
17. Surrender: Prior to expiration of this Sublease, Sublessee shall
remove all of its trade fixtures and shall surrender the Subleased Premises to
Sublessor in the condition received, free of Hazardous Materials, reasonable
wear and tear excepted. If the Subleased Premises are not so surrendered, then
Sublessee shall be liable to Sublessor for all costs incurred by Sublessor in
returning the Subleased Premises to the required condition, plus interest
thereon at the Interest Rate. Sublessee shall indemnify, defend with counsel
reasonably acceptable to Sublessor, protect and hold harmless Sublessor against
any and all claims, liabilities, judgments, causes of action, damages, costs,
and expenses (including attorneys' and experts' fees) resulting from Sublessee's
delay in surrendering the Subleased Premises in the condition required.
18. Estoppel Certificates: Within five (5) days after demand by
Sublessor, Sublessee shall execute and deliver to Sublessor an estoppel
certificate to Sublessor in connection with the Sublease in the form required
pursuant to Section 13.6 of the Master Lease.
19. Broker: Sublessor and Sublessee each represent to the other that
they have dealt with no real estate brokers, lenders, agents or salesmen other
than Grubb & Ellis, representing Sublessor, in connection with this transaction.
Each party agrees to hold the other party harmless from and against all claims
for brokerage commissions, finder's fees, or other compensation made by any
other agent, broker, salesman or finder as a consequence of said party's actions
or dealings with such agent, broker, salesman, or finder.
20. Notices: Unless five (5) days' prior written notice is given in the
manner set forth in this Paragraph, the address of each party for all purposes
connected with this Sublease shall be that address set forth below their
signatures at the end of this Sublease. The address for Master Lessor shall be
as set forth in the Master Lease. All notices, demands, or communications in
connection with this Sublease shall be considered received when (i) personally
delivered; or (ii) if properly addressed and either sent by nationally
recognized overnight courier or deposited in the mail (registered or certified,
return receipt requested, and postage prepaid), on the date shown on the return
receipt for acceptance or rejection. All notices given to the Master Lessor
under the Master Lease shall be considered received only when delivered in
accordance with the Master Lease to all parties hereto at the address set forth
below their signatures at the end of this Sublease.
-5-
<PAGE>
21. Severability: If any term of this Sublease is held to be invalid or
unenforceable by any court of competent jurisdiction, then the remainder of this
Sublease shall remain in full force and effect to the fullest extent possible
under the law, and shall not be affected or impaired.
22. Amendment: This Sublease may not be amended except by the written
agreement of all parties hereto.
23. Attorneys' Fees: If either party brings any action or legal
proceeding with respect to this Sublease, the prevailing party shall be entitled
to recover reasonable attorneys' fees, experts' fees, and court costs.
Notwithstanding the foregoing and in addition thereto, Sublessor shall be
entitled to immediate receipt from Sublessee, for each breach hereof, of such
reasonable attorneys' fees (but not less than Fifty Dollars ($50.00)), as may be
incurred in connection with each notice or demand delivered to Sublessee.
Sublessee agrees that such sum constitutes reimbursement to Sublessor of the
reasonable cost of the preparation and delivery of each notice caused by
Sublessee's breach.
24. Other Sublease Terms:
A. Incorporation by Reference. Except as otherwise provided in
this Sublease, the terms and provisions contained in the Master Lease are
incorporated herein by reference, and are made a part hereof as if set forth at
length; provided, however, that: (i) each reference in such incorporated section
to "Lease" and to "Premises" shall be deemed a reference to this "Sublease" and
the "Subleased Premises," respectively; (ii) each reference to "Landlord" and
"Tenant" shall be deemed a reference to "Sublessor" and "Sublessee",
respectively; (iii) with respect to work, services, repairs, restoration,
insurance or the performance of any other obligation of Landlord under the
Master Lease, the sole obligation of Sublessor shall be to request the same in
writing from Master Lessor, as and when requested to do so by Sublessee, and to
use Sublessor's reasonable efforts (provided Sublessee pays all costs incurred
by Sublessor in connection therewith) to obtain Master Lessor's performance;
(iv) with respect to any obligation of Sublessee to be performed under this
Sublease, wherever the Master Lease grants to Sublessor a specified number of
days to perform its obligations under the Master Lease, except as otherwise
provided herein, Sublessee shall have three (3) fewer days to perform the
obligation, including, without limitation, curing any defaults; (v) Sublessor
shall have no liability to Sublessee with respect to (a) representations and
warranties made by Master Lessor under the Master Lease, (b) any indemnification
obligations of Master Lessor under the Master Lease, or other obligations or
liabilities of Master Lessor under the Master Lease with respect to compliance
with laws, condition of the Subleased Premises or Hazardous Materials, and (c)
obligations under the Master Lease to repair, maintain, restore, or insure all
or any portion of the Premises, regardless of whether the incorporation of one
or more provisions of the Master Lease might otherwise operate to make Sublessor
liable therefor; (vi) with respect to any approval or consent required to be
obtained from the Master Lessor under the Master Lease, such approval or consent
must be obtained from both Master Lessor and Sublessor, and the approval of
Sublessor may be withheld if Master Lessor's approval or consent is not
obtained; (vii) the following provisions of
-6-
<PAGE>
the Master Lease are expressly not incorporated herein by reference: Sections
1.1 (except that the definitions for the Late Charge Amount, Tenant's Required
Liability Coverage, Property, Building, Outside Areas, Lease Premises are
incorporated herein), 2.3, 3.1, 3.6, 3.7, 6.1 (the last sentence only), 13.3
(the last sentence only), 13.10, 14.2, Article 15 (in its entirety), and
Exhibits A&B; (viii) notwithstanding clause (ii) above, references to "Landlord"
in the following provisions of the Master Lease shall mean Master Lessor, not
Sublessor: Section 2.5, the second grammatical paragraph following Section
3.2(d), and Sections 4.8 (the last sentence only), 5.2.(a) (the last sentence
only), 5.2(b), 5.3, 5.6 (clause (ii) only), 6.3, 9.2, 10.1, 10.2 (first sentence
only), 10.3(a), 10.4, 11.3, 13.12(b), 13.12(c), and 16.(b) (except for
16(b)(iv); and (ix) notwithstanding clause (ii) above, references to "Landlord"
in the following provisions shall mean Master lessor and/or Sublessor: Sections
3.2(a), 4.6, 4.7, 4.9-4.12, inclusive, 5.4, 5.5, 5.6 (except for clause (ii)),
6.1 (except for the last sentence), 6.2, 6.4, Article 8 (in its entirety), 9.1,
10.2 (except for the first sentence), 10.3 (introductory sentence only), 11.2,
11.4, 11.5, 12.4, 13.1, 13.3 (except for the last sentence), 13.5, 13.6, 13.7,
13.8, 13.12(a), 16(a), and 16(b)(iv).
B. Assumption of Obligations. This Sublease is and all times
shall be subject and subordinate to the Master Lease and the rights of Master
Lessor thereunder. Sublessee hereby expressly assumes and agrees: (i) to comply
with all provisions of the Master Lease applicable to the Subleased Premises,
(ii) to perform all the obligations on the part of the "Tenant" to be performed
under the terms of the Master Lease applicable to the Subleased Premises during
the term of this Sublease, and (iii) to hold Sublessor free and harmless of and
from all liability, judgments, costs, damages, claims, demands, and expenses
(including reasonable attorneys' and experts' fees) arising out of Sublessee's
failure to comply with or to perform Sublessee's obligations hereunder or the
obligations of the "Tenant" under the Master Lease as herein provided or to act
or omit to act in any manner which will constitute a breach of the Master Lease.
25. Condition Precedent: This Sublease and Sublessor's and Sublessee's
obligations hereunder are conditioned upon having obtained the written consent
of the Master Lessor to this Sublease, which consent may be given on Master
Landlord's standard form of sublease consent. If Sublessor has not obtained
Master Lessor's consent on Master Lessor's standard form of sublease consent
within thirty (30) days after the date of Sublessor's execution of this
Sublease, either party may terminate this Sublease, and Sublessor shall return
to Sublessee all sums paid by Sublessee to Sublessor in connection with its
execution of this Sublease. Sublessee shall provide to Master Lessor all
financial and other information requested by Master Lessor pursuant to Article 7
of the Master Lease.
26. [Parking: Sublessee shall have the right to the non-exclusive use
of sixty-eight (68%) Property parking spaces in the common area surrounding the
Subleased Premises.]
27. Board Approval: Sublessee represents and warrants to Sublessor that
Sublessee's Board of Directors has reviewed and approved the Master Lease and
this Sublease, and has authorized Sublessee's execution hereof.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sublease as of the
day and year first above written.
SUBLESSEE: SUBLESSOR:
Ascent Logic Corporation, Adept Technology, Inc.,
a California corporation a California corporation
By: /s/ John I. Anderson By: /s/ Betsy A. Lange
------------------------------- -------------------------------
Printed Printed
Name: John I. Anderson Name: Betsy A. Lange
----------------------------- -----------------------------
Its: CFO Its: CFO
------------------------------ ------------------------------
By: _______________________________ By: _______________________________
Printed Printed
Name: _____________________________ Name: _____________________________
Its: ______________________________ Its: ______________________________
Address: Address:
At the Subleased Premises 150 Rose Orchard Way
Attn: Chief Financial Officer San Jose, CA 95134
Attn: Chief Financial Officer
-8-
<PAGE>
EXHIBIT A
Master Lease
(Attached)
-9-
<PAGE>
EXHIBIT B
Depiction of Subleased Premises
[Attached]
-10-
EXHIBIT 13.1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Shareholders and Board of Directors
Adept Technology, Inc.
We have audited the accompanying consolidated balance sheets of Adept
Technology, Inc. as of June 30, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended June 30, 1998. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Adept Technology, Inc. at June 30, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
Ernst & Young L.L.P.
San Jose, California
July 31, 1998
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
(in thousands, except per share data) Year Ended June 30,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Results of Operation:
Net revenues ............................................... $ 98,394 $ 82,767 $ 81,572 $ 59,069 $ 50,618
Cost of revenues ........................................... 56,503 48,761 46,812 34,788 28,089
-------- -------- -------- -------- --------
Gross margin ............................................ 41,891 34,006 34,760 24,281 22,529
Operating expenses:
Research, development and engineering ................... 10,731 9,016 8,098 6,598 7,075
Selling, general and administrative ..................... 25,150 21,628 20,201 14,722 13,486
Restructuring and other nonrecurring charges (3) ........ 2,756 -- -- -- --
Acquired in-process research and
development (1) ....................................... -- -- -- 2,972 --
-------- -------- -------- -------- --------
Total operating expenses .............................. 38,637 30,644 28,299 24,292 20,561
Operating income (loss) ................................. 3,254 3,362 6,461 (11) 1,968
Interest income, net .................................... 998 704 496 440 163
-------- -------- -------- -------- --------
Income before provision for income taxes ................ 4,252 4,066 6,957 429 2,131
Provision for (benefit from) income taxes ............... 1,701 1,309 1,180 (496) (150)
-------- -------- -------- -------- --------
Net income .............................................. $ 2,551 $ 2,757 $ 5,777 $ 925 $ 2,281
======== ======== ======== ======== ========
Net income per share (2):
Basic ................................................. $ .30 $ .34 $ .83 $ .16 $ .41
======== ======== ======== ======== ========
Diluted ............................................... $ .29 $ .33 $ .75 $ .15 $ .37
======== ======== ======== ======== ========
Number of shares used in computing per share amounts (2):
Basic ................................................. 8,455 8,062 7,003 5,635 5,618
======== ======== ======== ======== ========
Diluted ............................................... 8,923 8,442 7,736 6,379 6,192
======== ======== ======== ======== ========
(in thousands) June 30,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
Balance Sheet Data:
Cash, cash equivalents and short-term investments ....... $20,903 $18,467 $10,975 $ 8,812 $ 6,677
Working capital ......................................... 45,474 38,931 35,030 19,757 18,772
Total assets ............................................ 67,958 59,493 56,352 38,371 29,304
Long-term liabilities ................................... -- -- 26 117 203
Total shareholders' equity .............................. 52,669 47,094 42,823 25,678 21,598
<FN>
- -----------------
(1) In June 1995 the Company acquired SILMA Incorporated and incurred a charge
of $3.0 million for acquired in-process research and development in
connection with such purchase.
(2) See Notes 1 and 8 of Notes to Consolidated Financial Statements for a
discussion of the computation of net income per share. The earnings per
share amounts prior to 1998 have been restated as required to comply with
Statement of Financial Accounting Standards No. 128, Earnings Per Share and
Staff Accounting Bulletin No. 98, Earnings Per share.
(3) During 1998, the Company recorded restructuring and other nonrecurring
charges of approximately $2.8 million. See Note 1 of Notes to Consolidated
Financial Statements.
</FN>
</TABLE>
Page 1
<PAGE>
Quarterly Results of Operations (Unaudited)
<TABLE>
The Company operates and reports financial results ending on the last
Saturday of a thirteen week period for each of its first three fiscal quarters
and at June 30 for its fiscal year end. For convenience, the Company has
indicated in this annual report its fiscal quarters end on March 31, December 31
and September 30.
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------
(in thousands, except per share data) Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
1998 1998 1997 1997 1997 1997 1996 1996
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues ............................. $ 22,279 $ 23,669 $ 26,464 $ 25,982 $ 24,339 $ 21,104 $ 18,887 $ 18,437
Cost of revenues ......................... 13,142 13,445 14,945 14,971 14,164 12,299 11,239 11,059
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin ......................... 9,137 10,224 11,519 11,011 10,175 8,805 7,648 7,378
Operating expenses:
Research, development and engineering .. 3,055 2,647 2,647 2,382 2,681 2,305 2,054 1,976
Selling, general and administrative .... 5,788 6,284 6,499 6,579 5,674 5,474 5,328 5,152
Restructuring and other nonrecurring
charges .............................. 2,081 -- 675 -- -- -- -- --
Total operating expenses ........... 10,924 8,931 9,821 8,961 8,355 7,779 7,382 7,128
Operating income (loss) .................. (1,787) 1,293 1,698 2,050 1,820 1,026 266 250
-------- -------- -------- -------- -------- -------- -------- --------
Interest income, net ..................... 253 259 230 256 226 181 163 134
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before provision for
income taxes ........................... (1,534) 1,552 1,928 2,306 2,046 1,207 429 384
Provision for (benefit from) income taxes (614) 621 771 923 654 362 155 138
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ........................ $ (920) $ 931 $ 1,157 $ 1,383 $ 1,392 $ 845 $ 274 $ 246
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per share:
Basic ................................ $ (.11) $ .11 $ .14 $ .17 $ .17 $ .10 $ .03 $ .03
======== ======== ======== ======== ======== ======== ======== ========
Diluted .............................. $ (.11) $ .10 $ .13 $ .16 $ .16 $ .10 $ .03 $ .03
======== ======== ======== ======== ======== ======== ======== ========
Number of shares used in computing per
share amounts:
Basic ................................ 8,679 8,499 8,375 8,265 8,190 8,091 8,039 7,928
======== ======== ======== ======== ======== ======== ======== ========
Diluted .............................. 8,679 8,949 8,961 8,829 8,542 8,464 8,393 8,370
======== ======== ======== ======== ======== ======== ======== ========
As a Percentage of Net Revenues:
Net revenues ........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues ....................... 59.0 56.8 56.5 57.6 58.2 58.3 59.5 60.0
-------- -------- -------- -------- -------- -------- -------- --------
Gross margin ......................... 41.0 43.2 43.5 42.4 41.8 41.7 40.5 40.0
Operating expenses:
Research, development and
engineering ........................ 13.7 11.2 10.0 9.2 11.0 10.9 10.9 10.7
Selling, general and administrative .. 26.0 26.5 24.6 25.3 23.3 25.9 28.2 27.9
Restructuring and other nonrecurring
charges ............................ 9.3 -- 2.5 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses ............. 49.0 37.7 37.1 34.5 34.3 36.8 39.1 38.6
Operating income (loss) ................ (8.0) 5.5 6.4 7.9 7.5 4.9 1.4 1.4
Interest income, net ................... 1.1 1.1 0.9 1.0 0.9 0.8 0.9 0.7
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before provision for
income taxes ......................... (6.9) 6.6 7.3 8.9 8.4 5.7 2.3 2.1
Provision for (benefit from) income
taxes ................................. (2.8) 2.6 2.9 3.6 2.7 1.7 0.8 0.8
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ...................... (4.1)% 4.0% 4.4% 5.3% 5.7% 4.0% 1.5% 1.3%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Market for Registrant's Common Stock and Related Shareholder Matters
<TABLE>
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol ADTK since the Company's initial public offering on December
15, 1995. The following table reflects the range of high and low sale prices as
reported on the Nasdaq National Market for the quarters ended:
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------------
Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30,
1998 1998 1997 1997 1997 1997 1996 1996
--------- --------- --------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High ............... $ 12.00 $ 15.75 $ 16.13 $ 14.50 $ 10.00 $ 8.63 $ 8.25 $ 14.00
Low ................ $ 7.00 $ 9.25 $ 7.69 $ 8.63 $ 6.13 $ 6.75 $ 5.88 $ 5.00
</TABLE>
At June 30, 1998, there were approximately 370 shareholders of record. To
date, the Company has neither declared nor paid cash dividends on shares of its
Common Stock. The Company currently intends to retain all future earnings for
its business and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future.
Page 2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
"Factors Affecting Future Operating Results" under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in, or
incorporated by reference into, this report.
OVERVIEW
The Company designs, manufactures and markets intelligent automation software
and hardware products for assembly, material handling and packaging
applications. The Company's products currently include machine controllers for
robot mechanisms and other flexible automation equipment, machine vision
systems, simulation software and a family of mechanisms including robots, linear
modules, vision-based flexible part feeders, as well as a line of Cartesian
scalable robots targeted for the electronics and assembly applications markets.
In recent years, the Company has expanded its robot product lines and developed
advanced software and sensing technologies that have enabled robots to perform a
wider range of functions. The Company has also expanded its channel of system
integrators and its international sales and marketing operations. As a result of
these developments, the nature and composition of the Company's revenues have
changed over time. Specifically, software license and service revenues, although
still relatively insignificant, have increased as a percentage of total
revenues, and international sales comprise a significant portion of the
Company's revenues.
The Company sells its products through system integrators, its direct sales
force and original equipment manufacturers ("OEMs"). System integrators and OEMs
add application-specific hardware and software to the Company's products,
thereby enabling the Company to provide solutions to a diversified industry
base, including the electronics, telecommunications, appliances, pharmaceutical,
food processing and automotive components industries. Net revenues have
increased in each of the Company's last four fiscal years; however, the rates of
increase have varied substantially from year to year, and there can be no
assurance that the Company's net revenues will continue to grow or that the
Company will be profitable in future periods. Additionally, the Company's net
revenues have declined in each of the last two quarters of fiscal 1998.
Accordingly, the Company's historical results of operations should not be relied
upon as an indication of future performance.
In February 1998, the Company acquired RoboElektronik GmbH ("RoboElektronik")
through the issuance of 24,562 shares of the Company's common stock, which were
exchanged for all of the outstanding capital stock of RoboElektronik. The merger
was accounted for as a pooling of interests. RoboElektronik GmbH was renamed
Adept Technology, GmbH on June 26, 1998. The results of operations of
RoboElektronik have been consolidated since the acquisition. Prior periods have
not been restated as the impact is not material.
This discussion summarizes the significant factors affecting the Company's
consolidated operating results, financial condition, liquidity and cash flow
during the three year period ended June 30, 1998 (i.e., 1998, 1997 and 1996).
Unless otherwise indicated, references to any year in this Management's
Discussion and Analysis of Financial Condition and Results of Operation refer to
the Company's fiscal year ended June 30. This discussion should be read in
conjunction with the consolidated financial statements and financial statement
footnotes included in this annual report.
Page 3
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF 1998 TO 1997
Net Revenues. The Company's net revenues increased by 18.9% to $98.4 million in
1998 from $82.8 million in 1997. The growth in net revenues for 1998 over the
prior year was primarily due to increased product sales, including robot and
motion controller sales, and increased service and upgrade revenues, including
revenues from the Company's Rapid Deployment Automation (RDA) Services group,
which provides engineering contract services. Revenue growth slowed
substantially in the second half of 1998 relative to the prior six month period,
however, primarily as a result of lower sales to the computer disk-drive,
telecommunications, semiconductor and electronics industries. Additionally,
while the Company's direct sales into the Asian-Pacific region have been
relatively insignificant to date, the widely reported economic instability in
that region has affected certain domestic and OEM customers who have seen their
Asian-Pacific revenues decline. This was a leading cause in the Company's
declining revenue for the second half of 1998 relative to the prior six month
period. The Company does not believe that a revival in these key hardware
markets will occur before the end of calendar 1998, if at all. International
sales, including sales to Canada, were $39.8 million or 40.5% of net revenues in
1998, as compared with $29.6 million or 35.8% of net revenues in 1997. Because
international revenues constitute a significant portion of the Company's net
revenues, adverse economic conditions or instability in foreign markets where
the Company operates directly can be expected to have an adverse effect on the
Company's revenues and results of operations. In addition, and as noted above,
fluctuations in economic conditions internationally can also affect the
Company's revenues and operating results indirectly to the extent significant
customers of the Company (or industry segments on which the Company is
significantly dependent) are affected by such international fluctuations.
Gross Margin. Gross margin was 42.6% in 1998 compared to 41.1% in 1997. The
increase in gross margin percentage was primarily attributable to improved
margins on mechanism systems sales as a result of increased sales of higher
margin products and, to a lesser extent, to increased service and upgrade
revenues, including the Company's new RDA engineering contract services. The
Company expects that it will continue to experience fluctuations in gross margin
percentage due to changes in its sales and product mix.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased by 19.0% to $10.7 million in 1998 from $9.0
million in 1997. As a percentage of net revenues, research, development and
engineering expenses remained at 10.9% in both 1998 and 1997. The absolute
dollar increase in expenses in 1998 was primarily due to increases in
compensation related expenses, including consulting expenses and, to a lesser
extent, to increases in information system related expenses, increased project
material spending and to lower third party development funding. Research,
development and engineering expenses in 1998 were partially offset by $629,000
of third party development funding as compared with $767,000 of third party
development funding in 1997. The Company expects that it will continue to
receive third party development funding from the federal government as well as
other third parties during 1999 but that such funding will be less than funding
received in 1998. However, there can be no assurance that any funds budgeted by
the government or other third parties for the Company's development projects
will not be curtailed or eliminated at any time.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 16.3% to $25.2 million or 25.6% of net
revenues in 1998 from $21.6 million or 26.1% of net revenues in 1997. The
increased level of spending was primarily attributable to increased headcount
and compensation related expenses and, to a lesser extent, to higher travel
expenses and information system related expenses. The Company expects that
selling, general and administrative expenses will continue to fluctuate as a
percentage of net revenues in future periods.
Restructuring and Other Nonrecurring Charges. During 1998, the Company recorded
restructuring charges of approximately $1.0 million and other nonrecurring
charges of approximately $1.7 million. The restructuring charges of $1.0 million
included $651,000 for relinquishing control of the Company's Japan branch which
resulted in the write-off of certain assets and excess facilities. The remaining
$362,000 relates to severance for the termination of certain employees.
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The nonrecurring charges of approximately $1.7 million included $675,000 for
compensation expenses related to the Company's employee stock purchase plan (see
Note 5 of Notes to Consolidated Financial Statements) and $383,000 related to
the write off of certain information system hardware and software which had
become obsolete as a result of decisions made in the fourth quarter related to
the information system implementation and upgrade. Additionally, $413,000
related to the write off of the remaining balance of capitalized purchased
software associated with the acquisition of SILMA. Due to recent technological
changes related to the SILMA operating platform, the Company determined the net
realizable value of the purchased software was impaired.
The Company reported the charge of $675,000 in the second quarter of fiscal 1998
for compensation expense related to the Emerging Issues Task Force Issue No.
97-12, "Accounting for Increased Share Authorizations in an IRS Section 423
Employee Stock Purchase Plan under APB Opinion No. 25, Accounting for Stock
Issued to Employees" which was adopted by the EITF in September 1997. This
nonrecurring, non-cash charge represented the difference between 85% of the fair
market value of common stock on the date of the beginning of the offering period
and the fair market value of common stock on the date the shareholders approved
the increase in shares authorized for issuance, multiplied by the number of
shares in the 1995 Employee Stock Purchase Plan ("ESPP") that had been
subscribed for purchase by employees, but not authorized by the shareholders,
prior to the Company's Annual Meeting of Shareholders. Shareholder approval was
granted to make available for issuance an additional 500,000 shares under the
ESPP on October 31, 1997.
Interest Income, Net. Interest income, net in 1998 was $998,000 compared to
$704,000 in 1997. The increase was due to higher levels of available invested
funds generated primarily from operating and financing activities as well as
higher investment yields in 1998.
Provision for Income Taxes. The Company's effective tax rate for 1998 was 40%
compared to 32% for 1997. The Company's tax rates for 1998 and 1997 differ from
the statutory income tax rate primarily due to the benefit of federal tax
credits.
Derivative Financial Instruments The Company's product sales are predominantly
denominated in U.S. dollars. However, certain international operating expenses
are predominately paid in their respective local currency. The Company generally
does not hedge its exposure to foreign currency exchange risk on local
operational expenses and revenues. Although the Company believes that unhedged
risk associated with foreign currency fluctuations for those transactions have
not been material to date, there can be no assurance that such risk will not
become material in the future or that the Company will not incur foreign
exchange transaction losses which will have an adverse effect on the Company's
results of operations. The Company makes yen-denominated purchases of certain
components and mechanical subsystems from Japanese suppliers. Based on the
amount of such purchases, current exchange rate fluctuations would not typically
be expected to result in material unfavorable foreign exchange transactions
included in cost of revenues. From time to time, the Company manages the
currency risk associated with the yen-denominated purchases using forward rate
currency contracts. The Company had no outstanding foreign exchange contracts at
June 30, 1998.
COMPARISON OF 1997 TO 1996
Net Revenues. The Company's net revenues increased by 1.5% to $82.8 million in
1997 from $81.6 million in 1996. The first half of 1997 saw an overall decline
in net revenues from the comparable period in 1996 as product sales fell,
particularly sales of motion controllers in the Company's international markets
and, to a lesser extent, to decreased service and upgrade revenues, partially
offset by an increase in robot sales. A strong domestic market and gradual
recovery in the international markets during the second half of 1997 resulted in
increased revenues for the comparable period of 1996, bringing total net
revenues for 1997 slightly above the 1996 level. The recovery in total revenues
during the second half of 1997 reflected growth in robot sales and a return of
motion controller sales comparable to the same levels of the second half period
of 1996, as well as increases in service and upgrade revenues as compared to
both the first half of 1997 and the second half of 1996. International sales,
including sales to Canada, were $29.6 million or 35.8% of net revenues in 1997,
as compared with $32.2 million or 39.4% of net revenues in 1996.
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Gross Margin. Gross margin was 41.1% in 1997 compared to 42.6% in 1996. The
decrease in gross margin percentage was primarily attributable to higher sales
of lower margin mechanism systems and to lower sales of higher margin motion
controller products. In addition, sales of lower margin mechanical subsystems
sourced from third parties increased during the year. These declines in gross
margin were partially offset by increased gross margin on service and upgrade
revenues and, to a lesser extent, to increased gross margin from software
products, including simulation software products from the Company's SILMA
business.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased by 11.3% to $9.0 million in 1997 from $8.1
million in 1996. As a percentage of net revenues, research, development and
engineering expenses increased to 10.9% in 1997 from 9.9% in 1996, primarily
because of increases in compensation related expenses, including consulting
expenses, decreased third party development funding and, to a lesser extent, to
increased project material spending. Research, development and engineering
expenses in 1997 were partially offset by $767,000 of third party development
funding as compared with $1.1 million of third party development funding in
1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 7.1% to $21.6 million or 26.1% of net revenues
in 1997 from $20.2 million or 24.8% of net revenues in 1996. This increased
spending was primarily attributable to investments in new product launches and
promotions, higher depreciation expenses, increased headcount and related
expenses and, to a lesser extent, to employee merit compensation adjustments and
additional administrative expenses associated with being a public company.
Interest Income, Net. Interest income, net in 1997 was $704,000 compared to
$496,000 in 1996. The increase was due to higher levels of available invested
funds, partially offset by lower investment yields in 1997.
Provision for Income Taxes. The Company's effective tax rate for 1997 was 32%,
compared to 17% for 1996. The Company's tax rate for 1997 differs from the
statutory income tax rate primarily due to the benefit of federal and state tax
credits. The Company's 17% tax rate for 1996 differed from the combined federal
and state statutory income tax rate primarily due to the utilization of tax
credit carryforwards and to a reduction in the valuation allowance for deferred
tax assets.
IMPACT OF INFLATION
The effect of inflation on the Company's business and financial position has not
been significant to date.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had working capital of approximately $45.5
million, including $9.6 million in cash and cash equivalents and $11.3 million
in short-term investments.
The Company's cash requirements during the year ended June 30, 1998 were met
primarily through cash provided by operations and, to a lesser extent, to cash
provided by financing activities. Cash, cash equivalents and investments
increased $1.4 million from June 30, 1997 primarily as a result of $2.1 million
of cash generated from operating activities and $2.0 million in financing
activities, offset by $3.1 million of expenditures for property and equipment.
Net cash provided by operating activities was primarily attributable to net
income adjusted by depreciation and amortization, restructuring and
non-recurring charges, and was offset by the increase in inventory and accounts
receivable. Financing activities consisted mainly of proceeds from employee
stock option incentive and purchase plans.
Pursuant to the Board of Directors approval in August 1998, the Company has
announced a plan to repurchase up to 450,000 shares of its common stock in the
open market or in private transactions depending upon acceptable price levels
and availability of shares. Such repurchases, to the extent made, will be
effected in reliance on Rule 10b-18 under the Securities Exchange Act of 1934,
as amended.
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The Company currently anticipates capital expenditures of approximately $3.0
million in 1999.
The Company believes that the existing cash and cash equivalent balances as well
as short-term investments and anticipated cash flow from operations will be
sufficient to support the Company's working capital requirements for at least
the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1997 and March 1998, the American Institute of Certified Public
Accountants issued Statements of Position 97-2, (SOP 97-2), "Software Revenue
Recognition" and 98-4 (SOP 98-4), "Deferral of The Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition", which the Company currently is
required to adopt for transactions entered into after June 30, 1998. SOP 97-2
and SOP 98-4 provide guidance on recognizing revenue on software transactions
and supersede SOP 91-1.
The Company has assessed the impact of the SOP 97-2 and SOP 98-4 and it has
changed certain of its policies, procedures and practices. The Company believes
that the adoption of SOP 97-2 and SOP 98-4 will not have a material adverse
impact on revenues or operating results for 1999. However, there can be no
assurance that the adoption of SOP 97-2 and 98-4 will not have a material effect
on the Company's business, financial condition or results of operations.
The Company intends to adopt Statement of Financial Accounting Standards No. 130
(SFAS 130), "Reporting Comprehensive Income" and Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information," in 1999. Both will require additional
disclosure but will not have a material effect on the Company's financial
position or results of operations. SFAS 130 will first be reflected in the
Company's first quarter of 1999 interim financial statements. Components of
comprehensive income include items such as net income and changes in unrealized
gains or losses on available-for-sale securities. SFAS 131 requires segments to
be determined based on how management measures performance and makes decisions
about allocating resources. SFAS 131 will first be reflected in the Company's
1999 financial statements.
FACTORS AFFECTING FUTURE OPERATING RESULTS
FLUCTUATING OPERATING RESULTS
The Company's operating results have been historically and will continue to be
subject to significant quarterly and annual fluctuations due to a number of
factors, including fluctuations in capital spending domestically and
internationally or in one or more industries to which the Company sells its
products, new product introductions by the Company or its competitors, changes
in product mix and pricing by the Company, its suppliers or its competitors,
availability of components and raw materials, failure to manufacture a
sufficient volume of products in a timely and cost-effective manner, failure to
anticipate changing customer product requirements, lack of market acceptance or
shifts in the demand for the Company's products, changes in the mix of sales by
distribution channel, changes in the spending patterns of the Company's
customers and extraordinary events such as litigation or acquisitions. The
Company's gross margins may vary greatly depending on the mix of sales of lower
margin hardware products, particularly mechanical subsystems purchased from
third party vendors and higher margin software products.
The Company's operating results may also be affected by general economic and
other conditions affecting the timing of customer orders and capital spending.
For example, the Company's operations during the third and fourth quarters of
fiscal 1998 were adversely affected by a continuing downturn in hardware
purchases by customers in the electronics industry, particularly disk-drive and
telecommunication manufacturers. The Company does not believe that a revival in
these key hardware markets will occur before the end of calendar year 1998, if
at all. The Company generally recognizes product revenue upon shipment or, for
certain international sales, upon receipt by the customer. The Company's net
revenues and results of operations for a fiscal period will therefore be
affected by the timing of orders received and orders shipped during such period.
A delay in shipments near the end of a fiscal period, due for example to product
development delays or to delays in obtaining materials, could materially
adversely affect the Company's business, financial condition and results of
operations for such period.
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Moreover, continued investments in research and development, capital equipment
and ongoing customer service and support capabilities will result in significant
fixed costs which the Company will not be able to reduce rapidly and, therefore,
if the Company's sales for a particular fiscal period are below expected levels,
the Company's business, financial condition and results of operations for such
fiscal period could be materially adversely affected. In addition, in the event
that in some future fiscal quarter the Company's net revenues or operating
results were below the expectations of public market analysts and investors, the
price of the Company's Common Stock could be materially adversely affected.
There can be no assurance that the Company will be able to increase or sustain
profitability on a quarterly or annual basis in the future.
SEASONALITY IN ORDERS
The Company has experienced and is expected to continue to experience
seasonality in product bookings. The Company has historically had higher
bookings for its products during the June quarter of each fiscal year and lower
bookings during the September quarter of each fiscal year, due primarily to the
slowdown in sales to European markets. In the past, the Company has generally
been able to maintain revenue levels during the September fiscal quarter by
filling backlog from the June fiscal quarter. In the event bookings for the
Company's products in the June fiscal quarter were lower than anticipated and
the Company's backlog at the end of the June fiscal quarter was insufficient to
compensate for lower bookings in the September fiscal quarter, the Company's
results of operations for the September fiscal quarter and future quarters could
be materially adversely affected. For example, in the quarter ended September
30, 1996, sales to European and other international markets decreased
substantially due to the delay of several large orders by the customers placing
such orders. As a result of the decrease in product bookings, net revenues fell
in the quarter ended September 30, 1996. In addition, during fiscal 1998 as a
whole, the Company's revenues were adversely affected by a decline in orders
from customers in the disk-drive and telecommunications markets. The Company
also believes that backlog is not a useful measure of anticipated activity or
future revenues, because the orders constituting the Company's backlog are
subject to changes in delivery schedules and in certain instances are subject to
cancellation without significant penalty by the customer.
In addition, a significant percentage of the Company's product shipments occur
in the last month of each fiscal quarter. Historically, this has been due in
part, at times, to an inability of the Company to forecast the level of demand
for the Company's products or of the product mix for a particular fiscal
quarter. To address this problem the Company periodically stocks inventory
levels of completed robots, machine controllers and certain strategic
components. If shipments of the Company's products fail to meet forecasted
levels, the increased inventory levels could have a material adverse effect on
the Company's business, financial condition and results of operations.
CYCLICALITY OF CAPITAL SPENDING
Intelligent automation systems utilizing the Company's products can range in
price from $75,000 to several million dollars. Accordingly, the Company's
success is directly dependent upon the capital expenditure budgets of its
customers. The Company's future operations may be subject to substantial
fluctuations as a consequence of domestic and foreign economic conditions,
industry patterns and other factors affecting capital spending. Although the
majority of the Company's international customers are not in the Asian-Pacific
region, the Company believes that continuing instability in the Asian-Pacific
economies could also have a material adverse effect on the results of the
Company's operations as a result of a reduction in sales by the Company's
customers to those markets. Domestic or international recessions or a downturn
in one or more of the Company's major markets, such as the electronics,
telecommunications, appliances, pharmaceutical, food processing or automotive
components industries, and resulting cutbacks in capital spending would have a
direct, material adverse impact on the Company's business, financial condition
and results of operations.
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SOLE OR SINGLE SOURCES OF SUPPLY AND LENGTHY PROCUREMENT LEAD TIMES
The Company obtains many key components and materials and some significant
mechanical subsystems from sole or single source suppliers with whom the Company
has no guaranteed supply arrangements. In addition, certain of the sole or
single sourced components and mechanical subsystems incorporated into the
Company's products have long procurement lead times. The Company's reliance on
sole or single source suppliers involves several significant risks, including
loss of control over the manufacturing process, the potential absence of
adequate supplier capacity, potential inability to obtain an adequate supply of
required components, materials or mechanical subsystems and reduced control over
manufacturing yields, costs, timely delivery, reliability and quality of
components, materials and mechanical subsystems. In the event that any
significant sole or single source supplier were unable or unwilling to
manufacture certain components, materials or mechanical subsystems in required
volumes, the Company would be required to identify and qualify acceptable
replacements. The process of qualifying suppliers may be lengthy, and there can
be no assurance that any additional sources would be available to the Company on
a timely basis or on acceptable terms. If supplies of such items were not
available from the Company's existing suppliers and a relationship with an
alternative vendor could not be timely developed, shipments of the Company's
products could be interrupted and reengineering of such products could be
required.
The Company has experienced quality control or specification problems with
certain key components provided by sole source suppliers, and has had to design
around the particular flawed item. The Company has also experienced delays in
filling customer orders due to the failure of certain suppliers to meet the
Company's volume and schedule requirements. Certain suppliers of the Company
have also ceased manufacturing components which the Company requires for its
products, and the Company has been required to purchase sufficient supplies for
the estimated life of its product line. There can be no assurance that these
problems will not occur in the future with the Company's suppliers. Disruption
or termination of the Company's supply sources could require the Company to seek
alternative sources of supply, and could delay the Company's product shipments
and damage relationships with current and prospective customers, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. If the Company incorrectly forecasts
product mix for a particular period and the Company is unable to obtain
sufficient supplies of any components or mechanical subsystems on a timely basis
due to long procurement lead times, the Company's business, financial condition
and results of operations could be materially adversely affected. Moreover, if
demand for a product for which the Company has purchased a substantial amount of
components fails to meet the Company's expectations, the Company would be
required to write off the excess inventory, thereby materially adversely
affecting the Company's results of operations. A prolonged inability to obtain
adequate timely deliveries of key components would have a material adverse
effect on the Company's business, financial condition and results of operations.
COMPETITION
The market for intelligent automation products is highly competitive. The
Company competes with a number of robot companies, motion control companies,
machine vision companies and simulation software companies. Some of the
Company's competitors have substantially greater financial, technical, marketing
and other resources than the Company. Although to date the Company's competitors
have not offered a broad range of intelligent automation products, it is
possible that one or more of these competitors may in the future, through
acquisitions or otherwise, offer a more comprehensive line of products which are
competitive with the Company's. In addition, the Company may in the future face
competition from new entrants in one or more of its markets.
Many of the Company's competitors in the robot market are integrated
manufacturers of products that produce robotics equipment internally for their
own use and may also compete with the Company's products for sales to other
customers. Certain of these large manufacturing companies have greater
flexibility in pricing than the Company, because they generate substantial unit
volumes of robots for internal demand and may have access through their parent
companies to large sources of capital. There can be no assurance that any of the
Company's competitors will not seek to expand its presence in other markets in
which the Company competes. Moreover, the recent devaluation of the Japanese yen
in relation to the United States dollar may have the effect of making the
Company's dollar-denominated products relatively more expensive than robot
components priced in yen or another Asian currency that has been subject to
devaluation.
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The Company's principal competitors in the market for motion control systems
include Allen-Bradley Co. ("Allen-Bradley"), a subsidiary of Rockwell
International Corporation, in the United States, and Siemens AG in Europe. In
addition, the Company faces motion control competition from two major suppliers
of motion control boards, Galil Motion Control, Inc. and Delta Tau Data Systems
Inc. These motion control boards are purchased by end users which engineer their
own custom motion control systems. In the simulation software market, the
Company's competitors include Tecnomatix Technologies, Inc., an Israeli company
which sells mostly to major automotive manufacturers and Deneb Robotics Inc., a
subsidiary of Dassault Systemes. In the machine vision market, the Company faces
competition from Cognex Corporation, Robotic Vision Systems, Inc. and
Allen-Bradley.
There can be no assurance that current or potential competitors of the Company
will not develop products comparable or superior in terms of price and
performance features to those developed by the Company or adapt more quickly
than the Company to new or emerging technologies and changes in customer
requirements. In addition, no assurance can be given that the Company will not
be required to make substantial additional investments in connection with its
research, development, engineering, marketing and customer service efforts in
order to meet any competitive threat, or that the Company will be able to
compete successfully in the future. Increased competitive pressure could result
in a loss of sales or market share or cause the Company to lower prices for its
products, any of which could materially adversely affect the Company's business,
financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT
The intelligent automation industry is characterized by rapid technological
change and new product introductions and enhancements. The Company's ability to
remain competitive and its future success will depend in significant part upon
the technological quality of its products and processes relative to those of its
competitors and its ability both to continue to develop new and enhanced
products and to introduce such products at competitive prices and on a timely
and cost-effective basis. There can be no assurance that the Company will be
successful in selecting, developing and manufacturing new products or in
enhancing its existing products on a timely basis or at all, or that such new or
enhanced products will achieve market acceptance. The failure to successfully
select, develop and manufacture new products, or to timely enhance its existing
technologies and meet customers' technical specifications for any new products
or enhancements, or to successfully market new products, could materially
adversely affect the Company's business, financial condition and results of
operations. New technology or product introductions by the Company's competitors
could also cause a decline in sales or loss of market acceptance for the
Company's existing products or force the Company to significantly reduce the
prices of its existing products. The failure of the Company to develop,
manufacture and sell new products in quantities sufficient to offset a decline
in revenues from existing products or to manage product and related inventory
transitions successfully could have a material adverse effect on the Company's
business, financial condition and results of operations. The success of the
Company in developing, introducing, selling and supporting new and enhanced
products depends upon a variety of factors, including timely and efficient
completion of hardware and software design and development, timely and efficient
implementation of manufacturing processes and effective sales, marketing and
customer service. Because of the complexity of the Company's products,
significant delays may occur between a product's initial introduction and
commencement of the Company's volume production. The Company has from time to
time experienced delays in the introduction of, and certain technical and
manufacturing difficulties with, certain of its products and the Company may
experience technical and manufacturing difficulties and delays in future
introductions of new products and enhancements.
The Company's future success will depend on its ability to enhance its existing
products and to develop and introduce, on a timely and cost-effective basis, new
products and enhancements that keep pace with technological developments and
address the needs of its customers. The development and commercialization of new
products involve many risks, including the identification of new product
opportunities, the retention and hiring of appropriate research and development
personnel, the definition of the product's technical specifications and the
successful completion of the development process. Other risks would include the
successful marketing of the product, the risk of having customers embrace new
technological advances, additional customer service costs associated with
supporting new product introductions and additional customer service costs
required for field upgrades. For example, the Company is currently in the
process of releasing its new AdeptWindows Controller "AWC." This product
includes significant new networking, communications, and control technology. Due
to these technological advances, the AWC substantially changes how customers
interface this product to their work
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cells and factory control systems. There can be no assurance that the
development of these products will be completed in a timely manner or that such
products will achieve acceptance in the market. The development of these
products has required, and will require, the Company to expend significant
financial and management resources. If the Company is unable to successfully
develop these or other new products that respond to customer requirements or
technological changes, the Company's business, financial condition and results
of operations would be materially adversely affected.
SOFTWARE DEFECTS
New or existing software products or enhancements may contain errors or
performance problems when first introduced, when new versions or enhancements
are released or even after such products or enhancements have been used in the
marketplace for a period of time. Despite testing by the Company, such defects
may be discovered only after a product has been installed and used by customers.
There can be no assurance that such errors or performance problems will not be
discovered in future shipments of the Company's products. Such errors could
result in expensive and time consuming design modifications or large warranty
charges, damage customer relationships and result in loss of market share, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
RELIANCE ON SYSTEM INTEGRATORS
A substantial portion of the Company's sales are to system integrators that
specialize in designing and building production lines for manufacturers. Many of
these companies are small operations with limited financial resources, and the
Company has from time to time experienced difficulty in collecting payments from
certain of these companies. To the extent the Company is unable to mitigate this
risk of collections from system integrators, the Company's results of operations
may be materially adversely affected. Furthermore, the Company's relationships
with its system integrators are generally not exclusive, and some of these
system integrators may expend a significant amount of effort or give higher
priority to selling products of the Company's competitors. There can be no
assurance that any of these system integrators will not discontinue its
relationship with the Company or form additional competing arrangements with the
Company's competitors. The Company believes that its ability to sell products to
system integrators will continue to be important to the Company's success.
Although to date none of the Company's system integrators has accounted for a
material percentage of the Company's net revenues, the loss of, or a significant
reduction in revenues from, system integrators to which the Company sells a
significant amount of its product could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
as the Company enters new geographic and applications markets, it must locate
system integrators to assist the Company in building sales in those markets.
There can be no assurance that the Company will be successful in obtaining
effective new system integrators or in maintaining sales relationships with
them. In the event a number of the Company's system integrators experience
financial problems, terminate their relationships with the Company or
substantially reduce the amount of the Company's products they sell, or in the
event the Company fails to build an effective systems integrator channel in any
new markets, the Company's business, financial condition and results of
operations could be materially adversely affected.
INTERNATIONAL SALES AND PURCHASES
Net revenues from international sales, including sales to Canada, have accounted
for a significant portion of the Company's net revenues. In fiscal 1998, 1997
and 1996 net revenues from international sales accounted for approximately
40.5%, 35.8% and 39.4%, respectively, of the Company's net revenues. The Company
anticipates that international sales will continue to account for a significant
portion of its net revenues; however, there can be no assurance that
international sales will increase or that the current level of international
sales will be sustained. In addition, the Company currently purchases certain
components and mechanical subsystems from foreign suppliers. The Company's
operating results are subject to the risks inherent in international sales and
purchases, including, but not limited to, various regulatory requirements,
political and economic changes and disruptions, transportation delays, foreign
currency fluctuations, export/import controls, tariff regulations, higher
freight rates, difficulties in staffing and managing foreign sales operations,
greater difficulty in accounts receivable collection and potentially adverse tax
consequences. Duty, tariff and freight costs can materially increase the cost of
crucial components for the Company's products. Foreign exchange fluctuations may
render the Company's products less
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competitive relative to locally manufactured product offerings, or could result
in foreign exchange losses. In addition, because substantially all of the
Company's foreign sales are denominated in United States dollars, increases in
the value of the dollar relative to the local currency would increase the price
of the Company's products in foreign markets and make the Company's products
relatively more expensive and less price competitive than competitors' products
that are priced in local currencies. There can be no assurance that these
factors will not have a material adverse effect on the Company's future
international sales and, consequently, on the Company's business, financial
condition and results of operations. The Company anticipates that the recent
turmoil in Asian financial markets and the recent deterioration of the
underlying economic conditions in certain Asian countries may have an impact on
its sales to customers located in or whose projects are based in those countries
due to the impact of currency fluctuations on the relative price of the
Company's products and restrictions on government spending imposed by the
International Monetary Fund (the "IMF") on those countries receiving the IMF's
assistance. In addition, customers in those countries may face reduced access to
working capital to fund component purchases, such as the Company's products, due
to higher interest rates, reduced bank lending due to contractions in the money
supply or the deterioration in the customer's or its bank's financial condition
or the inability to access local equity financing. A substantial majority of the
Company's products are sold to system integrators who incorporate the Company's
products into systems sold and installed to end-user customers. The Company also
makes yen-denominated purchases of certain components and mechanical subsystems
from Japanese suppliers. Depending on the ratio of yen-denominated purchases to
yen-denominated sales, the Company may engage in additional hedging transactions
in the future. However, notwithstanding these precautions, the Company remains
subject to the transaction exposures that arise from foreign exchange movements
between the dates foreign currency export sales or purchase transactions are
recorded and the dates cash is received or payments are made in foreign
currencies. There can be no assurance that the Company's current or any future
currency exchange strategy will be successful in avoiding exchange related
losses or that any of the factors listed above will not have a material adverse
effect on the Company's business, financial condition and results of operations.
COMPLIANCE WITH INTERNATIONAL STANDARDS
The Company's hardware products are required to comply with European Union
("EU") Low Voltage, Electro-Magnetic Compatibility, and Machinery Safety
Directives (laws) in certain European countries, including United Kingdom,
France, Germany and Italy. The EU mandates that the Company's products carry the
CE mark denoting that these products are manufactured in strict accordance to
design guidelines (Standards) in support of these directives. These Standards
can change and are subject to varying interpretation. New Standards impacting
machinery design go into effect each year. To date, the Company has retained TUV
Rheinland to help certify that its VME controller-based products, including
robots, meet applicable EU Directives and Standards. Although the Company's
existing products meet the requirements of the applicable Directives, there can
be no assurance that future products can be designed, within market window
constraints, to meet the future requirements. In the event any of the Company's
robot products or any other major hardware products do not meet the requirements
of the directives, the Company would be unable to legally sell these products in
Europe. The Company's financial condition and results of operations could be
materially adversely affected.
YEAR 2000 IMPACT ON INFORMATION TECHNOLOGY
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and/or
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance.
In fiscal 1998, the Company commenced a program, to be substantially completed
by the Fall of 1999, to review the Year 2000 compliance status of the software
and systems used in its internal business processes, to obtain appropriate
assurances of compliance from the manufacturers of these products and agreement
to modify or replace all non-compliant products. The Company has contacted its
critical suppliers and major customers to determine whether the products
obtained by the Company from such vendors or sold by the customer to third
parties are Year 2000 compliant. The Company's suppliers and customers are under
no contractual obligation to provide such information to the Company. In
addition, the Company is presently implementing a Year 2000 compliant
Page 12
<PAGE>
enterprise resource planning system from a third-party vendor and is also
considering converting certain of its other software and systems to commercial
products that are known to be Year 2000 compliant. Implementation of software
products of third parties, however, will require the dedication of substantial
administrative and management information resources, the assistance of
consulting personnel from third party software vendors and the training of the
Company's personnel using such systems. Based on the information available to
date, the Company believes it will be able to complete its Year 2000 compliance
review and make necessary modifications prior to the end of 1999. Software or
systems, which are deemed critical to the Company's business, are scheduled to
be Year 2000 compliant by the end of calendar year 1998. Nevertheless,
particularly to the extent the Company is relying on the products of other
vendors to resolve Year 2000 issues, there can be no assurances that the Company
will not experience delays in implementing such products. If key systems, or a
significant number of systems were to fail as a result of Year 2000 problems, or
the Company were to experience delays implementing Year 2000 compliant software
products, the Company could incur substantial costs and disruption of its
business, which would potentially have a material adverse effect on the
Company's business and results of operations.
The Company in its ordinary course of business tests and evaluates its own
software products. The Company believes that its software products are generally
Year 2000 compliant, meaning that the use or occurrence of dates on or after
January 1, 2000 will not materially affect the performance of the Company's
software products with respect to four digit date dependent data or the ability
of such products to correctly create, store, process and output information
related to such date data. To the extent the Company's software products are not
fully Year 2000 compliant, there can be no assurance that the Company's software
products contain all necessary software routines and codes necessary for the
accurate calculation, display, storage and manipulation of data involving dates.
To the extent that the Company's products are sold through system integrators or
other third parties, there can be no assurances that users of the Company's
products will not experience Year 2000 problems as a result of the integration
of the Company's software with noncompliant Year 2000 products of such third
party suppliers. In addition, in certain circumstances, the Company has
warranted that the use or occurrence of dates on or after January 1, 2000 will
not adversely affect the performance of the Company's products with respect to
four digit date dependent data or the ability to create, store, process and
output information related to such data. If any of the Company's licensees
experience Year 2000 problems, such licensees could assert claims for damages
against the Company.
To date the Company has not identified a complete and separate budget for
investigating and remedying issues related to Year 2000 compliance whether
involving the Company's own software products or the software of systems used in
its internal operations. The Company has incurred costs and expects to incur
approximately $2.5 million in connection with its implementation of a new
enterprise resource planning software system, which is Year 2000 compliant.
Additionally, the Company has currently not developed a contingency plan related
to Year 2000. The Company expects to evaluate the cost in comparison to the
benefit of developing such a plan in fiscal year 1999. There can be no
assurances that the Company's resources spent on investigating and remedying
Year 2000 compliance issues will not have a material adverse effect on the
Company's business, financial condition and results of operations.
INTRODUCTION OF SINGLE EUROPEAN CURRENCY
The Company is in the process of addressing the issues raised by the
introduction of the Single European Currency (the "Euro") as of January 1, 1999
and transition to full adoption as of January 1, 2002. The Company expects that
its internal systems that will be affected by the initial introduction of the
Euro will be Euro capable by January 1, 1999, provided the Company's new
enterprise resource planning system is implemented as expected, and does not
expect the costs of system modifications to be material. The Company does not
presently expect that the introduction and use of the Euro will materially
affect the Company's foreign exchange and hedging activities, or the Company's
use of derivative instruments, or will result in any material increase in costs
to the Company. While the Company will continue to evaluate the impact of the
Euro introduction over time, based on currently available information,
management does not believe that the introduction of the Euro currency will have
a material adverse impact on the Company's financial condition or overall trends
in results of operations.
Page 13
<PAGE>
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY
The Company relies on a combination of patent, copyright and trade secret
protection and nondisclosure agreements to protect its proprietary rights. There
can be no assurance, however, that patent and copyright law and trade secret
protection will be adequate to deter misappropriation of its technology, that
any patents issued to the Company will not be challenged, invalidated or
circumvented, that the rights granted thereunder will provide competitive
advantages to the Company, or that the claims under any patent application will
be allowed. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate the Company's products or
design around any patents issued to the Company. The Company may be subject to
or may initiate interference proceedings in the United States Patent and
Trademark Office, which can demand significant financial and management
resources. The process of seeking patent protection can be time consuming and
expensive and there can be no assurance that patents will issue from currently
pending or future applications or that the Company's existing patents or any new
patents that may be issued will be sufficient in scope or strength to provide
meaningful protection or any commercial advantage to the Company. In addition, a
substantial amount of the Company's sales are in international markets and there
can be no assurance that foreign intellectual property laws will adequately
protect the Company's intellectual property rights.
The Company has from time to time received communications from third parties
asserting that the Company is infringing certain patents and other intellectual
property rights of others or seeking indemnification against such alleged
infringement. As claims arise, the Company evaluates their merits. No assurance
can be given that any of these claims will not result in protracted and costly
litigation, that damages for infringement will not be assessed or that should it
be necessary or desirable to obtain a license relating to one or more of the
Company's products or current or future technologies, the Company will be able
to do so on commercially reasonable terms or at all. Litigation, which could
result in substantial cost to and diversion of resources of the Company, may be
necessary to enforce patents or other intellectual property rights of the
Company or to defend the Company against claimed infringement of the rights of
others. Any such litigation and the failure to obtain necessary licenses or
other rights could have a material adverse effect on the Company's business,
financial condition and results of operations. In particular, some end users of
the Company's products have notified the Company that they have received a claim
of patent infringement from the Jerome H. Lemelson Foundation, alleging that its
use of the Company's machine vision products infringes certain patents issued to
Mr. Lemelson. In addition, the Company has been notified that other end users of
the Company's AdeptVision VME line and the predecessor line of Multibus machine
vision products have received letters from Mr. Lemelson which refer to Mr.
Lemelson's patent portfolio and offer the end user a license to the particular
patents. Certain end users have notified the Company that they may seek
indemnification from the Company for damages or expenses resulting from this
matter. The Company cannot predict the outcome of this or any similar litigation
which may arise in the future, and although such products have not represented a
material portion of the Company's net revenues in fiscal 1998, 1997 and 1996,
there can be no assurance that such litigation will not have a material adverse
effect on the business, financial condition or results of operations of the
Company.
Page 14
<PAGE>
<TABLE>
ADEPT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(in thousands)
June 30, June 30,
1998 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,603 $11,101
Short-term investments 11,300 7,366
Accounts receivable, less allowance for doubtful accounts of
$452 in 1998 and $449 in 1997 19,904 17,250
Inventories 15,190 13,096
Deferred tax assets and prepaid expenses 4,766 2,517
------- -------
Total current assets 60,763 51,330
Property and equipment, net 5,853 5,228
Long-term investments -- 1,000
Other assets 1,342 1,935
------- -------
Total assets $67,958 $59,493
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,226 $ 3,927
Accrued payroll and related expenses 3,584 2,311
Accrued warranty 1,830 1,846
Deferred revenue 999 1,138
Accrued restructuring and nonrecurring charges 1,019 --
Other accrued liabilities 2,631 3,177
------- -------
Total current liabilities 15,289 12,399
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value:
5,000 shares authorized, none issued and outstanding -- --
Common stock, no par value:
25,000 shares authorized; 8,723 issued
and outstanding in 1998, and 8,240 in 1997 50,225 46,897
Retained earnings 2,444 197
------- -------
Total shareholders' equity 52,669 47,094
------- -------
Total liabilities and shareholders' equity $67,958 $59,493
======= =======
<FN>
See accompanying notes.
</FN>
Page 15
</TABLE>
<PAGE>
<TABLE>
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(in thousands, except per share data)
Year Ended June 30,
---------------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net revenues $98,394 $82,767 $81,572
Cost of revenues 56,503 48,761 46,812
------- ------- -------
Gross margin 41,891 34,006 34,760
Operating expenses:
Research, development and engineering 10,731 9,016 8,098
Selling, general and administrative 25,150 21,628 20,201
Restructuring and other nonrecurring charges 2,756 -- --
------- ------- -------
Total operating expenses 38,637 30,644 28,299
------- ------- -------
Operating income 3,254 3,362 6,461
Interest income 1,025 717 540
Interest expense 27 13 44
------- ------- -------
Income before provision for income taxes 4,252 4,066 6,957
Provision for income taxes 1,701 1,309 1,180
------- ------- -------
Net income $ 2,551 $ 2,757 $ 5,777
======= ======= =======
Net income per share:
Basic $ .30 $ .34 $ .83
======= ======= =======
Diluted $ .29 $ .33 $ .75
======= ======= =======
Number of shares used in computing per share amounts:
Basic 8,455 8,062 7,003
======= ======= =======
Diluted 8,923 8,442 7,736
======= ======= =======
<FN>
See accompanying notes.
</FN>
Page 16
</TABLE>
<PAGE>
<TABLE>
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(in thousands) Year Ended June 30,
------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income $ 2,551 $ 2,757 $ 5,777
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,049 2,981 2,364
(Gain) loss on disposal of property and equipment (278) 316 (45)
Compensation expense related to employee stock purchase plan 675 -- --
Write-off of certain assets relating to restructuring and
nonrecurring charges 1,062 -- --
Tax benefit from stock plans 544 73 367
Changes in operating assets and liabilities:
Accounts receivable (2,541) 3,245 (6,903)
Inventories (2,678) 1,044 (6,853)
Deferred tax assets and prepaid expenses (2,249) (262) (1,113)
Other assets (181) (411) (317)
Accounts payable 1,289 (2,967) 109
Accrued payroll and related expenses 1,273 (324) 621
Accrued warranty (16) 459 361
Deferred revenue (139) 577 153
Accrued restructuring and nonrecurring charges 1,019 -- --
Other accrued liabilities (1,287) 1,218 (157)
-------- -------- --------
Total adjustments (458) 5,949 (11,413)
-------- -------- --------
Net cash provided by (used in) operating activities 2,093 8,706 (5,636)
-------- -------- --------
Investing activities
Purchase of property and equipment, net (3,084) (1,631) (2,968)
Proceeds from the sale of property and equipment 470 63 58
Purchases of long-term available for sale investments -- (1,000) --
Sales of long-term available for sale investments 1,000 -- --
Purchases of short-term available for sale investments (21,003) (20,123) (13,500)
Sales of short-term available for sale investments 17,069 15,657 13,500
-------- -------- --------
Net cash used in investing activities (5,548) (7,034) (2,910)
-------- -------- --------
Financing activities
Principal payment for capital lease obligations (38) (87) (292)
Proceeds from common stock issued under initial public offering -- -- 10,028
Proceeds from employee stock incentive program,
employee stock purchase plan, net of repurchases,
cancellations, and payments of notes receivable
from shareholders 1,995 1,441 973
-------- -------- --------
Net cash provided by financing activities 1,957 1,354 10,709
-------- -------- --------
Increase (decrease) in cash and cash equivalents (1,498) 3,026 2,163
Cash and cash equivalents, beginning of period 11,101 8,075 5,912
-------- -------- --------
Cash and cash equivalents, end of period $ 9,603 $ 11,101 $ 8,075
======== ======== ========
Supplemental disclosure of noncash activities:
Conversion of preferred stock to common stock $ -- $ -- $ 30,185
Inventory capitalized into property, equipment and related tax $ 863 $ 718 $ 873
Addition to capital lease obligation $ 13 $ -- $ --
Cash paid during the period for:
Interest $ 27 $ 13 $ 44
Taxes $ 3,894 $ 638 $ 1,781
<FN>
See accompanying notes.
</FN>
Page 17
</TABLE>
<PAGE>
<TABLE>
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Convertible Notes
Preferred Stock Common Stock Retained Receivable Total
-------------------- ------------------- Earnings From Shareholders'
Shares Amount Shares Amount (Deficit) Shareholders Equity
-------- -------- -------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 4,043 $ 30,185 2,120 $ 3,977 $ (8,337) $ (147) $ 25,678
Common stock issued under initial public
offering net of issuance costs -- -- 1,250 10,028 -- -- 10,028
Conversion of preferred stock to common stock (4,043) (30,185) 4,067 30,185 -- -- --
Common stock issued under employee stock
incentive program, employee
stock purchase plan, net of repurchase,
cancellations, and payments of notes
receivable from shareholders -- -- 432 826 -- 147 973
Tax benefit from stock plans -- -- -- 367 -- -- 367
Net income -- -- -- -- 5,777 -- 5,777
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1996 -- -- 7,869 45,383 (2,560) -- 42,823
Common stock issued under employee stock
incentive program and employee
stock purchase plan -- -- 371 1,441 -- -- 1,441
Tax benefit from stock plans -- -- -- 73 -- -- 73
Net income -- -- -- -- 2,757 -- 2,757
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1997 -- -- 8,240 46,897 197 -- 47,094
Common stock issued under employee stock
incentive program and employee
stock purchase plan -- -- 458 1,995 -- -- 1,995
Tax benefit from stock plans -- -- -- 544 -- -- 544
Compensation charge -- -- -- 675 -- -- 675
Acquisition of RoboElektronik -- -- 25 114 (304) -- (190)
Net income -- -- -- -- 2,551 -- 2,551
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1998 -- $ -- 8,723 $ 50,225 $ 2,444 $ -- $ 52,669
======== ======== ======== ======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
Page 18
</TABLE>
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Adept Technology, Inc. ("Adept" or the "Company") was incorporated under
the laws of the state of California on June 14, 1983. The Company designs,
manufactures and markets intelligent automation software and hardware products
for automating assembly, material handling and packaging applications.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Adept Technology GmbH (formerly
known as RoboElektronik GmbH, "RoboElectronik"), acquired by the Company on
February 13, 1998 (see Note 2), and SILMA Incorporated ("SILMA"), acquired by
the Company on June 28, 1995. All material intercompany accounts and
transactions have been eliminated.
The notes to the Company's consolidated financial statements are for the
three year period ended June 30, 1998 (i.e. 1998, 1997 and 1996). Unless
otherwise indicated, references to any year in these Notes to Consolidated
Financial Statements refer to the Company's fiscal year ended June 30.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
The Company applies Financial Accounting Standards Board Statement No. 52
(SFAS 52), "Foreign Currency Translation," with respect to its international
operations, which are sales and service entities. All monetary assets and
liabilities are remeasured at the current exchange rate at the end of the
period, nonmonetary assets and liabilities are remeasured at historical exchange
rates, and revenues and expenses are remeasured at average exchange rates in
effect during the period. Losses which result from the process of remeasuring
foreign currency financial statements in U.S. dollars were $376,000, $141,000
and $105,000 in 1998, 1997 and 1996, respectively. Transaction gains were
$6,000, $8,000, and $70,000 in 1998, 1997 and 1996, respectively.
Cash, Cash Equivalents and Investments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Short-term
investments in marketable securities consist principally of debt instruments
with maturities between three and twelve months. Long-term investments in
marketable securities consist of debt instruments with maturities exceeding
twelve months. Investments are classified as held-to-maturity, trading, or
available-for-sale at the time of purchase.
Page 19
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 1998 and 1997, all of the Company's investments in marketable
securities were classified as available-for-sale and were carried at fair market
value which approximated cost. Material unrealized gains and losses, if any,
would have been recorded in shareholders' equity. Fair market value is based on
quoted market prices on the last day of the year. The cost of the securities is
based upon the specific identification method.
(in thousands) June 30,
--------------------
1998 1997
------- -------
Cash and cash equivalents
Cash ................................... $ 1,626 $ 1,913
Money market funds ..................... 1,065 602
Commercial paper ....................... 2,388 8,586
Municipal notes and bonds .............. 4,524 --
------- -------
Cash and cash equivalents .................. $ 9,603 $11,101
======= =======
Short-term investments
Commercial paper ....................... $ -- $ 3,466
Government agency notes ................ -- 1,000
Market auction preferred stock ......... 11,300 2,900
------- -------
Short-term investments ..................... $11,300 $ 7,366
======= =======
Long-term investments
Government agency notes ................ $ -- $ 1,000
======= =======
Realized gains or losses, interest and dividends are included in interest
income. In 1998, 1997 and 1996, realized and unrealized gains or losses from
available-for-sale securities were not material.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in first-out method. The components of inventories are as
follows:
(in thousands) June 30,
------------------------
1998 1997
------- -------
Raw materials ...................... $ 7,407 $ 6,323
Work-in-process .................... 4,916 3,509
Finished goods ..................... 2,867 3,264
------- -------
$15,190 $13,096
======= =======
Page 20
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment are recorded at cost. The components of property and
equipment are summarized as follows:
(in thousands) June 30,
-----------------
1998 1997
------- -------
Cost:
Machinery and equipment ...................... $12,395 $11,008
Computer equipment ........................... 7,040 5,211
Office furniture and equipment ............... 2,703 2,193
------- -------
22,138 18,412
Accumulated depreciation and amortization .... 16,285 13,184
------- -------
Net property and equipment ................... $ 5,853 $ 5,228
======= =======
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the assets, which range from three to five
years. Assets under capital leases are depreciated over the shorter of the asset
life or the remaining lease term.
Revenue Recognition
The Company generally recognizes revenue on products at the time of
shipment. For certain international sales where title and risk of loss are
transferred at the customer's site, revenue is recognized upon receipt of
product by the customer. A provision for the estimated cost to repair or replace
products under warranty at the time of sale are recorded in the same period as
the related revenues.
The Company recognizes software revenue, primarily related to its
simulation software products, in accordance with the American Institute of
Certified Public Accountants' Statement of Position 91-1 on Software Revenue
Recognition. License revenue is recognized on shipment of the product provided
that no significant vendor or post-contract support obligations remain and that
collection of the resulting receivable is deemed probable by management.
Insignificant vendor and post-contract support obligations are accrued upon
shipment. Service revenue includes training, consulting and customer support.
Revenues from training and consulting are recognized at the time the service is
performed.
Deferred revenue primarily relates to software support contracts sold under
separate arrangements with customers. The term of the software support contract
is generally one year, and the Company recognizes the associated revenue on a
pro rata basis over the life of the contract.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, money
market auction rate preferred stocks and trade receivables. The Company places
its cash equivalents and short term investments with high credit-quality
financial institutions. The Company invests its excess cash in commercial paper,
readily marketable debt instruments and collateralized funds of U.S., state and
municipal government entities. The Company has established guidelines relative
to credit ratings, diversification and maturities that seek to maintain safety
and liquidity. The Company manufactures and sells its products to system
integrators, end users and OEMs in diversified industries. The Company performs
ongoing credit evaluations of its customers and does not require collateral.
However, the Company may require the customers to make payments in advance of
shipment or to provide a letter of credit. The Company provides reserves for
potential credit losses, and such losses have been within management's
expectations.
Research, Development and Engineering Costs
Research, development and engineering costs, other than purchased computer
software, are charged to expense when incurred. The Company has received third
party funding of $629,000, $767,000 and $1,081,000 in years 1998, 1997 and 1996,
respectively. The Company has offset research, development and engineering
expenses by third party funding, as the third party funding is based upon
research and development expenditures and the Company retains the rights to any
technology that is developed.
Page 21
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Software Development Costs
The Company capitalizes software development costs incurred subsequent to
the time the product reaches technical feasibility. All capitalized
internally-developed software costs and purchased software costs are amortized
to the cost of revenues on a straight-line basis based on the estimated useful
lives of the products or the ratio of current revenue to the total of current
and anticipated future revenue, whichever is greater. Capitalized
internally-developed software and purchased software are stated at the lower of
amortized cost or net realizable value. Capitalized and purchased software are
included in intangible assets.
In 1998, $359,000 of purchased software costs were written off as part of
the nonrecurring charges. Software amortization for 1998, 1997, and 1996 was
$180,000 each year. Unamortized software development and purchased software
costs at June 30, 1998 and 1997 were approximately $0 and $538,000 respectively.
Intangible Assets Related to Acquisition of SILMA
Intangible assets related to the acquisition of SILMA in 1995 included
goodwill of $486,000, purchased software of $898,000 and a non-compete agreement
of $89,000. All intangible assets related to the acquisition of SILMA were fully
written off as of June 30, 1998, of which $413,000 was included as part of
nonrecurring charges in 1998.
Advertising costs
Advertising costs are recorded as an expense as incurred. Advertising costs
were $212,000, $217,000 and $229,000 in 1998, 1997 and 1996, respectively. The
Company does not incur any direct response advertising costs.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No.109 (SFAS 109), "Accounting for Income Taxes." Under
SFAS 109, the liability method is used to account for income taxes. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Stock-Based Compensation
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation", which provides an alternative to APB Opinion No. 25 (Opinion 25),
"Accounting for Stock Issued to Employees", in accounting for stock issued to
employees. The Company has elected to account for stock-based compensation to
employees in accordance with Opinion 25, providing only proforma disclosure
required by SFAS 123.
Net Income Per Share
The Company has adopted SFAS No. 128, "Earnings per Share," for the year
ended June 30, 1998 which included retroactively restating all prior periods for
which earnings per share (EPS) data is presented. SFAS No. 128 requires the
presentation of basic and diluted EPS. Basic EPS, which replaces primary EPS,
excludes dilution and is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then
participates in the earnings of the Company. Diluted EPS is computed similarly
to fully diluted EPS under the previous rules. Dilutive common equivalent shares
consist of stock options, calculated using the treasury stock method.
Restructuring and Other Nonrecurring charges
During 1998, the Company recorded restructuring charges of approximately
$1.0 million and other nonrecurring charges of approximately $1.7 million. The
restructuring charges of $1.0 million included $651,000 for relinquishing
control of the Company's Japan branch which resulted in the write-off of certain
assets and excess facilities. The remaining $362,000 relates to severance for
the termination of certain employees.
The nonrecurring charges of approximately $1.7 million included $675,000
for compensation expenses related to the Company's employee stock purchase plan
(see Note 5) and $383,000 related to the write off of certain information system
hardware and software which had become obsolete as a result of decisions made in
the fourth quarter related to the
Page 22
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
information system implementation and upgrade. Additionally, $413,000 related to
the write off of the remaining balance of capitalized purchased software
associated with the acquisition of SILMA. Due to recent technological changes
related to the SILMA operating platform, the Company determined that the net
realizable value of the purchased software was impaired.
<TABLE>
The following table summarizes the Company's restructuring and other
nonrecurring activity for the year ended June 30, 1998:
<CAPTION>
Intangible and
Severance Fixed Assets
and Japan Compensation and Other
(in thousands) Benefits Operations Expense Charges Total
-------- ---------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Restructuring charges $ 362 $ 651 $ -- $ -- $ 1,013
Nonrecurring charges -- -- 675 1,068 1,743
------- ------- ------- ------- -------
Total 362 651 675 1,068 2,756
Non-cash charges -- (266) (675) (796) (1,737)
------- ------- ------- ------- -------
Balance at June 30, 1998 $ 362 $ 385 $ 0 $ 272 $ 1,019
======= ======= ======= ======= =======
</TABLE>
New Accounting Pronouncements
In October 1997 and March 1998, the American Institute of Certified Public
Accountants issued Statements of Position 97-2, (SOP 97-2), "Software Revenue
Recognition" and 98-4 (SOP 98-4), "Deferral of The Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition", which the Company currently is
required to adopt for transactions entered into after June 30, 1998. SOP 97-2
and SOP 98-4 provide guidance on recognizing revenue on software transactions
and supersede SOP 91-1.
The Company has assessed the impact of the SOP 97-2 and SOP 98-4 and it has
changed certain of its revenue recognition policies, procedures and practices.
The Company believes that the adoption of SOP 97-2 and SOP 98-4 will not have a
material adverse impact on revenues or operating results for 1999.
The Company intends to adopt Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income" and Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information," in 1999. Both will require additional
disclosure but will not have a material effect on the Company's financial
position or results of operations. SFAS 130 will first be reflected in the
Company's first quarter of 1999 interim financial statements. Components of
comprehensive income include items such as net income and changes in unrealized
gain or loss of available-for-sale securities. SFAS 131 requires segments to be
determined based on how management measures performance and makes decisions
about allocating resources. SFAS 131 will first be reflected in the Company's
1999 financial statements.
Reclassification
Certain amounts presented in the financial statements of prior years have
been reclassified to conform to the current presentation for 1998.
2. Merger and Acquisition
RoboElektronik
In February 1998, the Company acquired RoboElektronik GmbH
("RoboElektronik") through the issuance of 24,562 shares of the Company's common
stock which were exchanged for all of the outstanding capital stock of
RoboElektronik. The acquisition was accounted for as a pooling of interests.
RoboElektronik GmbH was renamed Adept Technology, GmbH
Page 23
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on June 26, 1998. The results of operations of RoboElektronik have been
consolidated since the acquisition. Prior periods have not been restated as the
impact is not material.
3. Derivative Financial Instruments
The Company from time to time may enter into forward foreign exchange
contracts primarily to hedge against the short term impact of foreign currency
fluctuations of purchase commitments denominated in yen. The maturities of the
forward exchange contracts are short term in nature, generally 90 days. Because
the impact of movements in currency exchange rates on forward foreign exchange
contracts offsets the related impact on the underlying items being hedged, these
financial instruments do not subject the Company to speculative risk that would
otherwise result from changes in currency exchange rates. Realized and
unrealized gains and losses on instruments that hedge firm commitments are
deferred and included in the measurement of the subsequent transaction; however,
losses are deferred only to the extent of expected gains on the future
commitment. At June 30, 1998, there were no hedging gains or losses deferred.
4. Commitments and Contingencies
Commitments
The Company leases certain equipment under capital leases. Capitalized
costs of approximately $13,000 and $152,000 are included in property and
equipment at June 30, 1998 and 1997, respectively. Accumulated depreciation of
the leased equipment amounted to approximately $2,000 and $67,000 for the
respective years. Amounts payable under such leases are insignificant at June
30, 1998.
The Company's lease on its major facility will expire in December 2003.
Future minimum payments for operating leases as of June 30, 1998 are as follows:
(in thousands)
1999 .................................................. $ 2,354
2000 .................................................. 2,518
2001 .................................................. 2,890
2002 .................................................. 3,049
2003 .................................................. 3,055
Later years ........................................... 1,658
-------
Total minimum lease payments ............................... 15,524
=======
Total rent expense for all facility and equipment operating leases was
approximately $2,024,000, $1,665,000, and $1,406,000 in 1998, 1997 and 1996,
respectively.
Contingencies
The Company has from time to time received communications from third
parties asserting that the Company is infringing certain patents and other
intellectual property rights of others, or seeking indemnification against such
alleged infringement. While it is not feasible to predict or determine the
outcome of the actions brought against it, the Company believes the ultimate
resolution of these matters will not have a material adverse effect on its
financial position, results of operations or cash flows.
5. Shareholders' Equity
Public Offering
In December 1995, the Company sold a total of 1,250,000 shares of common
stock at $9.50 per share through its initial public offering. The net proceeds
(after underwriters' commission and fees and other costs associated with the
offering) totaled approximately $10,028,000. In connection with the offering,
all convertible preferred stock totaling approximately 4,043,000 shares with an
aggregate paid-in value of approximately $30,185,000 were converted into
approximately 4,067,000 shares of common stock of the Company.
Page 24
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Preferred Stock
The Board of Directors has the authority to issue, without further action
by the shareholders, up to 5,000,000 shares of preferred stock in one or more
series and to fix the price, rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting a series or the designation of such series,
without any further vote or action by the Company's shareholders. The issuance
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the shareholders and may adversely affect the market price of,
and the voting and other rights of, the holders of common stock.
Stock Option Plans
The Company's 1983 Employee Stock Incentive Program (the "1983 Plan") was
adopted by the Board of Directors in August 1983. The 1983 Plan provided for the
grant of incentive stock options to employees (including officers and employee
directors) and nonstatutory stock options to employees (including officers and
employee directors) and consultants of the Company. In general, options and
common stock purchased pursuant to stock purchase rights granted under the 1983
Plan vest and become exercisable starting one year after the date of grant, with
25% of the shares subject to the option exercisable at that time and an
additional 1/48th of the shares subject to the option becoming exercisable each
month thereafter. Upon the voluntary or involuntary termination of employment
(including as a result of death or disability) by a holder of unvested shares of
the Company's common stock purchased pursuant to stock purchase rights granted
under the 1983 Plan, the Company may exercise an option to repurchase such
shares at their original issue price. The Board of Directors determines the
exercise price which must be at least equal to the fair market value of shares
on the date of grant. The 1983 Plan expired according to its terms in August
1993. Currently outstanding options under the 1983 Plan and common stock
purchased pursuant to stock purchase rights granted under the 1983 Plan continue
to be governed by the terms of the 1983 Plan and by the terms of the respective
option and stock purchase and stock restriction agreements between the Company
and the holders thereof.
The Company's 1993 Stock Plan (the "1993 Plan") was adopted by the Board of
Directors in April 1993 and approved by the shareholders of the Company in June
1993. The 1993 Plan provides for grants of incentive stock options to employees
(including officers and employee directors) and nonstatutory stock options to
employees (including officers and employee directors) and consultants of the
Company. The terms of the 1993 Plan are similar to the 1983 Plan, and the terms
of the options granted under the 1993 Plan generally may not exceed ten years.
The Board of Directors determines the exercise price which must be at least
equal to the fair market value of shares on the date of grant.
The Company's 1995 Director Option Plan (the "Director Plan") was adopted
by the Board of Directors and approved by the shareholders of the Company in
October 1995. The option grants under the Director Plan are automatic and
nondiscretionary, and the exercise price of the options is at the fair market
value of the common stock on the date of grant. A total of 150,000 shares of
common stock has been reserved for issuance under the Director Plan. At June 30,
1998 and 1997, respectively, 75,000 and 51,000 shares were granted and no shares
were exercised.
The options may be exercised at the time or times determined by the Board
of Directors.
Page 25
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
The following table summarizes activities of the stock option plans:
<CAPTION>
Options
(in thousands, except per share data) ----------------------------------------------------------
Weighted
Available No. of Shares Aggregate Average
for Grant Outstanding Price Exercise Price
--------- ----------- ----- --------------
<S> <C> <C> <C> <C>
Balance at June 30, 1995 .......... 238 1,042 $ 2,393 $ 2.30
Additional shares authorized . 800 -- -- --
Granted ...................... (203) 203 2,130 10.49
Canceled ..................... 39 (39) (175) 4.52
Shares Expired ............... (1) -- -- --
Exercised .................... -- (382) (524) 1.37
-------- -------- --------
Balance at June 30, 1996 .......... 873 824 3,824 4.64
Granted ...................... (465) 465 3,091 6.65
Canceled ..................... 35 (35) (269) 7.70
Exercised .................... -- (158) (268) 1.70
-------- -------- --------
Balance at June 30, 1997 .......... 443 1,096 6,378 5.82
Additional shares authorized . 1,000 -- -- --
Granted ...................... (413) 413 4,908 11.87
Canceled ..................... 47 (47) (484) 10.27
Shares Expired ............... (1) -- -- --
Exercised .................... -- (270) (706) 2.61
-------- -------- --------
Balance at June 30, 1998 .......... 1,076 1,192 $ 10,096 $ 8.47
======== ======== ========
</TABLE>
<TABLE>
The following table summarizes information concerning outstanding and
exercisable options at June 30, 1998 (at June 30, 1997, 544,000 stock options
were exercisable):
<CAPTION>
(shares in thousands) Options Outstanding Options Exercisable
------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Options Contractual Exercise Options Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
------------------------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ .80 - $ 3.00 76 .16 $ 1.36 76 $ 1.36
$ 4.80 - $ 6.00 155 1.76 $ 5.86 133 $ 5.84
$ 6.50 - $ 10.31 564 7.64 $ 7.16 241 $ 6.93
$ 11.75 - $ 11.75 271 9.11 $ 11.75 62 $ 11.75
$ 12.50 - $ 18.25 126 8.91 $ 14.80 25 $ 17.18
------ ------
$ .80 - $ 18.25 1,192 6.87 $ 8.47 537 $ 6.92
====== ======
</TABLE>
Employee Stock Purchase Plan
The Company adopted an Employee Stock Purchase Plan (the "Purchase Plan")
and, as amended, has reserved an aggregate total of 800,000 shares. The Purchase
Plan has overlapping twelve-month offering periods that begin every six months,
starting on the first trading day on or after May 1 and November 1 of each year.
Each twelve-month offering period is divided into two six-month purchase
periods. The Purchase Plan allows eligible employees, through payroll
Page 26
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
deductions, to purchase shares of the Company's common stock at 85% of fair
market value on either the first day of the offering period or the last day of
the purchase period, whichever is lower. At June 30, 1998, 472,000 shares have
been issued under the Purchase Plan.
The Company reported a charge of $675,000 in the second quarter of 1998 for
compensation expense related to the Emerging Issues Task Force Issue No. 97-12,
"Accounting for Increased Share Authorizations in an IRS Section 423 Employee
Stock Purchase Plan under APB Opinion No. 25, Accounting for Stock Issued to
Employees" which was approved by the EITF in September 1997. This nonrecurring,
non-cash charge represented the difference between 85% of the fair market value
of common stock on the date of the beginning of the offering period and the fair
market value of common stock on the date the shareholders approved the increase
in shares authorized for issuance, multiplied by the number of shares in the
Purchase Plan that had been subscribed for purchase by employees, but not
authorized by the shareholders, prior to the Company's Annual Meeting of
Shareholders.
Stock Based Compensation
<TABLE>
At June 30, 1998, the Company had four stock-based compensation plans as
described above. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans and its Purchase Plan. If
compensation cost for the Company's stock-based compensation plans had been
determined consistent with Statement of Financial Accounting Standards No. 123
(SFAS 123), the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:
<CAPTION>
(in thousands, except per share data)
June 30,
--------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C> <C>
Net income As reported......................... $ 2,551 $ 2,757 $ 5,777
Pro forma .......................... $ 580 $ 1,464 $ 5,266
Basic net income per share As reported......................... $ .30 $ .34 $ .83
Pro forma........................... $ .07 $ .18 $ .75
Diluted net income per share As reported......................... $ .29 $ .33 $ .75
Pro forma........................... $ .07 $ .17 $ .68
</TABLE>
Because the method of accounting prescribed by SFAS 123 has not been
applied to options granted prior to July 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for grants during the years ended June 30, 1998, 1997 and 1996,
risk-free interest rates of 5.77%, 6.63% and 5.95% for 1998, 1997 and 1996,
respectively; a dividend yield of 0% for all three years; a weighted-average
expected life of 3.4, 3.0 and 2.9 years for 1998, 1997 and 1996, respectively;
and a volatility factor of the expected market price of the Company's common
stock of .65, .69 and .69 for 1998, 1997 and 1996, respectively. The weighted
average grant date fair value of options granted during 1998, 1997 and 1996 was
$5.86, $3.26 and $5.19, respectively.
Compensation cost is estimated for the fair value of the employees'
purchase rights using the Black-Sholes model with the following assumptions for
these rights granted in 1998, 1997 and 1996: a dividend yield of 0% for all
three years; expected life of 6 months for 1998 and 1997, and 4.5 months for
1996; expected volatility of .65, .69 and .69 for 1998, 1997 and 1996,
respectively; and a risk-free interest rate of 5.59%, 5.27% and 5.05% for 1998,
1997 and 1996, respectively. The weighted average fair market value of the
purchase rights granted in 1998, 1997 and 1996 was $2.90, $3.45 and $3.07,
respectively.
Page 27
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
6. Employee Savings and Investment Plan
In May 1988, the Company adopted a 401(k) savings and investment plan in
which employees are eligible to participate. In 1998 and 1997, the Company
matched the employee's contribution at a rate of $.50 per dollar, to a maximum
of $19.23 per person, per week. Through June 30, 1996, the Company matched the
employee's contribution at a rate of $.25 per dollar, to a maximum of $12 per
person, per week. The Company's matching contributions were $252,000, $235,000
and $133,000 in 1998, 1997 and 1996, respectively.
7. Income Taxes
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
(in thousands) Year Ended June 30,
-----------------------------------------
1998 1997 1996
--------- --------- ------
<S> <C> <C> <C>
Current:
Federal................................................. $ 2,852 $ 1,029 $ 1,545
State................................................... 363 187 585
Foreign................................................. 330 187 250
--------- --------- ---------
Total current............................................... 3,545 1,403 2,380
Deferred:
Federal................................................. (1,580) (78) (1,160)
State................................................... (264) (16) (40)
---------- -------- ---------
Total deferred.............................................. (1,844) (94) (1,200)
---------- --------- ---------
Provision for income taxes.................................. $ 1,701 $ 1,309 $ 1,180
========= ========= =========
Page 28
</TABLE>
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The difference between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate to income before
provision for income taxes is explained below:
(in thousands) Year Ended June 30,
-----------------------------
1998 1997 1996
------- ------- -------
Tax at federal statutory rate ....... $ 1,446 $ 1,382 $ 2,366
Tax benefits of net operating loss
carryforward utilization .......... -- -- (1,149)
Adjustment of valuation allowance ... -- -- (805)
State taxes, net of federal benefit . 33 113 360
Foreign taxes ....................... 218 132 173
Tax credits ......................... (180) (373) --
Other ............................... 184 55 235
------- ------- -------
Provision for income taxes .......... $ 1,701 $ 1,309 $ 1,180
======= ======= =======
Significant components of the Company's deferred tax assets and liabilities
are as follows:
(in thousands) June 30,
------------------
1998 1997
------- -------
Deferred tax assets:
Net operating loss carryforwards ............. $ 550 $ 650
Tax credit carryforwards ................. 377 550
Inventory valuation accounts ............. 1,218 910
Warranty reserves ........................ 628 700
Other accruals and reserves not currently
deductible for tax purposes ............ 2,648 750
Other .................................... 229 206
------- -------
Total deferred tax assets .................... 5,650 3,766
Valuation allowance .......................... (927) (784)
------- -------
Net deferred tax assets ...................... 4,723 2,982
------- -------
Deferred tax liabilities:
Foreign earnings ......................... (285) (144)
Intangible assets ........................ -- (244)
------- -------
Net deferred tax liabilities ................. (285) (388)
------- -------
Total net deferred tax assets .................. $ 4,438 $ 2,594
======= =======
The change in the valuation allowance was a net decrease of approximately
$106,000 for 1997.
At June 30, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $1.6 million, which if unused, will
expire beginning in 2001. The Company also had credit carryforwards of
approximately $375,000, which if unused, will expire beginning in 1999.
Utilization of the net operating loss carryforwards and the deduction equivalent
of approximately $375,000 of the tax credit carryforwards is limited to
approximately $300,000 per year.
For financial reporting purposes, a valuation allowance of $927,000 has
been established to offset the deferred tax assets related to certain tax
credits and net operating loss carryforwards.
Pretax income (losses) from foreign operations was approximately
($605,000), ($271,000) and $548,000 in 1998, 1997 and 1996, respectively.
Page 29
<PAGE>
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Net Income Per Share
Net Income per share is calculated as follows:
(in thousands, except per share amounts) Year Ended June 30,
------------------------
1998 1997 1996
------ ------ ------
Net income $2,551 $2,757 $5,777
------ ------ ------
Basic:
Weighted-average shares outstanding 8,455 8,062 7,003
------ ------ ------
Net income per share $ .30 $ .34 $ .83
------ ------ ------
Diluted:
Weighted-average shares outstanding 8,455 8,062 7,003
Effect of dilutive securities:
Stock options 468 380 733
------ ------ ------
Weighted-average shares outstanding 8,923 8,442 7,736
------ ------ ------
Net income per share $ .29 $ .33 $ .75
------ ------ ------
Stock options to purchase 463,054; 120,007 and 27,639 shares of common
stock were outstanding during the years ended June 30, 1998, 1997 and 1996,
respectively, but were not included in the calculations of diluted EPS because
the option's exercise price was greater than the average market price of the
Company's common shares during those years. The options that were antidilutive
in 1998 may be dilutive in future years' calculations as they were still
outstanding at June 30, 1998.
9. Industry and Geographic Information
The Company and its subsidiaries operate in one industry segment: the
design, manufacturing and marketing of intelligent automation software and
hardware products for automating assembly, material handling and packaging
applications. International sales, which include export sales and foreign
operation net revenues, account for a significant portion of the Company's net
revenues and are summarized as a percentage of net revenues by geographic areas
as follows:
(in thousands) Year Ended June 30,
-----------------------------
1998 1997 1996
----- ----- -----
United States .................... 59.5% 64.2% 60.6%
International:
Europe ....................... 35.3 30.1 31.7
Other international .......... 5.2 5.7 7.7
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Foreign operations' net revenues have constituted less than 10% of
consolidated net revenue to date. Identifiable assets in Europe and Asia
contributed approximately 11% and 9% to the consolidated total assets at both
June 30, 1998 and 1997, respectively.
The Company had export sales of approximately 30%, 26% and 29% of net
revenues in 1998, 1997 and 1996, respectively. Approximately 90%, 86% and 79% of
the export sales were to Europe in 1998, 1997 and 1996, respectively. The
balance of export sales was primarily to Asia and Canada in each of the three
years.
Page 30
EXHIBIT 21.1
SUBSIDIARIES
Adept Technology, S.A.R.L., a French corporation
Adept Technology International Ltd., a California corporation
Adept Technology Italia SRL, an Italian corporation
Adept Technology GmbH, a German corporation
Adept Technology (1996) Foreign Sales Corporation, a Barbados corporation
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Adept Technology, Inc. of our report dated July 31, 1998, included in
the 1998 Annual Report to Shareholders of Adept Technology, Inc.
Our audits also included the financial statement schedule of Adept
Technology, Inc. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-3656 and 333-39065) pertaining to the 1983 Employee
Stock Incentive Plan, 1993 Stock Plan, 1995 Employee Stock Purchase Plan and
1995 Director Option Plan of Adept Technology, Inc. of our report dated July 31,
1998, with respect to the consolidated financial statements incorporated herein
by reference, and our report included in the preceding paragraph with respect to
the financial statement schedule in this Annual Report (Form 10-K) of Adept
Technology, Inc.
ERNST & YOUNG LLP
San Jose, California
September 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED JUNE 30, 1998 AND IS QULAIFIED IN
ITS ENTIRETY BY REFERENCE SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 9,603
<SECURITIES> 11,300
<RECEIVABLES> 20,356
<ALLOWANCES> 452
<INVENTORY> 15,190
<CURRENT-ASSETS> 60,763
<PP&E> 22,138
<DEPRECIATION> 16,285
<TOTAL-ASSETS> 67,958
<CURRENT-LIABILITIES> 15,289
<BONDS> 0
0
0
<COMMON> 50,225
<OTHER-SE> 2,444
<TOTAL-LIABILITY-AND-EQUITY> 67,958
<SALES> 98,394
<TOTAL-REVENUES> 98,394
<CGS> 56,503
<TOTAL-COSTS> 95,140
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 4,252
<INCOME-TAX> 1,701
<INCOME-CONTINUING> 2,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,551
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
</TABLE>
