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 December 31, 1996
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: 0-21528
BELL MICROPRODUCTS INC.
(Exact name of registrant as specified in its charter)
California 94-3057566
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1941 Ringwood Avenue, San Jose, California 95131-1721
(Address of principal executive office, including zip code)
Registrant's telephone number, including area code: (408) 451-9400
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of February 28, 1997, was approximately $67,591,989 based upon
the last sale price reported for such date on the Nasdaq National Market. For
purposes of this disclosure, shares of Common Stock held by officers and
directors of the Registrant have been excluded because such persons may be
deemed to be affiliates. This determination is not necessarily conclusive.
The number of shares of Registrant's Common Stock outstanding as of
February 28, 1997 was 8,481,979.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for the Company's Annual Meeting of
Shareholders to be held on May 21, 1997 are incorporated by reference into Part
III of this Form 10-K
Index of Exhibits appears on Pages 42, 43 and 44.
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<PAGE>
PART I
ITEM 1: Business
Founded in 1987, Bell Microproducts Inc. (the "Company") markets and
distributes a select group of semiconductor and computer products to original
equipment manufacturers ("OEMs") and value-added resellers ("VARs").
Semiconductor products include memory, logic microprocessors, peripheral and
specialty components. Computer products include disk, tape and optical drives
and subsystems, drive controllers, computers and board-level products. The
Company also provides a variety of manufacturing and value-added services to its
customers, including the manufacturing of board-level and systems products to
customer specifications, as well as certain types of components and subsystem
testing services, systems integration and disk drive formatting and testing, and
the packaging of electronic component kits to customer specifications.
The following information 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. To the extent there are discussions regarding
financial projections, information, or expectations about the Company's products
or markets, or other statements about the future, the statements are
forward-looking and are subject to a number of risks and uncertainties that
could cause actual results to differ materially from the statements made,
including in particular those factors described under "Risk Factors" below.
Reference should also be made to other documents the Company files from time to
time with the Securities and Exchange Commission. These documents may contain
and identify other important factors or information that could cause the actual
events or results to differ materially from those contained herein.
Forward-looking statements are indicated by an asterisk immediately following
the relevant statement.
Products and Services
Semiconductor Products
The Company distributes a broad range of semiconductor products
including memory, logic, microprocessor, peripheral and specialty components.
The products distributed primarily are advanced integrated circuits, critical to
the performance of the customer's products utilizing these components. The
Company's customer base for its semiconductor products comprises primarily small
and medium-sized OEMs, including manufacturers of computer and office products,
industrial equipment (including machine tools, factory automation and robotic
equipment), scientific and medical instruments and telecommunications products.
The Company's principal suppliers of semiconductor products in 1996 included IBM
Microelectronics, Cypress Semiconductor, Sony Electronics, OKI Semiconductor,
NEC Electronics and Fujitsu Microelectronics. In addition, in the second half of
1996 the Company became a national distributor of Harris Semiconductor's
digital, linear and power integrated circuits.
Computer Products
While a substantial portion of the Company's sales of computer products
in 1996 was attributable to hard disk drives, the Company's computer product
sales also included optical disk drives, imaging products and solutions,
networking products, computers, motherboards and value-added products. Based on
a comparison of its product lines with product lines offered by other major
industrial electronics distributors, the Company believes that its breadth of
product offerings for mass storage computer products is among the strongest in
the industry. The Company distributes these products primarily to industrial
OEMs, hardware integrators, VARs and dealers.
Disk Drives and Tape Drives. The Company sells floppy, hard and optical
disk and tape drives to a wide range of customers, including industrial OEMs
(some of which produce computer, office, medical and
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telecommunications products), as well as integrators and manufacturers of
computers based on the UNIX, DOS/Windows and Macintosh operating systems and
frequently markets subsystems to integrators and VARs. To serve these customers,
Bell Microproducts offers a full range of products from the industry leaders in
mass storage such as Adaptec Inc., Exabyte Corporation, IBM, Micropolis
Corporation, Quantum Corporation, Seagate Technology, Sun Microelectronics, a
division of Sun Microsystems Inc., TEAC and Unisys Corporation.
Optical and Imaging Solutions. The Company markets a broad range of
product lines and solutions to optical mass storage and imaging customers,
including optical disk drives, scanner, memory, computer, "jukebox" (robotic
media changers) and software products for these applications. Product lines
represented include Philips Laser Magnetic Storage, Sony Electronics, Maxoptix
Corporation, Panasonic Communications and Systems and Ricoh Corporation, as well
as software drivers for most operating systems. The Company also sells
specialized software for imaging applications.
Networking Products. The Company sells specialized products and mass
storage memory and memory systems products including full "plug and play" (ready
for immediate installation) tape, optical (including jukebox) and RAID
(Redundant Array of Inexpensive Disks) solutions for OEMs, VARs and
sophisticated end users. These solutions are configured using standard
components from the Company's inventory.
Computers. Bell Microproducts delivers standard and custom
configurations of motherboards, computers and file servers to the VAR and OEM
markets, including medical, commercial and test system OEMs and vertical market
VARs. The principal motherboard suppliers are First International Computer (FIC)
and Sun Microelectronics. The Company's principal computer suppliers are Diamond
Flower Electric Instrument Company and Everex.
Value-Added Services
The Company provides the following services through its contract
manufacturing division:
Contract Manufacturing. The Company produces board-level products for
customers on a turnkey basis. Contract manufacturing operations involve building
board-level products to customer specifications, utilizing franchised and
non-franchised products and materials. Under these turnkey agreements, the
Company procures the required raw materials, manages the assembly and test
operations, and supplies circuit boards to the customer's delivery schedule and
quality requirements.
The capabilities of the Company's manufacturing division (Quadrus)
include automated advanced surface mount technology (SMT) and pin-through-hole
(PTH) assembly capabilities, complete with advanced in-circuit and functional
test capabilities and ISO 9002 certification. Quadrus utilizes the ASK Computer
materials requirements planning (MRP) system to manage its inventories. By
capitalizing on its strengths as a distributor, including its strong customer
relations, expertise in materials acquisition and inventory management, coupled
with a complete in-house kitting and turnkey manufacturing capability, the
Company offers its customers high quality products and service as well as a
single source for their product, materials, assembly and test requirements.
Subsystems Integration. Subsystems integration is a service where the
Company provides a turnkey solution to a customer's specification by integrating
such high technology products as disk, tape and optical drives with passive and
electromechanical products, including power supplies, enclosures, interface
electronics, cables and connectors.
Kitting. Kitting of customer component product requirements is provided
to a select customer base. Kitting is a service where the Company purchases
materials according to the customer's specifications and provides them to the
customer in kit form, ready for the assembly process.
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Distribution Operations
The majority of the products sold by Bell Microproducts' distribution
division are purchased pursuant to authorized distributor agreements. Authorized
distributor agreements generally establish marketing relationships with product
manufacturers, provide for joint sales and marketing programs and generally
provide the Company price protection and limited inventory rotation rights.
These agreements are typically for renewable terms of one year, are
non-exclusive, and authorize the Company to sell through most or all of its
sales and distribution centers all or a portion of the products produced by that
manufacturer.
The Company manages the quality and quantity of its distribution
inventory through its asset management group, which seeks to maximize
responsiveness to customer requirements while optimizing inventory turns.
Inventory management is critical to a distributor's business. The Company's
strategy is to focus on a high number of resales or "turns" of existing
inventory to reduce exposure due to product obsolescence and changing consumer
demands. The Company's IBM RS6000 computer system facilitates the control of
purchasing and inventory, accounts payable, shipping and receiving, and
invoicing and collection information for the Company's distribution business.
Each of the Company's sales centers is electronically linked to the Company's
central computer system which provides fully integrated on-line real-time data
with respect to the Company's inventory levels. Inventory turns are tracked by
line item, and the Company's inventory management system provides information to
assist in making purchasing decisions and decisions as to which inventory to
exchange with suppliers under stock rotation programs. This system enables the
Company to effectively manage its inventory and to respond quickly to customer
requirements. The asset management group also monitors supplier stock rotation
programs, inventory price protection, rejected material and other factors
related to inventory quality and quantity. In addition, in 1996 the Company
implemented a technology that enables its customers to submit bills of materials
(BOMs), verify product availability and obtain current quotes through the
Internet.
Backlog
The Company does not believe that information concerning backlog is
material to an understanding of its business, as the Company's objective is to
ship orders on the same day they are received unless the customer has requested
a specific future delivery date on an order. Additionally, it is common industry
practice for customers, in most cases, to be able to re-schedule or cancel
orders with future delivery dates without penalties.
Marketing and Sales
The semiconductor and computer products industries are characterized by
rapid technological advances and a constant flow of new products. The resulting
shorter product life cycles have necessitated compressed design and development
cycles, more rapid production build-up and quick response to major technological
shifts. To react to these factors, manufacturers are focusing on and devoting
significant resources to their core areas of expertise including research and
product design and development, and are increasingly outsourcing their marketing
and manufacturing requirements.
Over the past two decades the growth in the electronics distribution
industry reflects a gradual trend among electronics manufacturers towards the
use of distributors, particularly for servicing medium and smaller size OEMs and
VARs. As a result of these trends, distributors such as Bell Microproducts Inc.
have successfully expanded their customer lists and line cards and consequently
achieved increased revenues.
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Strategy
The Company's business strategy is designed to benefit from industry
trends toward increasing use of distributors and the outsourcing of
manufacturing requirements. The Company seeks to maintain its position as one of
the most efficient and productive distributors in the industry. The Company's
strategy includes the following key elements:
Focus on Select Product Offerings. The Company's product strategy is to
focus its line card on a select group of semiconductor and computer products,
including a particularly strong line of mass storage products, with the goal of
achieving a leadership position in the major markets for such products. This
approach allows the Company to provide more knowledgeable service and technical
support to its customers than it could if it offered a more extensive array of
products. The Company also believes that this approach should allow it to
develop close working relationships with suppliers and to strengthen its ability
to obtain favorable product allocations in times of shortage of supply.
Expand Operating Profit. The Company seeks to maximize its operating
profit through two aspects of its sales, marketing and product strategies: (i)
increasing distribution of relatively high gross margin products, such as
semiconductors with leading edge technology content and (ii) selling high volume
products, thereby enhancing productivity and allowing the Company to increase
gross profit while controlling operating expenses.
Provide National Major Market Distribution. The Company focuses its
marketing and sales strategy on the largest U.S. markets with the goal of
maximizing productivity per sales office. With its 19 sales locations, the
Company addresses what it believes constitutes many of the largest sectors of
the national market for semiconductor and computer products. The Company
continues to evaluate potential expansion into additional markets.
Realize Synergies Between Contract Manufacturing and Distribution. The
Company seeks to take advantage of synergies and efficiencies arising out of the
combination of distribution and contract manufacturing in a single organization.
Through its distribution arm, the Company provides its contract manufacturing
operation access to preferred component purchasing, as well as a substantial
sales force that would be difficult for a stand alone contract manufacturer of
comparable size to support.
Employees
At December 31, 1996, the Company had a total of 650 employees. None of
the Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with its employees to
be good. The Company's future success will depend in part upon its continuing
ability to attract and retain highly qualified personnel. Competition for such
employees is intense and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. Failure to attract and
retain highly qualified personnel could have a material adverse effect on the
Company's results of operations.
Risk Factors
Potential Fluctuations in Quarterly Operating Results
The Company's quarterly operating results have in the past and could in
the future fluctuate substantially. The Company's expense levels are based, in
part, on expectations of future sales. If sales in a particular quarter do not
meet expectations, operating results could be adversely affected. Factors
affecting quarterly operating results include the loss of key suppliers or
customers, price competition, problems incurred in managing inventories or
receivables, the timing or cancellation of orders from major customers, a change
in the product mix sold by the Company, customer
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demand, availability of products from suppliers, management of growth, the
percent of revenue derived from distribution versus contract manufacturing, the
Company's ability to collect accounts receivable, price decreases on inventory
that is not price protected, the timing or cancellation of purchase orders with
or from suppliers, and the timing of expenditures in anticipation of increased
sales and customer product delivery requirements. Price competition in the
industries in which the Company competes is intense and could result in gross
margin declines, which could have an adverse impact on the Company's
profitability. Due in part to supplier rebate programs and increased sales by
the Company near the end of each quarter, a significant portion of the Company's
gross profit has historically been earned by the Company in the third month of
each quarter. Failure to receive products from its suppliers in a timely manner
or the discontinuance of rebate programs could have a material adverse effect on
the Company's results of operations in a particular quarter. In various periods
in the past, the Company's operating results have been affected by all of these
factors. In particular, price fluctuations in the disk drive and semiconductor
industries have affected the Company's gross margins in recent periods. The
Company has recently experienced rapid sales growth and there can be no
assurance that such sales growth will continue or that such sales and profit
levels will be maintained. The Company's cash requirements will depend on
numerous factors, including the rate of growth of its sales. The Company
believes that its working capital, including its existing credit facility, will
be sufficient to meet the Company's short term capital requirements. However,
the Company may seek additional debt or equity financing to fund continued
growth.
Dependence on Suppliers
A select number of suppliers represent a significant portion of the
Company's sales. For the year ended December 31, 1996, Quantum provided products
which represented 37% of the Company's sales. For the year ended December 31,
1995, Quantum and IBM provided products that represented 25% and 11%
respectively, of the Company's sales. The Company's distribution agreement with
Quantum is cancelable upon 90 days notice. In the past, distribution
arrangements with significant suppliers have been terminated and there can be no
assurance that, in the future, one or more of the Company's significant
distributor relationships will not be terminated. The loss of Quantum, IBM or
any significant supplier or the shortage or loss of any significant product line
could materially adversely affect the Company. As the Company enters into
distribution arrangements with new suppliers, other competitive suppliers may
terminate their distribution arrangements with the Company with minimal notice.
In the first quarter of 1996, Hitachi America Ltd. terminated its distribution
agreement with the Company. This supplier accounted for approximately $1.7
million and $297,000 of the Company's sales and gross profit, respectively, for
the quarter ended December 31, 1995. To the extent that the Company is unable to
enter into or maintain distribution arrangements with leading suppliers of
components, the Company's sales and operating results could be materially
adversely affected.
The Company's authorized distributor agreements may be canceled by
either party on short notice and generally provide for a return of the
manufacturer's inventory upon cancellation. Such agreements also generally
provide the Company with price protection and limited inventory protection
rights. There can be no assurance that such agreements will not be canceled, or
that price protection and inventory rotation policies will provide complete
protection or will not be changed in the future. If the Company were to purchase
significant amounts of products on terms that do not include effective price
protection or inventory rotation rights, the Company would bear the risk of
obsolescence and price fluctuation for those products. In particular, in
February 1996 the Company reported fourth quarter 1995 charges of $1.6 million,
net of tax, related to inventory valuation issues of certain DRAM products. The
price levels of such DRAM products had fallen significantly, requiring
revaluation of inventory and these products were not subject to the price
protection and inventory rotation rights normally applicable to components
purchased from the Company's franchised suppliers. There can be no assurance
that the Company will not have to take additional charges to earnings in the
future due to inventory valuation issues, which could have a material adverse
effect on the Company's results of operations.
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Dependence on the Personal Computer Industry
Many of the products the Company sells are used in the manufacture or
configuration of personal computers. These products are characterized by rapid
technological change, short product life cycles and intense competition. The
personal computer industry has experienced significant unit volume growth over
the past three years, which has in turn increased demand for many of the
products distributed by the Company, however, any slowdown in the growth of the
personal computer industry, or growth at less than expected rates, could
adversely affect the Company's ability to continue its revenue growth. In
addition, many of the Company's customers in the personal computer industry are
subject to the risks of significant shifts in demand and severe price pressures,
which may increase the risk that the Company may not be able to collect accounts
receivable owed by some of its customers. To the extent the Company is unable to
collect its accounts receivable, the Company's results of operations would be
adversely affected.
The Company faces certain industry-related risks. To the extent that
its suppliers do not maintain their product leadership, the Company's operating
results could be materially adversely affected. Moreover, the increasingly short
product life cycles experienced in the electronics industry may increase the
Company's exposure to inventory obsolescence and the possibility of fluctuations
in operating results. Other factors adversely affecting the semiconductor or
computer industries in general, including trade barriers which may affect the
Company's supply of products from its Japanese suppliers, could have a material
adverse effect on the Company's operating results.
Cyclical Nature of the Semiconductor and Disk Drive Industries
Semiconductors and disk drives have represented a significant portion
of the Company's sales and the Company believes they will continue to do so in
future periods.* Both the semiconductor and the disk drive industries have
historically been characterized by fluctuations in product supply and demand
and, consequently, severe fluctuations in price. In the event of excess supply
of disk drives or semiconductors, the Company's gross margins may be adversely
affected. In the event of a shortage of supply of disk drives or semiconductors,
the Company's results of operations will depend on the amount of product
allocated to the Company by its suppliers and the timely receipt of such
allocations. Additionally, technological changes that affect the demand for and
prices of the products distributed by the Company may further affect the
Company's gross margins. Although the Company's agreements with its suppliers
provide the Company with limited price protection and certain rights of stock
rotation, rapid price declines or a shortfall in demand for disk drives or
semiconductor products could have an adverse effect on the Company's sales or
gross margins.
Competition
The distribution industry is highly competitive. In the distribution of
semiconductor and computer products, the Company generally competes for both
supplier and customer relationships with numerous local, regional and national
authorized and unauthorized distributors and for customer relationships with
semiconductor and computer product manufacturers, including some of its own
suppliers. Many of the Company's distribution competitors are larger, more
established and have greater name recognition and financial and marketing
resources than the Company. The Company believes that competition for
distribution customers is based on product lines, customer service, product
availability, competitive pricing and technical information, as well as
value-added services including kitting and turnkey assembly. The Company
believes that it competes favorably with respect to these factors. There can be
no assurance that the Company will be able to compete successfully with existing
or new competitors. Failure to do so would have a material adverse effect on the
Company's results of operations.
Contract manufacturing and other value-added services are highly
competitive and are based upon technology, quality, service, price and the
ability to deliver finished products on an expeditious and reliable basis. The
Company
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believes it competes favorably with respect to such factors. The Company
attempts to focus on markets where it has advantages in flexibility, service and
high component content of the total price. In this area, the Company competes
with many contract manufacturers and other distributors, as well as with the
in-house manufacturing capabilities of its existing and potential customers.
Many of the Company's competitors are larger, more established and have greater
name recognition and financial and marketing resources than the Company. The
Company also faces significant offshore competition in turnkey manufacturing.
Although such competitors may offer lower bid prices, the Company believes that
offshore manufacturing is often less attractive due to the additional costs and
risks associated with utilizing offshore services, such as delays in shipping,
long lead items, shipping and insurance costs, inflexibility with respect to
production and engineering changes, high cancellation charges, uncertain product
quality and difficulty in communication.
Both distribution and contract manufacturing businesses are highly
competitive, and there can be no assurance that the Company will be able to
compete successfully with existing or new competitors. Failure to do so would
have a material adverse effect on the Company's operating results.
Short History of Profitability in Contract Manufacturing
The Company's revenues from its contract manufacturing operations are
likely to depend on the availability of necessary components, from a single
source or otherwise, whose lack of availability could delay or curtail
production and shipment of assemblies utilizing such components. Manufacturing
sales levels and profitability increased in 1996 as compared to prior years. Due
to the highly competitive nature of the contract manufacturing industry, there
can be no assurance that this trend will continue, that higher sales levels will
in fact result in increased profitability or that the Company will be able to
successfully manage the expanded operations, retain existing customers or
attract new contract manufacturing customers sufficient to support its expected
expanded level of operations. Failure to do so could have an adverse effect on
the Company's operating results. The Company's contract manufacturing division
has been dependent historically on a relatively limited customer base. Any
significant rescheduling or cancellation of orders from these customers, or the
lack of financial strength of these customers, could have a material adverse
effect on the results of operations of the contract manufacturing division and
on the profitability of the Company.
Management of Growth
The Company has grown rapidly in recent years, with sales increasing
from $125.3 million in 1993 to $483.3 million in 1996, and this growth has
placed, and continues to place a strain on the Company's management, financial
and operational resources. The Company intends to continue to pursue its growth
strategy through increasing sales of existing and new product offerings,
increasing geographical sales coverage, and possibly through strategic
acquisitions.* The Company also plans to expand its corporate offices into a
second building in April 1997, and to relocate its contract manufacturing
division, which will expand its facilities and enable increased manufacturing
capacity.* This expected growth may require additional equipment, increased
personnel, expanded information systems and additional financial and
administrative control procedures.* There can be no assurance that the Company
will be able to attract and retain qualified personnel or further develop
accounting and control systems and successfully manage expanding operations,
including an increasing number of supplier and customer relationships and
geographically dispersed locations. Further, there can be no assurance that the
Company will be able to sustain its recent rate of growth or continue its
profitable operations.
Hazardous Materials
The Company uses small quantities of certain hazardous materials in its
contract manufacturing operations. As a result, the Company is subject to
stringent Federal, state and local regulations governing the storage, use and
disposal
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of such materials. Although the Company believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed by
state and Federal regulations, there is nevertheless the risk of accidental
contamination or injury from these materials. To date, the Company has not
incurred substantial expenditures for preventative action with respect to
hazardous materials or for remedial action with respect to any hazardous
materials accident. In the event of such an accident, the Company could be held
liable for any damages that result. The liability in the event of an accident or
the costs of such remedial actions could have a material adverse effect on the
Company's financial condition and results of operations.
<TABLE>
ITEM 2: Properties
<CAPTION>
Square
Location Type Principal Use Footage Ownership
- ------------------ --------------------- ------------------------ ----------- ---------------------------------
<S> <C> <C> <C> <C>
San Jose, CA Office, warehouse Headquarters, 34,000 Leased until May 1999 with
distribution center option to extend one year.
(Bldg. One)
San Jose, CA Office Headquarters (Bldg. Two) 15,657 Leased until December 2002 with
five one-year options to extend.
San Jose, CA Office, plant & Contract Manufacturing 60,958 Termination notice tendered and
warehouse effective April 7, 1997.
San Jose, CA Office, plant & Contract Manufacturing 141,520 Leased from March 1997 to
warehouse February 2006.
</TABLE>
The Company also leases sales and/or warehouse locations in Irvine, San
Diego, San Jose (Capitol Avenue), Glendale and Westlake Village, California;
Alamonte Springs and Deerfield Beach, Florida; Marietta, Georgia; Chicago,
Illinois; Overland Park, Kansas; Columbia, Maryland; Billerica, Massachusetts;
Eden Prairie, Minnesota; Clifton, New Jersey; Smithtown, New York; Richardson
and Austin, Texas; Centerville, Utah; Herndon, Virginia and Redmond, Washington.
ITEM 3: Legal Proceedings
The Company is not a party to, nor is its property subject to, any
material pending legal proceedings.
ITEM 4: Submission of Matters to a Vote of Security Holders
None.
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PART II
ITEM 5: Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "BELM." The following table sets forth for the periods
indicated the high and low sale prices of the Common Stock as reported by
Nasdaq.
High Low
------ -----
Fiscal 1995
First Quarter ..................................... $14.25 $8.00
Second Quarter .................................... 10.50 8.00
Third Quarter ..................................... 13.50 9.63
Fourth Quarter .................................... 12.25 7.00
Fiscal 1996
First Quarter ..................................... $ 8.25 $5.88
Second Quarter .................................... 9.88 6.63
Third Quarter ..................................... 8.13 5.75
Fourth Quarter .................................... 8.88 6.75
Fiscal 1997
First Quarter (through February 28, 1997) ......... $12.25 $8.63
On February 28, 1997, the last sale price of the Common Stock as
reported by Nasdaq was $10.88 per share.
As of February 28, 1997 there were approximately 322 holders of record
of the Common Stock (not including shares held in street name).
To date, the Company has paid no cash dividends to its shareholders.
The Company has no plans to pay cash dividends in the near future. The Company's
line of credit agreement prohibits the Company's payment of dividends or other
distributions on any of its shares except dividends payable in the Company's
capital stock.
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<TABLE>
ITEM 6: Selected Financial Data
BELL MICROPRODUCTS INC.
SELECTED FINANCIAL DATA
(in thousands, except earnings per share data)
<CAPTION>
1996 1995 1994(1) 1993(2) 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales ........................................ $ 483,316 $ 346,291 $ 250,753 $ 125,303 $ 65,512
Cost of sales................................. 425,258 305,696 217,277 107,999 55,424
--------- --------- --------- --------- ---------
Gross profit ............................... 58,058 40,595 33,476 17,304 10,088
Marketing, general and
administrative expenses .................... 41,008 30,352 23,258 13,200 8,769
--------- --------- --------- --------- ---------
Income from operations ..................... 17,050 10,243 10,218 4,104 1,319
Interest expense.............................. (3,495) (3,473) (1,691) (501) (316)
--------- --------- --------- --------- ---------
Income before income taxes ................. 13,555 6,770 8,527 3,603 1,003
Provision for income taxes ................... 5,693 2,768 3,471 1,549 452
--------- --------- --------- --------- ---------
Net income ................................... $ 7,862 $ 4,002 $ 5,056 $ 2,054 $ 551
========= ========= ========= ========= =========
Earnings per share............................ $ .92 $ .48 $ .86 $ .45 $ .14
========= ========= ========= ========= =========
Weighted average common shares and
equivalents (3)............................. 8,511 8,350 5,878 4,515 3,818
As of December 31,
-------------------------------------------------------------------------------
1996 1995 1994(1) 1993(2) 1992
--------- --------- --------- --------- ---------
Balance Sheet Data:
Working capital .............................. $ 105,958 $ 106,914 $ 52,230 $ 17,400 $ 8,106
Total assets.................................. 175,680 157,277 122,502 51,253 27,985
Total long-term debt ......................... 50,885 59,453 6,059 1,130 111
Total shareholders' equity ................... 71,127 62,462 56,465 18,351 8,507
<FN>
- --------------------
(1) 1994 Statement of Operations Data and Balance Sheet Data reflect the
effects of the purchase of Vantage Components, Inc. on May 26, 1994 (see
Note 11 of Notes to Financial Statements).
(2) 1993 Statement of Operations Data and Balance Sheet Data reflect the
effects of the purchase of certain assets of Adlar Turnkey Manufacturing
Corporation ("ATMC") on April 7, 1993.
(3) See Note 2 of Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
ITEM 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
For an understanding of the significant factors that influenced the
Company's performance during the past three years, the following discussion
should be read in conjunction with the financial statements and the other
information appearing elsewhere in this report.
The following information 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. To the extent there are discussions regarding
financial projections, information, or expectations about the Company's products
or markets, or other statements about the future, the statements are
forward-looking and are subject to a number of risks and uncertainties that
could cause actual results to differ materially from the statements made,
including in particular the factors discussed under "Risk Factors" in Item 1
hereof. Reference should also be made to documents the Company files from time
to time with the Securities and Exchange Commission. These documents may contain
and identify important factors or information that could cause the actual events
or results to differ materially from those contained herein. Forward-looking
statements are indicated by an asterisk immediately following the relevant
statement.
<TABLE>
Results of Operations
The following table sets forth certain financial data as a percentage
of total Company sales for the periods indicated:
<CAPTION>
Year Ended December 31,
----------------------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Sales
Distribution ...................................................... 80.9% 85.7% 88.1%
Manufacturing ..................................................... 19.1% 14.3% 11.9%
----- ----- -----
Total Company ................................................ 100.0% 100.0% 100.0%
----- ----- -----
Cost of sales
Distribution ...................................................... 71.4% 75.6% 76.3%
Manufacturing ..................................................... 16.6% 12.7% 10.3%
----- ----- -----
Total Company ................................................ 88.0% 88.3% 86.6%
----- ----- -----
Gross profit ........................................... 12.0% 11.7% 13.4%
Marketing, general and administrative expenses ......................... 8.5% 8.8% 9.3%
----- ----- -----
Income from operations ................................................. 3.5% 2.9% 4.1%
Interest expenses ...................................................... (0.7%) (1.0%) (0.7%)
Income before income taxes ............................................. 2.8% 1.9% 3.4%
Provision for income taxes ............................................. 1.2% 0.8% 1.4%
----- ----- -----
Net income ............................................................. 1.6% 1.1% 2.0%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales were $483.3 million for the year ended December 31, 1996,
which represented an increase of $137.0 million or 40% over 1995. Distribution
sales increased by $94.6 million, while sales through the Company's contract
manufacturing division (Quadrus) increased by approximately $42.4 million over
1995. Substantially the entire increase in distribution sales was attributable
to computer products with the expansion of unit sales in existing product
-11-
<PAGE>
lines due to increased demand for mass storage products, a larger proportion of
value-added and subsystem sales and the expansion of the customer base due to
the addition of sales and marketing resources. Semiconductor sales decreased
slightly in 1996 from 1995 primarily due to decreased DRAM unit sales,
industry-wide price declines in memory products and the discontinuation of the
distribution agreement with Hitachi America Ltd. Manufacturing sales growth in
1996 was primarily a result of increased sales to existing customers, enabled by
increased manufacturing equipment capacity.
The Company has grown rapidly in recent years, with sales increasing
from $125.3 million in 1993 to $483.3 million in 1996, and this growth has
placed, and continues to place a strain on the Company's management, financial
and operational resources. The Company intends to continue to pursue its growth
strategy through increasing sales of existing and new product offerings,
increasing geographical sales coverage, and possibly through strategic
acquisitions.* The Company also plans to expand its corporate offices into a
second building in April 1997, and to relocate its contract manufacturing
division, which will expand its facilities and enable increased manufacturing
capacity.* This expected growth may require additional equipment, increased
personnel, expanded information systems and additional financial and
administrative control procedures.* There can be no assurance that the Company
will be able to attract and retain qualified personnel or further develop
accounting and control systems and successfully manage expanding operations,
including an increasing number of supplier and customer relationships and
geographically dispersed locations. Further, there can be no assurance that the
Company will be able to sustain its recent rate of growth or continue its
profitable operations.
The Company's gross profit for 1996 was $58.1 million, which was $17.5
million, or 43% higher than 1995. Of the total gross profit increase, $11.4
million was attributable to the distribution division, and $6.1 million was
generated through the Company's contract manufacturing division. As a percentage
of sales, gross margin was 12.0% in 1996 as compared to 11.7% in 1995. The
increase in total Company gross margin was primarily a result of increased gross
margin in the contract manufacturing division to 13.0% in 1996, as compared to
11.8% in 1995. The increase in contract manufacturing gross margin was primarily
attributable to decreased material costs, most significantly for memory
products. In the distribution division, margins in 1996 were 11.8% compared to
11.7% in 1995. The increase in gross margin was primarily a result of a
decreased dependence by the Company on sales of DRAM memory product, which was
partially reduced by a greater proportion of computer product sales as a
percentage of total Company sales, which contributed lower margins.
Marketing, general and administrative expenses increased to $41.0
million in 1996 from $30.4 million in 1995, an increase of $10.6 million, or
35%, but decreased as a percentage of sales to 8.5% from 8.8%. The decline in
marketing, general and administrative expenses as a percentage of sales was
primarily attributable to the Company's successful efforts to control costs
while increasing sales, and a higher proportion of sales from large volume
orders, particularly for hard disk drives and certain semiconductor devices,
both of which resulted in lower operating expenses as a percentage of sales. The
increase in expenses was attributable to increased sales volume, the Company's
continuing effort to expand its sales and marketing organization, the addition
of operating expenses related to the contract manufacturing division and
increases to bad debt expenses due to increased sales volumes and changing
market conditions.
Interest expense remained unchanged at $3.5 million in 1996 versus
1995, despite record sales growth over the same period. This was attributable to
the Company's efforts to manage working capital by decreasing its days sales
outstanding on accounts receivable, increasing its inventory turns and
negotiating more favorable payment terms with certain suppliers.
-12-
<PAGE>
The Company's effective income tax rate increased to 42.0% in 1996
compared to 40.9% in 1995, primarily due to the increased Federal income tax
rate, related to increased earnings.
Net income increased to $7.9 million in 1996 from $4.0 million in 1995.
The increase in net income was primarily the result of sales growth and
increased gross margins, partially offset by increased operating expenses.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales were $346.3 million for the year ended December 31, 1995,
which represented an increase of $95.5 million or 38% over 1994. Distribution
sales increased by $75.8 million, and sales through the Company's contract
manufacturing division (Quadrus) increased by approximately $20 million over
1994. Substantially all of the increase in distribution sales was attributable
to the expansion of unit sales in existing product lines due to the addition of
sales and marketing resources, the addition of new lines, the expansion of the
customer base and the acquisition of Vantage in May 1994. Semiconductor sales
increased slightly from 1994, while computer product sales increased over $65
million. Semiconductor sales were adversely affected by lower allocations of
memory products from a major supplier. Across all other semiconductor lines
combined, sales increased over $25 million in 1995 compared to 1994, as a result
of sales growth in existing products lines, the addition of Cypress
Semiconductor Corporation as a new supplier in October 1994 and the acquisition
of Vantage in May 1994. Computer product sales growth in 1995 was positively
affected by higher unit sales and a larger proportion of high capacity hard disk
drives which commanded higher average selling prices, as well as the addition of
new product lines. Contract manufacturing sales increased in 1995 as a result of
increased sales to new and existing customers, enabled by increased
manufacturing equipment capacity.
The Company's gross profit for 1995 was $40.6 million, which was $7.1
million, or 21% higher than 1994. Of this total gross profit increase, $5.3
million was attributable to distribution sales, and $1.8 million was generated
through the Company's contract manufacturing division. As a percentage of sales,
gross margin was 11.7% in 1995 as compared to 13.4% in 1994. The decrease in
gross margin was primarily attributable to fourth quarter charges of $2.5
million related to the write-down of certain DRAM inventories in the
distribution segment of the business, as well as an increase in computer product
sales as a percentage of total Company sales, which typically generate lower
margins. Gross margin, as a percentage of sales, decreased in the contract
manufacturing division in 1995, primarily due to the Company's efforts to
increase market penetration in this segment, including initial startup costs for
new customers.
Marketing, general and administrative expenses increased to $30.4
million in 1995 from $23.3 million in 1994, an increase of $7.1 million, or 30%,
but decreased as a percentage of sales to 8.8% from 9.3%. The decline in
marketing, general and administrative expenses as a percentage of sales was
primarily attributable to the Company's successful efforts to control costs
while increasing sales, and a higher proportion of sales from large volume
orders, particularly for hard disk drives and certain semiconductor devices,
both of which resulted in lower operating expenses as a percentage of sales. The
increase in expenses was attributable to the acquisition of Vantage in May 1994,
the Company's continuing effort to expand its sales and marketing organization,
the addition of operating expenses related to the contract manufacturing
division, as well as an increase in the Company's allowance for doubtful
accounts, principally for a customer which filed for bankruptcy in the fourth
quarter of 1995.
Interest expense increased in 1995 to $3.5 million from $1.7 million in
1994. The increase in interest expense was due to increased bank borrowings to
fund the Company's working capital needs.
The Company's effective income tax rate remained relatively stable at
40.9% in 1995 compared to 40.7% in 1994.
-13-
<PAGE>
Net income decreased to $4.0 million for 1995 from $5.1 million in
1994. The decrease in net income is primarily the result of the decrease in
gross margin percentage and increased operating and interest expenses.
INFLATIONARY IMPACT
Since the inception of operations, inflation has not significantly
affected the operating results of the Company. However, inflation and changing
interest rates have had a significant effect on the economy in general and
therefore could affect the operating results of the Company in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements principally
through borrowings under bank lines of credit and sales of equity securities.
Working capital requirements have included the financing of increases in
inventory and accounts receivable resulting from sales growth. The Company
completed the initial public offering of its Common Stock in June 1993, selling
1.2 million shares for net proceeds of $7.6 million. In November 1994 the
Company completed a public offering of approximately 2.6 million shares of its
Common Stock for net proceeds of $27.3 million.
On June 25, 1996, the Company entered into an amendment to the Amended
and Restated Syndicated Credit Agreement arranged by Sumitomo Bank of California
("Sumitomo Bank") as Agent. The amendment increased the Company's $70 million
revolving line of credit to $80 million. The syndicate includes Sumitomo Bank of
California, Union Bank, The First National Bank of Boston, Comerica Bank -
California and The Sumitomo Bank, Limited. At the Company's option, the
borrowings under the line of credit will bear interest at Sumitomo Bank's prime
rate or the adjusted LIBOR rate plus 1.625%. At December 31, 1996, the interest
rate was 8.25%. The revolving line of credit has a final payment due date of May
31, 1998. The revolving line of credit requires the Company to meet certain
financial tests and to comply with certain other covenants, including
restrictions on incurrence of debt and liens, restrictions on mergers,
acquisitions, asset dispositions, declaration of dividends, repurchases of
stock, making investments and profitability. Obligations of the Company under
the revolving line of credit are secured by substantially all of the Company's
assets. The balance outstanding on the revolving line of credit at December 31,
1996 was approximately $45.9 million. The Company intends to utilize its
revolving line of credit to fund future working capital requirements. The
Company is in compliance with its bank convenants, however, there can be no
assurance that the Company will be in compliance with its bank covenants in the
future. If the Company does not remain in compliance with the covenants in its
Amended and Restated Syndicated Credit Agreement and is unable to obtain a
waiver of noncompliance from its banks, the Company's financial condition and
results of operations would be materially adversely affected. The Company
evaluates potential acquisitions from time to time and may utilize its line of
credit to acquire complementary businesses, provided consent from its banks is
obtained.
The Company's accounts receivable and inventories as of December 31,
1996 have increased to $70.7 million and $78.7 million, respectively, from $65.3
million and $70.3 million, respectively, as of December 31, 1995 primarily as a
result of the Company's increased sales. The Company's accounts payable
increased to $45.7 million in 1996 from $31.6 million in 1995, primarily due to
the Company's efforts to negotiate more favorable payment terms with certain
suppliers, as well as timing issues related to inventory receipts and payments.
The net amount of cash provided by operating activities in 1996 was
$13.8 million. The net amount of cash used in financing activities in 1996 was
$9.5 million, principally for repayments against the Company's revolving line of
credit with its banks. The net amount of cash used in investing activities in
1996 was approximately $1.1 million, principally for the acquisition of property
and equipment.
-14-
<PAGE>
The Company's results of operations for any particular period may be
adversely affected by numerous factors, such as the loss of key suppliers or
customers, price competition, problems incurred in managing inventories or
receivables, the timing or cancellation of orders from major customers, a change
in the product mix sold by the Company, customer demand, availability of
products from suppliers, management of growth, the percent of revenue derived
from distribution versus contract manufacturing, the Company's ability to
collect accounts receivable, price decreases on inventory that is not price
protected, the timing or cancellation of purchase orders with or from suppliers,
and the timing of expenditures in anticipation of increased sales and customer
product delivery requirements. Price competition in the industries in which the
Company competes is intense and could result in gross margin declines, which
could have an adverse impact on the Company's profitability. In various periods
in the past, the Company's operating results have been affected by all of these
factors. In particular, price fluctuations in the disk drive and semiconductor
industries have affected the Company's gross margins in recent periods. The
Company has recently experienced rapid sales growth and there can be no
assurance that such sales growth will continue or that such sales and profit
levels will be maintained. The Company's cash requirements will depend on
numerous factors, including the rate of growth of its sales. The Company
believes that its working capital, including its existing credit facility, will
be sufficient to meet the Company's short term capital requirements. However,
the Company may seek additional debt or equity financing to fund continued
growth.
ITEM 8: Financial Statements and Supplementary Data
The financial statements, together with the report thereon of Price
Waterhouse LLP, independent accountants, are included in Item 14 hereof.
ITEM 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-15-
<PAGE>
PART III
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K,
portions of the information required by Part III of Form 10-K are incorporated
by reference from the Company's Proxy Statement to be filed with the Commission
in connection with the 1997 Annual Meeting of Shareholders (the "Proxy
Statement").
ITEM 10: Directors and Executive Officers of the Registrant
(a) Information concerning directors of the Company appears in
the Company's Proxy Statement, under Item 1 "Election of
Directors." This portion of the Proxy Statement is
incorporated herein by reference.
(b) Executive Officers Of The Registrant
<TABLE>
The following table and descriptions identify and set forth
information regarding the Company's five executive officers:
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
W. Donald Bell.................... 59 President, Chief Executive Officer and
Chairman of the Board
Remo E. Canessa................... 39 Chief Financial Officer, Vice President of Finance,
Corporate Controller and Secretary
William Murphy.................... 46 Senior Vice President of Industrial Sales
Philip M. Roussey................. 54 Senior Vice President of Computer Products Marketing
Robert J. Sturgeon................ 43 Vice President of Operations
</TABLE>
W. Donald Bell has been President, Chief Executive
Officer and Chairman of the Board of the Company since its
inception in 1987. Mr. Bell has over 30 years of experience
in the electronics industry. Mr. Bell was formerly the
President of Ducommun Inc. and its subsidiary, Kierulff
Electronics Inc., as well as Electronic Arrays Inc. He has
also held senior management positions at Texas Instruments
Incorporated, American Microsystems and other electronics
companies. He is a member of the Board of Directors of
Control Data Systems Inc.
Remo E. Canessa has been Chief Financial Officer, Vice
President of Finance and Secretary of the Company since July
1995. Since November 1993 Mr. Canessa has served as the
Company's Corporate Controller. From 1989 to 1993 Mr.
Canessa was Headquarters Controller of Ampex Corporation, a
developer, manufacturer and distributor of audio and video
recording equipment and mass data storage devices. Prior to
that time, Mr. Canessa was Corporate Controller of Geoworks
Inc., and also held positions at Dialogic Systems
Corporation and Arthur Andersen & Co. He is a Certified
Public Accountant in the State of California.
-16-
<PAGE>
William A. Murphy has been Senior Vice President of
Sales for the Industrial Division of Bell Microproducts Inc.
since June 1995. From 1985 to 1995 Mr. Murphy held various
senior management positions at Pioneer Standard Electronics,
including Regional Vice President for the South Central
United States, Area Vice President for the Western United
States and Canada, and Vice President of National and
Strategic Accounts for North America. Prior to that time,
Mr. Murphy held various sales management and operations
positions at Texas Instruments and Kierulff Electronics.
Philip M. Roussey has been Senior Vice President of
Computer Products Marketing since March 1993. Prior to that
time, he was the Company's Vice President of Marketing since
its inception in 1987. Prior to joining the Company, Mr.
Roussey was Corporate Vice President of Marketing at
Kierulff Electronics during 1987, and from 1982 to 1986, Mr.
Roussey held the position of Vice President of Computer
Products at Kierulff Electronics.
Robert J. Sturgeon has been Vice President of
Operations since 1992. Mr. Sturgeon was formerly Director of
Information Services for Disney Home Video from January 1991
to February 1992. Prior to that time, Mr. Sturgeon served as
Management Information Services ("MIS") Director for
Paramount Pictures, Home Video Division from June 1989 to
January 1991 and as a Marketing Manager for MTI Systems, a
division of Arrow Electronics Inc., from January 1988 to
June 1989. Other positions Mr. Sturgeon has held include
Executive Director of MIS for Ducommun where he was
responsible for ten divisions, including Kierulff
Electronics.
(c) Information concerning Compliance with Section 16(a) of the
Securities Exchange Act of 1934 appears in the Company's
Proxy Statement, under the heading "Compliance with Section
16(a) of the Securities Exchange Act of 1934," and is
incorporated herein by reference.
ITEM 11: Executive Compensation
Information concerning executive compensation appears in the Company's
Proxy Statement, under the caption "Executive Compensation," and is incorporated
herein by reference.
ITEM 12: Security Ownership of Certain Beneficial Owners and Management
Information concerning the security ownership of certain beneficial
owners and management appears in the Company's Proxy Statement, under Item 1
"Election of Directors," and is incorporated herein by reference.
ITEM 13: Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
appears in the Company's Proxy Statement, under Item 1 "Election of Directors,"
and is incorporated herein by reference.
-17-
<PAGE>
PART IV
ITEM 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements Form 10-K
Page Number
-----------
Report of Independent Accountants F-1
Balance Sheets at December 31, 1996
and 1995 F-2
Statements of Operations for the years
ended December 31, 1996, 1995 and 1994 F-3
Statements of Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994 F-4
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-5
Notes to Financial Statements F-6
(2) Financial Statement Schedule
II - Valuation and Qualifying Accounts and Reserves S-1
Schedules not listed above have been omitted because they are not
required or the information required to be set forth therein is included in the
Financial Statements or Notes to Financial Statements.
(3) Exhibits
Number Description of Document
------ -----------------------
2.1 Agreement and Plan of Reorganization dated as of February 2,
1994 between Registrant, Bell Microproducts Acquisition
Corporation, a New York corporation and wholly-owned
subsidiary of Registrant, Vantage Components Inc., a New
Jersey corporation, Vantage Components, Inc., a New York
corporation, Vantage Components of Maryland, Inc., a Maryland
corporation and Vantage Components of MA, Inc., a
Massachusetts corporation (1)
2.2 Amendment No. 1 to Agreement and Plan of Reorganization dated
as of February 2, 1994 between Registrant, Bell Microproducts
Acquisition Corporation, a New York corporation and
wholly-owned subsidiary of Registrant, Vantage Components,
Inc., a New Jersey corporation, Vantage Components Inc., a New
York corporation, Vantage Components of Maryland, Inc., a
Maryland corporation and Vantage Components of MA, Inc., a
Massachusetts corporation (2)
3.1 Amended and Restated Articles of Incorporation of Registrant
(3)
-18-
<PAGE>
(3) Exhibits Continued
Number Description of Document
------ -----------------------
3.2 Amended and Restated Bylaws of Registrant (4)
4.1 Specimen Common Stock Certificate of the Registrant (4)
4.2 Amended and Restated Registration Rights Agreement dated June
11, 1992 between Registrant and certain investors named
therein, as amended (1)
4.3 Warrant issued to Sutro & Co. Incorporated (2)
10.1 1988 Incentive Stock Plan, as amended through May 23, 1996 (6)
10.2 The form of Option Agreement used under the 1988 Incentive
Stock Plan (5)
10.3 Employee Stock Purchase Plan, as amended through May 23, 1996
(6)
10.4 The form of Option Agreement used under the Employee Stock
Purchase Plan (5)
10.5 1993 Director Stock Option Plan, as amended through May 24,
1995 (5)
10.6 The form of Option Agreement used under the 1993 Director
Stock Option Plan (5)
10.7 Registrant's 401(k) Plan (4)
10.8 Lease dated March 17, 1992 for Registrant's facilities at 1941
Ringwood Avenue, Suite 100, San Jose, California (4)
10.9 Lease dated April 15, 1993 for Registrant's facilities at 2350
Lundy Place, San Jose, California (1)
10.10 Amended and Restated Asset Purchase Agreement dated February
26, 1993 by and between Registrant, Barclay Financial Group
and Adlar Turnkey Manufacturing Company, as amended (4)
10.11 Form of Convertible Note issued by Registrant in favor of
Barclay Financial Group (4)
10.12 Amended and Restated Credit Agreement dated as of May 23, 1995
by and among the Registrant, the Banks named therein and
Sumitomo Bank of California, as Agent for the Banks, as
amended (2)
10.13 First Amendment to Second Amended and Restated Credit
Agreement dated as of June 25, 1996 by and among the
Registrant, the Banks named therein and Sumitomo Bank of
California, as Agent for the Banks(7)
10.14 Second Amendment to Second Amended and Restated Credit
Agreement dated as of September 30, 1996 by and among the
Registrant, the Banks named therein and Sumitomo Bank of
California, as Agent for the Banks(8)
10.15 Standard Distributor Agreement dated June 1, 1990 by and
between Quantum Corporation and Registrant (4)
-19-
<PAGE>
(3) Exhibits Continued
Number Description of Document
------ -----------------------
10.16 Form of Indemnification Agreement (4)
10.17 IBM Authorized Distributor Agreement dated May 17, 1993
between IBM Corporation and Registrant (4)
10.18 Sublease dated November 12, 1996 for the Registrant's
facilities at 2020 South Tenth Street, San Jose, California,
and related exhibits
10.19* Employment Agreement dated as of December 10, 1996 between the
Registrant and W. Donald Bell, the Registrant's Chief
Executive Officer
10.20 Form of Management Retention Agreement between the Registrant
and the following executive officers of the Registrant: W.
Donald Bell, Remo E. Canessa, William Murphy, Philip M.
Roussey and Robert J. Sturgeon
21.1 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
24.1 Power of Attorney (contained on page 22)
- -----------------------
* Confidential treatment has been requested for portions of this
document.
(1) Incorporated by reference to exhibit filed with the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1993
filed on March 31, 1994.
(2) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-79692) in the form
declared effective on November 1, 1994.
(3) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-66580) filed on
July 29, 1993.
(4) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-60954) filed on
April 14, 1993 and which became effective on June 14, 1993.
(5) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-83398) filed on
August 29, 1994.
(6) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-10837) filed on
August 26, 1996.
(7) Incorporated by reference to exhibit filed with the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1996.
(8) Incorporated by reference to exhibit filed with the Registrant's
Report on Form 10-Q for the quarter ended September 30, 1996.
-20-
<PAGE>
(b) No reports on Form 8-K were filed during the last quarter of the fiscal
year ended December 31, 1996.
(c) Exhibits. See Item 14(a) above.
(d) Financial Statements Schedules. See Item 14(a) above.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 26, 1997.
BELL MICROPRODUCTS INC.
By: /s/ Remo E. Canessa
------------------------------------------------
Remo E. Canessa
Chief Financial Officer,
Vice President of Finance,
Corporate Controller and Secretary
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints W. Donald Bell and Remo E. Canessa and
each of them, jointly and severally, his attorneys-in-fact, each with full power
of substitution, for him in any and all capacities, to sign any and all
amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K 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/ W. Donald Bell Chairman of the Board, President and Chief Executive March 26, 1997
- ------------------------------- Officer (Principal Executive Officer)
(W. Donald Bell)
/s/ Remo E. Canessa Chief Financial Officer, Vice President of Finance, March 26, 1997
- ------------------------------- Corporate Controller and Secretary (Principal Financial
(Remo E. Canessa) and Accounting Officer)
/s/ Jon H. Beedle Director March 26, 1997
- -------------------------------
(Jon H. Beedle)
/s/ Glenn E. Penisten Director March 26, 1997
- -------------------------------
(Glenn E. Penisten)
/s/ Gordon A. Campbell Director March 26, 1997
- -------------------------------
(Gordon A. Campbell)
/s/ Edward L. Gelbach Director March 26, 1997
- -------------------------------
(Edward L. Gelbach)
</TABLE>
-22-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Bell Microproducts Inc.
In our opinion, the financial statements listed in the index appearing
under Item 14 (a) (1) and (2) on page 18 present fairly, in all material
respects, the financial position of Bell Microproducts Inc. at December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
February 13, 1997
F-1
<PAGE>
<TABLE>
BELL MICROPRODUCTS INC.
BALANCE SHEETS
(in thousands, except per share data)
<CAPTION>
December 31,
---------------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 5,682 $ 2,489
Accounts receivable, net of allowance for doubtful accounts
of $4,228 and $3,300 70,686 65,266
Inventories (Note 3) 78,659 70,262
Deferred and refundable income taxes (Note 7) 3,714 3,418
Prepaid expenses 885 841
-------- --------
Total current assets 159,626 142,276
Property and equipment, net (Notes 3 and 8) 9,006 7,861
Goodwill 6,685 6,987
Other assets 363 153
-------- --------
Total assets $175,680 $157,277
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Notes payable, current portion $ 294 $ 15
Accounts payable 45,725 31,596
Other accrued liabilities 6,271 2,705
Current portion of capitalized lease obligations (Note 8) 1,378 1,046
-------- --------
Total current liabilities 53,668 35,362
Line of credit (Note 4) 45,900 54,500
Notes payable, less current portion (Note 11) -- 294
Capitalized lease obligations, less current portion (Note 8) 4,985 4,659
-------- --------
Total liabilities 104,553 94,815
-------- --------
Commitments and contingencies (Note 8)
Shareholders' equity (Notes 5 and 6):
Preferred Stock, $0.01 par value, 10,000 shares authorized;
none issued and outstanding -- --
Common Stock, $0.01 par value, 20,000 shares authorized;
8,445 and 8,323 shares issued and outstanding 51,644 50,841
Retained earnings 19,483 11,621
-------- --------
Total shareholders' equity 71,127 62,462
-------- --------
Total liabilities and shareholders' equity $175,680 $157,277
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-2
<PAGE>
<TABLE>
BELL MICROPRODUCTS INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales $ 483,316 $ 346,291 $ 250,753
Cost of sales 425,258 305,696 217,277
--------- --------- ---------
Gross profit 58,058 40,595 33,476
Marketing, general and administrative expenses 41,008 30,352 23,258
--------- --------- ---------
Income from operations 17,050 10,243 10,218
Interest expense (3,495) (3,473) (1,691)
--------- --------- ---------
Income before income taxes 13,555 6,770 8,527
Provision for income taxes (Note 7) 5,693 2,768 3,471
--------- --------- ---------
Net income $ 7,862 $ 4,002 $ 5,056
========= ========= =========
Earnings per share (Note 2) $ 0.92 $ 0.48 $ 0.86
========= ========= =========
Weighted average common shares
and equivalents (Note 2) 8,511 8,350 5,878
========= ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
BELL MICROPRODUCTS INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<CAPTION>
Common Stock
-------------------- Retained
Shares Amount Earnings Total
------ ------ -------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1993 4,867 $15,788 $ 2,563 $18,351
Issuance of Common Stock in secondary public offering, net
of issuance costs of $2,284 2,573 27,300 -- 27,300
Issuance of Common Stock for acquisition of Vantage
Components, Inc. 489 5,015 -- 5,015
Exercise of stock options, including related tax benefit
of $127 74 388 -- 388
Issuance of Common Stock under Stock Purchase Plan 44 355 -- 355
Net Income -- -- 5,056 5,056
------- ------- ------- -------
Balance at December 31, 1994 8,047 48,846 7,619 56,465
Exercise of stock options, including related tax benefit
of $181 103 749 -- 749
Issuance of Common Stock under Stock Purchase Plan 66 473 -- 473
Conversion of note payable to Common Stock 107 773 -- 773
Net Income -- -- 4,002 4,002
------- ------- ------- -------
Balance at December 31, 1995 8,323 50,841 11,621 62,462
Exercise of stock options, including related tax benefit
of $159 26 202 -- 202
Issuance of Common Stock under Stock Purchase Plan 96 601 -- 601
Net Income -- -- 7,862 7,862
------- ------- ------- -------
Balance at December 31, 1996 8,445 $51,644 $19,483 $71,127
======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
BELL MICROPRODUCTS INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(in thousands)
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,862 $ 4,002 $ 5,056
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 2,569 1,659 801
Change in deferred and refundable income taxes (296) (2,020) (718)
Changes in assets and liabilities:
Accounts receivable (5,420) (13,431) (21,071)
Inventories (8,397) (13,236) (30,524)
Prepaid expenses (44) (294) (346)
Other assets (210) 49 (67)
Accounts payable 14,129 (3,483) 12,941
Other accrued liabilities 3,566 795 (719)
-------- -------- --------
Net cash provided by (used in) operating activities 13,759 (25,959) (34,647)
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment, net (1,120) (1,160) (933)
Acquisition of Vantage Components Inc., net of cash
acquired (Note 11) -- -- (4,688)
-------- -------- --------
Net cash used in investing activities (1,120) (1,160) (5,621)
-------- -------- --------
Cash flows from financing activities:
Net borrowings/repayments under line of credit (8,600) 33,000 8,500
Net borrowings/repayments under term loan -- (5,000) 5,000
Proceeds from issuance of Common Stock 803 1,222 27,916
Principal payments on long-term liabilities (1,649) (1,016) (274)
-------- -------- --------
Net cash provided by (used in) financing activities (9,446) 28,206 41,142
-------- -------- --------
Net increase in cash 3,193 1,087 874
Cash at beginning of period 2,489 1,402 528
-------- -------- --------
Cash at end of period $ 5,682 $ 2,489 $ 1,402
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,355 $ 3,380 $ 1,558
Income taxes $ 5,744 $ 4,282 $ 4,143
Obligations incurred under capital leases $ 2,292 $ 5,254 $ 768
Assets acquired in exchange for notes payable
$ -- $ -- $ 750
Common Stock issued for the acquisition of Vantage
Components, Inc. $ -- $ -- $ 5,015
Common Stock on conversion of note payable $ -- $ 773 $ --
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-5
<PAGE>
BELL MICROPRODUCTS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY:
Bell Microproducts Inc. (the Company) was incorporated in California on
October 23, 1987 and commenced operations in January 1988. The Company operates
in two industry segments: as a contract manufacturer and as a distributor of
semiconductor and computer products to original equipment manufacturers (OEMs),
value added resellers (VARs) and dealers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
Revenues are recognized when products are shipped. Provisions for
estimated losses on returns and for expected warranty costs are recorded at the
time of sale.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined by the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization is computed using the straight-line method based upon the estimated
useful lives of the assets which range from three to five years. Amortization of
leasehold improvements is computed using the straight-line method over the
shorter of the estimated life of the asset or the lease term.
Goodwill
Assets and liabilities acquired in connection with business
combinations accounted for under the purchase method are recorded at their
respective fair values. The excess of the purchase price over the fair value of
the assets acquired is amortized on a straight-line basis over a twenty-five
year period. Accumulated amortization equaled $799,000 and $497,000 as of
December 31, 1996 and 1995, respectively. The Company periodically reviews the
recoverability of goodwill based on estimated future cash flows.
Income Taxes
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109 (SFAS 109). SFAS 109
requires, among other things, that deferred income taxes be provided for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities as part of the income tax provisions.
Earnings Per Share
Earnings per share is computed using the weighted average number of
common and common equivalent shares ("weighted average shares") outstanding
during the period. Common equivalent shares consist of the dilutive effect of
stock options and warrants using the treasury stock method.
F-6
<PAGE>
Disclosures About Fair Value of Financial Instruments
Financial instruments that are subject to fair value disclosure
requirements are carried in the financial statements at amounts that approximate
fair value.
Concentration of Credit and Other Risks
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company's accounts receivable are derived from sales to OEMs, VARs and dealers
located primarily in the United States. The Company performs ongoing credit
evaluations of its customers, and generally does not require collateral. The
Company maintains reserves for estimated credit losses. Two vendors accounted
for 53%, 40% and 48% of the Company's distribution inventory purchases during
1996, 1995 and 1994, respectively. One such vendor has obtained a second
priority lien against the Company's inventories to secure payment on the
Company's purchase of goods.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities 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.
NOTE 3 - BALANCE SHEET COMPONENTS:
December 31,
-----------------------
1996 1995
---- ----
(in thousands)
Inventories:
Work-in-process $ 9,146 $ 5,264
Purchased components and materials 69,513 64,998
-------- --------
$ 78,659 $ 70,262
======== ========
Property and equipment:
Warehouse equipment $ 195 $ 134
Manufacturing and test equipment 9,070 7,452
Furniture and fixtures 1,147 941
Computer and other equipment 3,212 1,695
-------- --------
13,624 10,222
Less: accumulated depreciation and
amortization (4,618) (2,361)
======== ========
$ 9,006 $ 7,861
======== ========
NOTE 4 - LINE OF CREDIT AND TERM LOAN:
On May 5, 1994, the Company entered into an Amended and Restated Credit
Agreement with Sumitomo Bank of California ("Sumitomo Bank") and a new
participating bank, Union Bank, which increased the Company's revolving line of
credit to $25 million. On May 26, 1994, the banks also provided a five year term
loan of $5 million. On August 29, 1994, the Company entered into an amendment to
the Amended and Restated Credit Agreement which increased the revolving line of
credit to $35 million.
On May 23, 1995, the Company entered into an Amended and Restated
Syndicated Credit Agreement, arranged by Sumitomo Bank of California ("Sumitomo
Bank") as Agent, which increased the Company's $35 million revolving line of
credit and $5 million term loan facilities to $70 million. This agreement was
amended on June 25, 1996, to
F-7
<PAGE>
increase the line of credit to $80 million and extend the maturity date to May
31, 1998. The syndicate includes Sumitomo Bank of California and Union Bank, The
First National Bank of Boston, Comerica Bank - California and The Sumitomo Bank,
Limited. At the Company's option, the borrowings under the line of credit will
bear interest at Sumitomo Bank's prime rate or the adjusted LIBOR rate plus
1.625%. At December 31, 1996 the interest rate was 8.25%. The revolving line of
credit requires the Company to meet certain financial tests and to comply with
certain other covenants, including restrictions on incurrence of debt and liens,
restrictions on mergers, acquisitions, asset dispositions, declaration of
dividends, repurchases of stock, making investments and profitability. The
Company is in compliance with its bank covenants, however, there can be no
assurance that the Company will be in compliance in the future. Obligations of
the Company under the revolving line of credit are secured by substantially all
of the Company's assets. The balance outstanding on the revolving line of credit
at December 31, 1996 was approximately $45.9 million.
NOTE 5 - SHAREHOLDERS' EQUITY:
On June 15, 1993, the Company completed an initial public offering
(Offering) of 1,500,000 shares of Common Stock, 1,200,000 shares being sold by
the Company and 300,000 shares being sold by certain of the Company's
shareholders, at a price of $7.50 per share. Upon the closing of the Offering,
5,106,000 shares of convertible Preferred Stock were converted into 2,042,400
shares of Common Stock.
The Company sold to Sutro & Co. Incorporated, the Representative of the
Underwriters (Representative) of the initial public offering, for $1,050, the
Representative's Warrants to purchase from the Company up to 105,000 shares of
Common Stock at an exercise price equal to $9.00 per share. The Representative's
Warrants are exercisable for a period of four years, beginning June 14, 1994.
On November 1, 1994, the Company completed a secondary public offering
of 2,859,570 shares of Common Stock, 2,573,277 shares being sold by the Company
and 286,293 shares being sold by certain of the Company's shareholders, at a
price of $11.50 per share.
NOTE 6 - STOCK-BASED COMPENSATION PLANS:
At December 31, 1996, the Company had three stock-based compensation
plans which are described below. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its plans, all of which are fixed plans. Had
compensation cost for the Company's three stock-based compensation plans been
determined based on the fair value at the grant dates for awards in 1995 and
1996 under those plans consistent with the provisions of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the Company's net
income and earnings per share would have been reduced as presented below:
1996 1995
---- ----
Net income:
As reported $7,862 $4,002
Pro forma 7,206 3,696
Earnings per share
As reported 0.92 0.48
Pro forma 0.85 0.44
Because additional stock options and stock purchase rights are expected
to be granted each year and these only include the effect of options granted
subsequent to December 31, 1994, the above pro forma disclosures are not
representative of pro forma effects on reported financial results for future
years.
F-8
<PAGE>
Stock Option Plans
The Company has two fixed stock option plans. The Amended and Restated
1988 Incentive Stock Plan (the Plan) provides for the grant of stock options and
stock purchase rights to employees, directors and consultants of the Company at
prices not less than the fair value of the Company's Common Stock at the date of
grant for incentive stock options and prices not less than 85% of the fair value
of the Company's Common Stock for nonstatutory stock options and stock purchase
rights. Since inception, the Company has reserved 2,224,104 shares of Common
Stock for issuance under the Plan.
The options lapse five years after the date of grant or such shorter
period as may be provided for in the stock option agreement. All options granted
vest over four years. If an optionee ceases to be employed by the Company, the
optionee may, within one month (or such other period of time, as determined by
the Board of Directors, but not exceeding three months) exercise options to the
extent vested.
As part of the Plan, in March 1993, the Board of Directors adopted a
Management Incentive Program (the "Program") for key employees. Under this
Program, options for 339,000 shares, 224,000 shares and 30,000 shares of Common
Stock were granted in 1996, 1995 and 1994, respectively. The Program provides
for ten-year option terms with vesting at the rate of 1/10th per year, with
potential for accelerated vesting based upon attainment of certain performance
objectives. The options lapse ten years after the date of grant or such shorter
period as may be provided for in the stock option agreement.
On February 7, 1996, the Board of Directors offered employees with
options under the Plan the opportunity to exchange existing options for new
options at an exercise price of $6.50, the fair market value of the Company's
Common Stock on the date of the exchange. Any vesting in the canceled options
was lost, and the new options were subject to the normal four-year vesting
schedule under the Plan. Of the approximate 950,000 stock options outstanding
eligible for exchange, 640,900 stock options were exchanged for new options.
F-9
<PAGE>
<TABLE>
The following table presents activity under the Plan:
<CAPTION>
Options outstanding
-----------------------------
Options Weighted
available for average
grant Shares exercise price
----- ------ --------------
<S> <C> <C> <C>
Balance at December 31, 1993 118,044 585,638 $ 6.22
Increase in options available for grant 206,714 --
Options granted (388,800) 388,800 $10.70
Options exercised -- (71,225) $ 3.68
Options canceled 173,325 (173,325) $ 8.22
---------- ---------- ------
Balance at December 31, 1994 109,283 729,888 $ 8.36
Increase in options available for grant 435,000 --
Options granted (516,800) 516,800 $10.19
Options exercised -- (105,798) $ 5.44
Options canceled 181,260 (181,260) $ 9.21
---------- ---------- ------
Balance at December 31, 1995 208,743 959,630 $ 9.50
Increase in options available for grant 300,000 --
Options granted (1,126,800) 1,126,800 $ 6.99
Options exercised -- (22,530) $ 1.94
Options canceled 842,900 (842,900) $ 9.88
---------- ---------- ------
Balance at December 31, 1996 224,843 1,221,000 $ 7.06
========== ========== ======
</TABLE>
At December 31, 1996, 115,450 options were exercisable under this Plan.
In March 1993, the Company adopted the 1993 Director Stock Option Plan
(the "Director Plan") which initially provided for the grant of an aggregate of
90,000 options for the purchase of the Company's Common Stock. The number of
shares was increased in May 1994 to 120,000 and increased to 145,000 in May
1995. 75,000 options available under the Director Plan were granted in March
1993 at an exercise price of $8.00 per share and during 1996, 20,000 shares were
granted at an exercise price of $7.00 per share. In February 1996, 10,000
options were canceled. These options vest annually at the rate of 1/3 and have a
ten-year life.
For the fixed stock option plans, the fair value of each option grant
used for calculating pro forma net income is estimated on the date of grant
using the Black-Scholes multiple option-pricing model with the following
weighted average assumptions used for grants in 1995 and 1996, respectively;
expected volatility of 35% and 35%; risk free interest rate of 6.0% and 6.0% and
expected lives of 4.70 and 4.19 years. The Company has not paid dividends and
assumed no dividend yield. The weighted average fair value of those stock
options granted in 1995 and 1996 was $3.87 and $2.00, respectively.
F-10
<PAGE>
<TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1996.
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- -----------------------------------------
Number of
Shares
Outstanding Number of Shares
As of Weighted Average Weighted Exercisable As Weighted
Range of Exercise December 31, Remaining Average of December 31, Average
Prices 1996 Contractual Life Exercise Price 1996 Exercise Price
- --------------------- --------------- ------------------ ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$ 0.63 - $ 1.25 16,150 0.49 years $ 0.70 15,450 $ 0.68
$ 6.50 - $ 7.00 774,200 6.11 6.56 12,150 7.00
$ 7.25 - $ 8.38 337,000 5.21 7.71 128,650 7.80
$ 8.63 - $10.00 162,450 4.02 8.73 13,900 9.07
$11.00 - $12.75 11,200 2.70 11.92 5,300 11.90
--------- ---- ------- ------- -------
$ 0.63 - $12.75 1,301,000 5.52 $ 7.10 175,450 $ 7.34
========= ==== ======= ======= =======
</TABLE>
Employee Stock Purchase Plan
The Company has reserved for issuance to all eligible employees under
its Employee Stock Purchase Plan 380,000 shares of Common Stock. Sales made
through this plan will be at the lower of 85% of market price at the date of
purchase or on the first day of each six-month offering period. 224,524 shares
have been issued under this plan as of December 31, 1996. The fair value of each
purchase right is estimated on the beginning of the offering period using the
Black-Scholes option-pricing model with the following weighted average
assumptions used in 1995 and 1996, respectively; expected volatility of 35% and
35%; risk free interest rate of 5.48% and 5.64% and expected lives of 0.5 and
0.5 years. The Company has not paid dividends and assumed no dividend yield. The
weighted average fair value of those purchase rights granted in 1995 and 1996
was $2.59 and $1.82, respectively.
NOTE 7 - INCOME TAXES:
The provision for income taxes consists of the following for the years
ended December 31 (in thousands):
1996 1995 1994
---- ---- ----
Current:
Federal $ 5,893 $ 2,716 $ 3,281
State 1,495 424 908
------- ------- -------
7,388 3,140 4,189
Deferred:
Federal (1,382) (284) (411)
State (313) (88) (307)
------- ------- -------
$ 5,693 $ 2,768 $ 3,471
======= ======= =======
F-11
<PAGE>
Deferred tax (liabilities) assets comprise the following at December 31 (in
thousands):
1996 1995 1994
---- ---- ----
Basis differential in assets $ (110) $ (118) $ (127)
Depreciation (621) (201) (87)
------- ------- -------
Gross deferred tax liabilities (731) (319) (214)
------- ------- -------
Bad debt, sales and warranty reserves 1,922 1,351 575
Inventory reserves and basis differences 1,756 495 733
Compensation accruals and reserves 128 110 33
State taxes, net of federal benefit 391 67 207
Other 248 66 64
------- ------- -------
Gross deferred tax assets 4,445 2,089 1,612
------- ------- -------
Net deferred tax asset $ 3,714 $ 1,770 $ 1,398
======= ======= =======
The net deferred tax asset represents temporary differences for future
tax deductions which can generally be realized by carryback to taxable income in
prior years.
The provisions for income taxes differ from the amount of income tax
determined by applying the applicable U.S. statutory income tax rate to pre-tax
income as follows:
Year Ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
Federal statutory rate 35.0% 34.0% 34.0%
State income taxes, net of
Federal tax 5.7% 3.3% 4.7%
benefit and credits
Other 1.3% 3.6% 2.0%
---- ---- ----
42.0% 40.9% 40.7%
==== ==== ====
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities under cancelable and noncancelable
operating lease agreements. The leases expire at various times through 2006 and
contain renewal options. Certain of the leases require the Company to pay
property taxes, insurance, and maintenance costs.
The Company leases certain equipment under capitalized leases with such
equipment amounting to $8,698,000 less accumulated depreciation of $2,335,000 at
December 31, 1996 and $6,524,000 less accumulated depreciation of $913,000 at
December 31, 1995. Amortization expense on assets subject to capitalized leases
was $1,307,000, $696,000, and $180,000 for the years ended December 31, 1996,
1995 and 1994, respectively. The capitalized lease terms range from three to
five years.
F-12
<PAGE>
The following is a summary of commitments under leases:
Capitalized Operating
Year ending December 31, leases leases
------------------------ ------ ------
(in thousands)
1997 $ 1,863 $ 2,041
1998 1,872 1,920
1999 1,824 1,381
2000 1,507 954
2001 488 920
2002 and beyond -- 2,866
------- -------
Total minimum lease payments $ 7,554 $10,082
=======
Less: imputed interest (1,191)
-------
Present value of minimum lease payments $ 6,363
=======
Total operating lease expense was $1,272,000, $1,167,000 and $1,052,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
On May 10, 1996, the Company entered into an agreement with a financial
institution to provide inventory flooring financing to selected Company
customers. Under this agreement, should a customer default on its payment
obligations, the Company is obligated to repurchase any unsold inventory. Due to
the rapid turnover of inventory sold in conjunction with the agreement and the
timely customer payment history experienced to date, management estimates its
exposure at December 31, 1996 to be immaterial.
The Company is subject to legal proceedings and claims that arise in
the normal course of business. Management believes that the ultimate resolution
of such matters will not have a material adverse affect on the Company's
financial position or results of operations.
NOTE 9 - TRANSACTIONS WITH RELATED PARTIES:
The Company has entered into a manufacturing agreement with Pinnacle
Systems, Inc. ("Pinnacle") providing for the performance by the Company's
manufacturing division of value-added turnkey services for Pinnacle. The
agreement term is automatically renewed for successive one year periods unless
terminated by either party on 90 days' written notice. Company sales to Pinnacle
totaled $9,692,000, $13,461,000, and $3,856,000 for the years ended December 31,
1996, 1995, and 1994, respectively. The accounts receivable balance from
Pinnacle was $202,000 and $3,798,000 at December 31, 1996 and December 31, 1995,
respectively. The Company has purchased approximately $350,000, $576,000, and
$121,000 of inventory from Pinnacle in 1996, 1995 and 1994, respectively.
Inventory on hand at December 31, 1996 purchased under contract with Pinnacle
totaled $914,000. Glenn E. Penisten, a director of the Company, is a director of
Pinnacle. The agreement was entered into in the ordinary course of business and
the Company believes that it has terms no less favorable than reasonably could
be expected to be obtained from unaffiliated parties.
In May 1994, the Company entered into a manufacturing agreement with
Reply Corporation ("Reply") providing for the performance by the Company's
manufacturing division of value-added turnkey services for Reply. The agreement
term is automatically renewed for successive one year periods unless terminated
by either party on 90 days'
F-13
<PAGE>
written notice. Sales to Reply totaled approximately $2,594,000, $3,144,000 and
$2,086,000 during 1996, 1995, and 1994, respectively. The accounts receivable
balance from Reply was $413,000 at December 31, 1996 and $742,000 at December
31, 1995. The Company has purchased approximately $167,000, $66,000 and $342,000
of inventory from Reply in 1996, 1995, and 1994, respectively. Inventory on hand
at December 31, 1996 purchased under contract with Reply totaled $270,000. Glenn
E. Penisten and Gordon A. Campbell, directors of the Company, are directors of
Reply. The agreement was entered into in the ordinary course of business and the
Company believes that it has terms no less favorable than reasonably could be
expected to be obtained from unaffiliated parties.
NOTE 10 - SALARY SAVINGS PLAN:
In April 1990, the Company adopted a Section 401(k) Plan (the Plan)
which provides participants an opportunity to accumulate funds for retirement
and hardship. Under the terms of the Plan, eligible participants may contribute
up to 15% of their eligible earnings to the Plan. The Company may elect to make
matching contributions equal to a discretionary percentage, to be determined by
the Company, of participants' contributions up to the statutory maximum of
participants' eligible earnings. The Company has not made contributions to the
Plan.
NOTE 11 - ACQUISITIONS:
On May 26, 1994, the Company acquired Vantage Components, Inc.
(Vantage) for a purchase price of $11,806,000, which included cash of $5,300,000
(funded via Bell Microproducts' line of credit and term loan facilities), the
issuance of 489,281 shares of Bell Microproducts Common Stock, the issuance of
promissory notes totaling $750,000 and acquisition costs. The acquisition was
accounted for as a purchase. The purchase price was allocated to the acquired
assets and liabilities based upon management's estimate of their fair market
values as of the acquisition date as follows (in thousands):
---------------------------------------------------------------
Cash.............................................. $ 1,371
Accounts receivable............................... 4,948
Inventories....................................... 4,527
Equipment and other assets........................ 119
Goodwill.......................................... 7,063
Accounts payable.................................. (3,500)
Line of credit.................................... (1,900)
Note payable to bank.............................. (23)
Other accrued liabilities......................... (799)
-------
$11,806
=======
---------------------------------------------------------------
The results of operations of Vantage, predominantly a distributor of
semiconductor products, have been included with those of the Company for periods
subsequent to the date of acquisition. Vantage had sales of $34.2 million and
net income of $776,000 for its fiscal year ended February 28, 1994.
F-14
<PAGE>
Set forth below is the unaudited pro forma combined summary of
operations of the Company and Vantage for the year ended December 31, 1994 as
though the acquisition had been made on January 1, 1994 (in thousands, except
per share data):
------------------------------------------------------------------
(Unaudited) Year ended December 31,
------------------------
1994
-----------------------
Sales........................................... $263,460
Net income...................................... 4,984
Earnings per share.............................. $0.80
Weighted average common shares and equivalents.. 6,245
------------------------------------------------------------------
The unaudited pro forma combined summary of operations includes: 1) the
amortization of goodwill over a twenty-five year period, 2) the additional
interest expense on debt incurred in connection with the acquisition as if the
debt had been outstanding from the beginning of the period presented, and 3) the
elimination of Vantage's sales and related incremental costs associated with the
distribution of certain products, as a relationship with a key supplier was
terminated in connection with the Company's acquisition of Vantage.
The unaudited pro forma combined summary of operations does not purport
to be indicative of the results which actually would have been obtained if the
acquisitions had been made at the beginning of 1994 or of those results which
may be obtained in the future.
F-15
<PAGE>
NOTE 12 - BUSINESS SEGMENT INFORMATION:
<TABLE>
Operating results and other financial data are presented for the
principal business segments of the Company for the years ended December 31,
1996, 1995 and 1994 as follows:
<CAPTION>
Distribution Manufacturing Eliminations Consolidated
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
1996
Sales to customers ................................... $391,187 $ 92,129 $ -- $483,316
Intersegment sales ................................... 4,855 282 (5,137) --
-------- ------ -------- --------
Revenue .............................................. 396,042 92,411 (5,137) 483,316
Operating profit ..................................... 11,556 5,494 -- 17,050
Identifiable assets .................................. 172,755 39,326 (36,401) 175,680
Depreciation and amortization ........................ 683 1,886 -- 2,569
Capital asset additions .............................. 487 2,925 -- 3,412
1995
Sales to customers ................................... $296,633 $ 49,658 $ -- $346,291
Intersegment sales ................................... 7,090 495 (7,585) --
-------- ------ -------- --------
Revenue .............................................. 303,723 50,153 (7,585) 346,291
Operating profit ..................................... 7,559 2,684 10,243
Identifiable assets .................................. 152,584 39,316 (34,623) 157,277
Depreciation and amortization ........................ 605 1,054 -- 1,659
Capital asset additions .............................. 402 6,012 -- 6,414
1994
Sales to customers ................................... $220,883 $ 29,870 $ -- $250,753
Intersegment sales ................................... 4,762 24 (4,786) --
-------- ------ -------- --------
Revenue .............................................. 225,645 29,894 (4,786) 250,753
Operating profit ..................................... 10,991 (773) 10,218
Identifiable assets .................................. 117,870 18,615 (13,983) 122,502
Depreciation and amortization ........................ 392 409 -- 801
Capital asset additions .............................. 636 1,147 -- 1,783
</TABLE>
Revenue and operating profit by business segment includes both sales to
customers, as reported in the Company's statements of operations, and
intersegment sales, which are transferred at cost.
F-16
<PAGE>
<TABLE>
NOTE 13 - SELECTED UNAUDITED QUARTERLY FINANCIAL DATA:
(in thousands, except per share amounts)
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995 1996 1996 1996 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales ...................... $ 72,927 $ 80,529 $ 89,213 $ 103,622 $ 115,431 $ 113,644 $ 118,018 $ 136,222
Cost of sales .............. 63,816 70,117 77,472 94,291 101,809 99,020 103,855 120,574
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit ............... 9,111 10,412 11,741 9,331 13,622 14,624 15,648
Marketing, general
and administrative
expenses ................. 6,434 6,848 7,177 9,893 9,759 10,518 9,896 10,835
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations ............... 2,677 3,564 4,564 (562) 3,863 4,106 4,267 4,813
Interest expense ........... (703) (718) (921) (1,130) (995) (909) (767) (822)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes ............. 1,974 2,846 3,643 (1,692) 2,868 3,197 3,500 3,991
Provision for income
taxes .................... 839 1,225 1,548 (844) 1,205 1,343 1,470 1,676
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) .......... $ 1,135 $ 1,621 $ 2,095 $ (848) $ 1,663 $ 1,854 $ 2,030 $ 2,315
========= ========= ========= ========= ========= ========= ========= =========
Net income (loss)
per share ................ $ 0.14 $ 0.20 $ 0.25 $ (0.10) $ 0.20 $ 0.22 $ 0.24 $ 0.27
========= ========= ========= ========= ========= ========= ========= =========
Weighted average
common shares
and equivalents .......... 8,269 8,233 8,499 8,282 8,423 8,539 8,531 8,552
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
During the fourth quarter of 1995 the Company recorded charges of
approximately $2,500,000 related to the write-down of certain DRAM inventories.
During the fourth quarter of 1995 the Company also increased its allowance for
doubtful accounts, primarily for a customer which filed for bankruptcy during
the quarter. The fourth quarter of 1995 also reflects decreases in the
applicable effective full year tax rates, partially attributable to the
recognition of certain investment tax credits for equipment purchased. During
the fourth quarter of 1996, the Company began capitalizing certain labor
overhead costs related to its manufacturing activities. The impact was an
increase to net income in the fourth quarter of 1996, of approximately $217,000.
F-17
<PAGE>
SCHEDULE II
BELL MICROPRODUCTS INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(in thousands)
Additions
Balance at Charged to
Beginning of Costs and Deductions- Balance at
Year Ended December 31, Period Expenses Write-offs End of Period
----------------------- ------ -------- ---------- -------------
1996 $ 3,300 $ 5,035 $ (4,107) $ 4,228
1995 1,550 2,427 (677) 3,300
1994 736 1,277 (463) 1,550
S-1
<PAGE>
INDEX TO EXHIBITS
Sequential
Number Description of Document Page Number
- ------ ----------------------- -----------
2.1 Agreement and Plan of Reorganization dated as of February 2,
1994 between Registrant, Bell Microproducts Acquisition
Corporation, a New York corporation and wholly-owned
subsidiary of Registrant, Vantage Components Inc., a New
Jersey corporation, Vantage Components, Inc., a New York
corporation, Vantage Components of Maryland, Inc., a Maryland
corporation and Vantage Components of MA, Inc., a
Massachusetts corporation (1)
2.2 Amendment No. 1 to Agreement and Plan of Reorganization dated
as of February 2, 1994 between Registrant, Bell Microproducts
Acquisition Corporation, a New York corporation and
wholly-owned subsidiary of Registrant, Vantage Components,
Inc., a New Jersey corporation, Vantage Components Inc., a
New York corporation, Vantage Components of Maryland, Inc., a
Maryland corporation and Vantage Components of MA, Inc., a
Massachusetts corporation (2)
3.1 Amended and Restated Articles of Incorporation of Registrant
(3)
3.2 Amended and Restated Bylaws of Registrant (4)
4.1 Specimen Common Stock Certificate of the Registrant (4)
4.2 Amended and Restated Registration Rights Agreement dated June
11, 1992 between Registrant and certain investors named
therein, as amended (1)
4.3 Warrant issued to Sutro & Co. Incorporated (2)
10.1 1988 Incentive Stock Plan, as amended through May 23, 1996
(6)
10.2 The form of Option Agreement used under the 1988 Incentive
Stock Plan (5)
10.3 Employee Stock Purchase Plan, as amended through May 23, 1996
(6)
10.4 The form of Option Agreement used under the Employee Stock
Purchase Plan (5)
10.5 1993 Director Stock Option Plan, as amended through May 24,
1995 (5)
10.6 The form of Option Agreement used under the 1993 Director
Stock Option Plan (5)
10.7 Registrant's 401(k) Plan (4)
10.8 Lease dated March 17, 1992 for Registrant's facilities at
1941 Ringwood Avenue, Suite 100, San Jose, California (4)
10.9 Lease dated April 15, 1993 for Registrant's facilities at
2350 Lundy Place, San Jose, California (1)
10.10 Amended and Restated Asset Purchase Agreement dated February
26, 1993 by and between Registrant, Barclay Financial Group
and Adlar Turnkey Manufacturing Company, as amended (4)
10.11 Form of Convertible Note issued by Registrant in favor of
Barclay Financial Group (4)
<PAGE>
Sequential
Number Description of Document Page Number
- ------ ----------------------- -----------
10.12 Amended and Restated Credit Agreement dated as of May 23,
1995 by and among the Registrant, the Banks named therein and
Sumitomo Bank of California, as Agent for the Banks, as
amended (2)
10.13 First Amendment to Second Amended and Restated Credit
Agreement dated as of June 25, 1996 by and among the
Registrant, the Banks named therein and Sumitomo Bank of
California, as Agent for the Banks(7)
10.14 Second Amendment to Second Amended and Restated Credit
Agreement dated as of September 30, 1996 by and among the
Registrant, the Banks named therein and Sumitomo Bank of
California, as Agent for the Banks(8)
10.15 Standard Distributor Agreement dated June 1, 1990 by and
between Quantum Corporation and Registrant (4)
10.16 Form of Indemnification Agreement (4)
10.17 IBM Authorized Distributor Agreement dated May 17, 1993
between IBM Corporation and Registrant (4)
10.18 Sublease dated November 12, 1996 for the Registrant's
facilities at 2020 South Tenth Street, San Jose, California,
and related exhibits.
10.19* Employment Agreement dated as of December 10, 1996 between
the Registrant and W. Donald Bell, the Registrant's Chief
Executive Officer
10.20 Form of Management Retention Agreement between the Registrant
and the following executive officers of the Registrant: W.
Donald Bell, Remo E. Canessa, William Murphy, Philip M.
Roussey and Robert J. Sturgeon.
21.1 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
24.1 Power of Attorney (contained on page 22)
- ----------------
* Confidential treatment has been requested for portions of
this document.
(1) Incorporated by reference to exhibit filed with the
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993 filed on March 31, 1994.
(2) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-1 (File No.
33-79692) in the form declared effective on November 1, 1994.
(3) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-8 (File No.
33-66580) filed on July 29, 1993.
(4) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-1 (File No.
33-60954) filed on April 14, 1993 and which became effective
on June 14, 1993.
(5) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-8 (File No.
33-83398) filed on August 29, 1994.
(6) Incorporated by reference to exhibit filed with the
Registrant's Registration Statement on Form S-8 (File No.
333-10837) filed on August 26, 1996.
(7) Incorporated by reference to exhibit filed with the
Registrant's Report on Form 10-Q for the quarter ended June
30, 1996.
(8) Incorporated by reference to exhibit filed with the
Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996.
[LOGO] CB
COMMERCIAL
SUBLEASE
CB COMMERCIAL REAL ESTATE GROUP, INC. *a wholly owned subsidiary of Journal
BROKERAGE AND MANAGEMENT Communications, Inc., as joint and
LICENSED REAL ESTATE BROKER several co-tenants.
1. PARTIES.
This Sublease, dated 11/12, 1996, is made between Journal Communications,
Inc., a Wisconsin corporation and Imperial Printing Company,*
("Sublessor"),** and Bell Microproducts, Inc., a California corporation
("Sublessee").
/ **SEE RIDER N0. 1 /
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated December 22, 1995,
wherein DiNapoli, DiNapoli and Mulcahy Trust, a California qeneral
partnership ("Lessor")*** leased to Sublessor the real property located in
the City of San Jose, County of Santa Clara, State of California, described
as 2020 South Tenth Street, San Jose, California, containing approximately
141,520+/- square feet, single-story facility and connector building
("Master Premises"). Said lease has been amended by the following amendments
A Rider with eight (8) sections, Exhibit A, Exhibit B, Exhibit C, and
Disclosure of Special Studies, said lease and amendments are herein
collectively referred to as the "Master Lease" and are attached hereto as
Exhibit "A."
/ ***SEE RIDER N0. 2 /
3. PREMISES
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): 2020 South Tenth Street, San Jose, California, containing
141,520+/- square feet, single-story facility and connector building as
shown in Exhibit B attached hereto and made a part hereof.
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has not
been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will not
be, in default or breach of any of the provisions of the Master Lease, and
that Sublessor has no knowledge of any claim by Lessor that Sublessor is in
default or breach of any of the provisions of the Master Lease.
5. TERM. / SEE RIDER NO. 5 /
6. RENT.
6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent, without
deduction, setoff, notice, or demand, at IPC Communication Services,
Inc. 2011 Senter Road, San Jose, California or at such other place as
Sublessor shall designate from time to time by notice to Sublessee.
/ SEE RIDER NO. 6.1 /
Sublessee shall pay to Sublessor upon execution of this Sublease the sum
of Seventy-Nine Thousand Five Hundred Eighty-Six and No/1OO*********
Dollars ($79,586.00********) as rent for February 1997. If the Term
begins or ends on a day other than the first or last day of a month, the
rent for the partial months shall be prorated on a per diem basis.
Additional provisions: / SEE RIDER NO. 6.2 /
6.2 Operating Costs. If the Master Lease requires Sublessor to pay to Lessor
all or a portion of the expenses of operating the building and/or
project of which the Premises are a part ("Operating Costs"), including
but not limited to taxes, utilities, or insurance, then Sublessee shall
pay to Sublessor as additional rent One Hundred percent (100%) of the
amounts payable by Sublessor for Operating Costs incurred during the
Term, Such
1
<PAGE>
additional rent shall be payable as and when Operating Costs are payable
by Sublessor to Lessor. If the Master Lease provides for the payment by
Sublessor of Operating Costs on the basis of an estimate thereof, then
as and when adjustments between estimated and actual Operating Costs are
made under the Master Lease, the obligations of Sublessor and Sublessee
hereunder shall be adjusted in a like manner; and if any such adjustment
shall occur after the expiration or earlier termination of the Term,
then the obligations of Sublessor and Sublessee under this Subsection
6.2 shall survive such expiration or termination. Sublessor shall, upon
request by Sublessee, furnish Sublessee with copies of all statements
submitted by Lessor of actual or estimated Operating Costs during the
Term.
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of Eighty Thousand and No/100*******************************************
Dollars ($80,000.00**********) as security for Sublessee's faithful
performance of Sublessee's obligations hereunder ("Security Deposit"). If
Sublessee fails to pay rent or other charges when due under this Sublease,
or fails to perform any of its other obligations hereunder, Sublessor may
use or apply all or any portion of the Security Deposit for the payment of
any rent or other amount then due hereunder and unpaid, for the payment of
any other sum for which Sublessor may become obligated by reason of
Sublessee's default or breach, or for any loss or damage sustained by
Sublessor as a result of Sublessee's default or breach. If Sublessor so uses
any portion of the Security Deposit, Sublessee shall, within ten (10) days
after written demand by Sublessor, restore the Security Deposit to the full
amount originally deposited, and Sublessee's failure to do so shall
constitute a default under this Sublease. Sublessor shall not be required to
keep the Security Deposit separate from its general accounts, and shall have
no obligation or liability for payment of interest on the Security Deposit.
In the event Sublessor assigns its interest in this Sublease, Sublessor
shall deliver to its assignee so much of the Security Deposit as is then
held by Sublessor.
/ SEE RIDER NO. 7 /
8. USE OF PREMISES.
The Premises shall be used and occupied only for office sales, research and
development, light assembly, light manufacturing and distribution of
electronic products and related legal uses, and for no other use or purpose.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part
of the Premises without the prior written consent of Sublessor (and the
consent of Lessor, if such is required under the terms of the Master Lease).
/ SEE RIDER NO. 9 /
10. OTHER PROVISIONS OF SUBLEASE.
Except as otherwise provided in RIDER NO. 10, all applicable terms and
conditions of the Master Lease are incorporated into and made a part of this
Sublease as if Sublessor were the lessor or Landlord thereunder, Sublessee
the lessee or Tenant thereunder, and the Premises the Master Premises,
except for the following:
Sections 1.03, 1.04, 1.05, 1.06, 1.08, 1.09, 1.10, 1.11, 1.12(a), 2.01,
2.02, 3.01, 3.03, 5.01. 13.02(c), 13.06; Article 14; Rider Paragraphs 1, 5,
6, 7, and 8 of the Rider to Lease Agreement.
Sublessee shall not commit or suffer any act or omission that will violate
any of the provisions of the Master Lease. Sublessor shall exercise due
diligence in attempting to cause Lessor to perform its obligations under the
Master Lease for the benefit of Sublessee. If the Master Lease terminates,
this Sublease shall terminate and the parties shall be relieved of any
further liability or obligation under this Sublease, provided however, that
if the Master Lease terminates as a result of a default or breach by
Sublessor or Sublessee under this Sublease and/or the Master Lease, then the
defaulting party shall be liable to the nondefaulting party for the damage
suffered as a result of such termination. Notwithstanding the foregoing, if
the Master Lease gives Sublessor any right to terminate the Master Lease in
the event of the partial or total damage, destruction, or condemnation of
the Master Premises or the building or project of which the Master Premises
are a part, the exercise of such right by Sublessor shall not constitute a
default or breach hereunder.
11. ATTORNEYS' FEES. / **SEE RIDER N0. 10A /
/ SEE RIDER 11 /
12. AGENCY DISCLOSURE:
Sublessor and Sublessee each warrant that they have dealt with no other real
estate broker in connection with this transaction except: CB COMMERCIAL REAL
ESTATE GROUP, INC., who represents Sublessor Journal Communications, Inc., a
Wisconsin corporation and Imperial Printing Company, a Michigan corporation
("Broker") and C0RNISH AND CAREY COMMERCIAL REAL ESTATE, who represents Bell
Microproducts, Inc., a California corporation.
In the event that CB COMMERCIAL REAL ESTATE GROUP, INC. represents both
Sublessor and Sublessee, Sublessor and Sublessee hereby confirm that they
were timely advised of the dual representation and that they consent to the
same, and that they do not expect said broker to disclose to either of them
the confidential information of the other party.
13. COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such
consent is required under the terms of the Master Lease), Sublessor shall
pay Broker a real estate brokerage commission in accordance with Sublessor's
contract with Broker for the subleasing of the Premises, if any, and
otherwise in the amount of Two Hundred Sixty-Five Thousand and No/100 ******
******************** Dollars ($265,000.00********), for services rendered in
effecting this Sublease. Broker is hereby made a third party beneficiary of
this Sublease for the purpose of enforcing its right to said commission.
/ SEE RIDER 14 /
14. NOTICES.
2
<PAGE>
15. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER THE
TERMS OF THE MASTER LEASE.**
/ **SEE RIDER NO. 15 /
16. COMPLIANCE.
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this
Agreement, including, but not limited to, the 1964 Civil Rights Act and all
amendments thereto, the Foreign Investment In Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and The
Americans With Disabilities Act.
Sublessor: JOURNAL C0MMUNICATIONS, INC. Sublessee: BELL MICROPRODUCTS, INC.
----------------------------- -------------------------
By: /s/ Douglas Hosking By: /s/ Robert J. Sturgeon
------------------------------------ --------------------------------
Title: Vice President Title: VP Operations
--------------------------------- -----------------------------
By: By: /s/ Remo E. Canessa
------------------------------------ --------------------------------
Title: Title: VP of Finance
--------------------------------- -----------------------------
Date: 11/12/96 Date: 11/19/96
---------------------------------- ------------------------------
* SEE SIGNATURE BLOCK BELOW.
LESSOR'S CONSENT TO SUBLEASE
CONSULT YOUR ADVISORS -- This document has been prepared for approval by your
attorney. No representation or recommendation is made by Broker as to the legal
sufficiency or tax consequences of this document or the transaction to which it
relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
Sublessor: IMPERIAL PRINTING COMPANY
By: /s/ Douglas Hosking
------------------------------------
Title: President
---------------------------------
Date: 11/12/96
----------------------------------
3
<PAGE>
11\11\96
RIDER TO SUBLEASE
This RIDER TO SUBLEASE ("Rider") pertains to and is hereby made a part
of the Sublease Agreement dated as of November 12, 1996, by and between JOURNAL
COMMUNICATIONS, INC., a Wisconsin corporation and IMPERIAL PRINTING COMPANY, a
Michigan corporation (collectively "Sublessor"), and BELL MICROPRODUCTS, INC.
("Sublessee"). This Rider shall be attached to the Sublease and made a part
thereof.
Rider No. 1:
"Sublessor" is defined in the Master Lease as "Tenant."
Rider No. 2:
"Lessor" is defined in the Master Lease as "Landlord."
Rider No. 5:
Term: The term of this Sublease shall commence February 1, 1997 (the
"Commencement Date") and shall expire on January 31, 2002 (the "Termination
Date") unless either of these dates are advanced, delayed, or otherwise changed
in accordance with any other specific provisions of this Sublease. Sublessee
shall have all early rights of occupancy Sublessor has under the Master Lease
subject to all conditions set forth therein. If Sublessor does not deliver
possession of the Premises to Sublessee on November 1, 1996, Sublessor shall
deliver a notice to Sublessee which sets forth the actual Termination Date which
shall be binding upon Sublessee unless Sublessee objects to the notice in
writing within five (5) days of Sublessee's receipt of the same.
Delay in Delivery of Possession: Sublessor shall not be liable to Sublessee if
Sublessor does not deliver possession of the Premises to Sublessee on the date
of this Sublease. Sublessor's non-delivery of the Premises to Sublessee on that
date shall not affect this Sublease or the obligations of Sublessee under this
Sublease, except that the Termination Date shall be extended one (1) day for
each day delivery of possession of the Premises to Sublessee is delayed past
November 1, 1996, but no longer than thirty (30) days. Provided that this
Sublease is still in full force and effect and has not been terminated,
immediately upon Sublessor's receipt of possession of the Premises, Sublessor
shall deliver possession of the Premises to Sublessee.
<PAGE>
11\11\96
Sublease Cancellation Rights: If Sublessor does not deliver possession of the
Premises to Sublessee on or prior to December 1, 1996, Sublessee may elect to
cancel this Sublease by giving written notice to Sublessor prior to the earlier
of December 5, 1996, or the date possession of the Premises is delivered to
Sublessee. If Sublessee gives such notice, (i) the Sublease shall be deemed
immediately canceled, (ii) any consideration previously paid by Sublessee to
Sublessor on account of this Sublease shall be returned to Sublessee, (iii) this
Sublease shall have no further force or effect, (iv) Sublessor shall have no
further liability to Sublessee on account of such delay or cancellation, and (v)
neither Sublessor nor Sublessee shall have further obligations to the other. If
Sublessee does not give such notice, Sublessee's right to cancel the Sublease
shall expire and the Term shall commence upon the delivery of possession of the
Premises to Sublessee.
Condition of Premises: Sublessor shall have no obligation to make any
improvement or alterations to the Premises. By taking possession of the
Premises, Sublessee will be deemed to have accepted the Premises in its
condition on the date of delivery of possession. Sublessee acknowledges that
neither Sublessor nor any agent of Sublessor has made any representation or
warranty with respect to the Premises, the parking area surrounding the
Premises, or any portions thereof, or with respect to the suitability of same,
for the conduct of Sublessee's business and Sublessee further acknowledges that
Sublessor will have no obligation to construct or complete any additional
buildings or improvements within or about the Premises.
Rider No. 6.1:
Commencing February 1, 1997 and continuing through July 1999, Sublessee shall
pay as minimum rent the sum of Seventy-Nine Thousand Five Hundred Eighty-Six and
No/100 Dollars ($79,586.00) per month in accordance with all other provisions of
Paragraph 6.1. Subject to the provisions of Rider No. 26, commencing August 1,
1999 and continuing through the Termination Date, Sublessee shall pay as minimum
rent the sum of Eighty-Two Thousand Four Hundred Sixteen and No/100 Dollars
($82,416.00) per month in accordance with all other provisions of Paragraph 6.1.
Sublessee shall have no obligation to pay minimum rent for the months of
November and December 1996 and January 1997. Sublessee's obligation to pay the
minimum rent set forth in this Paragraph 6.1 shall commence February 1, 1997,
whether or not Sublessor delivers to Sublessee possession of the Premises on
November 1, 1996. The minimum rent is payable on the twenty-fifth (25th) day of
the calendar month immediately prior to each calendar month for which minimum
rent is payable. For example, the minimum rent due for February 1997 is due and
payable on January 25, 1997.
2
<PAGE>
11\11\96
Rider No. 6.2:
Although no minimum rent shall be payable by Sublessee for the months of
November and December 1996 and January 1997, Sublessee shall be responsible,
after Sublessor has delivered possession of the Premises to Sublessee, for
payment of all other monetary obligations under this Sublease including, without
limitation, the payment of real property taxes, insurance premiums, utilities,
and all other Operating Costs payable by Sublessor to Lessor under the Master
Lease.
Rider No. 7:
The Security Deposit shall be refunded to Sublessee after Sublessee vacates the
Premises within the time period required under then California law, less any
application of the Security Deposit made pursuant to this Sublease or charges
necessary or reasonably estimated to compensate Sublessor for any loss or
damages sustained by Sublessor due to any default or breach by Sublessee of any
obligation hereunder, including, but not limited to, expenses, dues, and costs
incurred by Sublessor in securing full possession of the Premises.
Rider No. 9:
Sublessor's consent to any proposed assignment of the Sublease or sublease of
the Premises shall not be unreasonably withheld or delayed. Any consent granted
by Sublessor shall be made with the understanding that Sublessee shall not be
released from any past, present, or future obligation under this Sublease, and
shall remain liable for the prompt payment of rent and the keeping and
performance of all conditions and covenants of this Sublease by Sublessee to be
kept and performed.
Rider No. 10:
Notwithstanding any provision in this Sublease or the Master Lease to the
contrary:
A. To the extent that the Master Lease provides or requires that Lessor:
(1) Shall pay any sum (including, without limitation, any tenant
improvement allowance);
(2) Make any representation or warranty;
(3) Prepare plans and/or construct or install any tenant improvements or
alterations;
(4) Not unreasonably withhold or delay any consent; or
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(5) Provide, obtain, or maintain services, utilities, insurance,
repairs, maintenance, or any and all other landlord obligations
rendered in connection with the use, occupancy, ownership, or
operation of the Premises, the building of which the Premises is a
part, or any parking and landscape area;
Sublessor shall have no liability to Sublessee or any person or entity acting by
or through Sublessee arising from Lessor's breach or default with respect
thereto. In addition, Sublessor shall not be required to perform or satisfy any
such obligations except to make a reasonable effort to cause Lessor to perform
its obligations under the Master Lease. Notwithstanding any provision in this
Rider No. 10 to the contrary, Sublessor shall retain the obligation to (i)
refund to Sublessee any amounts Sublessor actually receives from Lessor for
excess Additional Rent in accordance with the provisions of Article 4 of the
Master Lease, (ii) not unreasonably withhold or delay its consent when Sublessee
is obligated to obtain Sublessor's consent and the Sublease does not allow
Sublessor to withhold or delay its consent in its discretion, and (iii) pay
attorneys' fees it may owe (as opposed to Lessor) under Article 12.
B. With respect to Article 4 of the Master Lease:
(1) All references to insurance premiums and deductibles for which Sublessee
is required to pay shall be deemed to be the premiums and deductibles of
Lessor and not Sublessor;
(2) Sublessor shall have no obligation to perform any of Lessor's
obligations thereunder; and
(3) Sublessee agrees that any of its obligations to Sublessor under Section
4.04 shall also be obligations to Lessor, and Sublessor shall be deemed
to have satisfied any obligations it may have as the tenant under
Section 4.04 if such obligations are satisfied by Sublessee.
C. With respect to Rider to Lease Agreement Paragraph 2 of the Master Lease (or
the provisions of any work letter agreement executed by Sublessor,
Sublessee, and Lessor ("Work Letter Agreement"):
(1) Sublessor shall have no obligation to perform any of Lessor's
obligations thereunder;
(2) Sublessee shall be entitled to utilize all or any portion of the TI
Allowance or Subtenant Improvement Allowance;
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(3) Sublessor shall consent to the initial tenant improvements approved and
constructed by Lessor in accordance with the provisions of this
Paragraph 2 of the Rider to the Master Lease and/or the provisions of
any Work Letter Agreement (the "Initial Sublease Improvements");
(4) Subject to the provisions of Rider No. 26, Sublessee shall have no
obligation to remove any of the Initial Sublease Improvements made to
the Premises; and
(5) If Sublessor incurs, or could incur, any liabilities, costs, expenses or
damages as a result of Sublessee's failure to satisfy any of Sublessee's
obligations under any Work Letter Agreement, such obligations shall be
deemed to be obligations of Sublessee under this Sublease.
D. Deleted.
E. Sublessor may not place "for sale" or "for lease" signs on the Premises or
within the parking or landscape areas around the Premises prior to the last
twelve (12) months of the Term of this Sublease.
F. With respect to Sections 5.05 and 6.02 of the Master Lease, Sublessee shall
neither release Sublessor from, nor indemnify Sublessor, with respect to:
(i) the negligence or willful misconduct of Sublessor or its respective
agents, employees, contractors, or invitees; or (ii) a breach of Sublessor's
obligations or representations under this Sublease. The provisions of the
previous sentence, however, will have no force or effect to the extent they
result in any increased liability to Sublessor arising from any claims,
actions, or proceedings made or commenced by Lessor. The provisions of this
Rider No. 10, Paragraph F shall survive the expiration or sooner termination
of the Sublease.
G. With respect to Section 6.06 of the Master Lease: upon surrendering the
Premises at the expiration or sooner termination of the Term of this
Sublease, Sublessee shall not be:
(1) Responsible for repairing casualty damage covered by Article 7 of the
Master Lease or for Hazardous Materials not introduced; discharged,
emitted, or released in, under, on, or about the Premises by Sublessee
or Sublessee's agents, employees, contractors, representatives,
invitees, successors, assignees, or subtenants, unless Lessor has the
right to, and actually does, hold Sublessor responsible for the same
under the Master Lease or California law; and
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(2) Subject to the provisions of Rider No. 26, required to remove any
improvements to the Premises existing as of the Commencement Date, or
the Initial Sublease Improvements.
The provisions of this Rider No. 10, Paragraph G shall survive the expiration or
sooner termination of the Sublease.
H. With respect to Articles 7 and 8:
(1) Sublessor shall have no obligation to perform any of Lessor's
obligations under either article;
(2) Sublessor shall retain all rights it has under the Master Lease as the
"Tenant" to terminate the same in accordance with the provisions of
either article;
(3) Sublessor and Sublessee shall deliver all notices to the other that each
receives from, or delivers to, Lessor, immediately upon receipt or the
delivery of such notices;
(4) References to "Landlord's" rights to elect to make repairs or to
terminate the Lease and to "Landlord's" receipt of insurance proceeds
and maintenance of insurance shall mean "Lessor;"
(5) Sublessor shall immediately deliver notices received from Sublessee to
Lessor which implement the matter contained in Sublessee's notices to
Sublessor pursuant to which Sublessee exercises its rights under either
article; and
(6) Any abatement of rent granted to Sublessor pursuant to either article
shall operate to abate the rent under this Sublease.
I. With respect to Article 10 of the Master Lease, Sublessee shall not be in
material default of this Sublease if it fails to make any payments of
minimum rent or additional rent, or any other payment or escrow deposit
required to be made by Sublessee under this Sublease, as and when due,
unless such failure continues for a period of five (5) days after written
notice of such failure from Sublessor to Sublessee is received (or deemed
received); provided, however, that any such notice will be in lieu of, and
not in addition to, any notice required under applicable law (including,
without limitation, the provisions of California Code of Civil Procedure
Section 1161 regarding unlawful detainer actions or any successor statute or
law of a similar nature).
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Rider No. 10A:
Sublessee agrees to fully perform the "Tenant's" obligations under the Master
Lease (excluding those arising from the provisions "excepted" in the previous
sentence of this Paragraph 10) to the extent that such obligations are
applicable to the Premises or arise, directly or indirectly, from Sublessee' use
and occupancy of the Premises.
Rider No. 11:
The provisions of Article 11 of the Sublease are intentionally omitted with the
understanding that the provisions of Article 12 of the Master Lease will be
applicable to Sublessor and Sublessee.
Rider No. 14:
A. Unless otherwise specifically provided in this Sublease, a bill,
demand, statement, consent, notice, or communication which Sublessor may desire
or be required to give to Sublessee shall be deemed sufficiently given or
rendered only if it is in writing, delivered personally to Sublessee, or sent by
certified mail (return receipt requested) or private overnight courier (e.g.,
Federal Express or similar courier) (postage fully prepaid) addressed to
Sublessee at:
Prior to the Commencement Date: After the Commencement Date:
Bell Microproducts Bell Microproducts
1941 Ringwood Avenue 2020 South Tenth Street
San Jose, CA 95131 San Jose, CA 95112
Attention: Bob Sturgeon Attention: Bob Sturgeon
or at such other address as Sublessee shall designate by notice given as herein
provided.
B. Unless otherwise specifically provided in this Sublease, a bill,
demand, statement, consent, notice, or communication which Sublessee may desire
or be required to give to Sublessor shall be deemed sufficiently given or
rendered only if it is in writing, delivered personally to Sublessor, or sent by
certified mail (return receipt requested) or private overnight courier (e.g.,
Federal Express or similar courier) (postage fully prepaid) addressed to
Sublessor at:
Imperial Printing Company
2011 Senter Road
San Jose, CA 95112
Attention: Doug Hosking, President
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or at such other address as Sublessor shall designate by notice given as herein
provided.
C. The time of the receipt of such bills or statements and of the giving
of such consents, notices, demands, requests, or communications (collectively
"notice") by Sublessee or Sublessor shall be deemed to be the earlier of (i) the
date delivered if personally delivered, (ii) if the notice is sent by certified
mail, the date the U.S. Post Office certifies delivery or refusal to accept
delivery, or if the U.S. Post Office fails to provide such certification, then
five (5) days after the same is mailed, or (iii) if the notice is sent by
private overnight courier prior to the time deadline for next day delivery, one
(1) day after the same is picked up by or delivered to such courier. Rejection
or refusal to accept a notice, request, demand, or the inability to deliver same
because of a changed address of which no notice was given shall be deemed to be
a receipt of the notice, request, or demand sent. The absence or
non-availability of Bob Sturgeon or Doug Hosking, as the case may be, for any
reason whatsoever shall not extend the time of delivery of any notice sent by
certified mail or private overnight courier which otherwise complies with this
Sublease.
Rider No. 15:
In the event Lessor does not consent to this Sublease within such time period
and this Sublease is deemed to have no force or effect, then Sublessor shall
promptly refund to Sublessee any security deposit and prepaid rent paid
hereunder by Sublessee.
Rider No. 17:
SUBLESSEE PARKING.
Sublessee shall have the exclusive right to use the parking spaces in the area
designated for Sublessee's use in Exhibit B-1 attached hereto. Sublessor shall
not be required to tow parked cars, provide sanctions against improper parking,
or otherwise take steps to free occupied parking spaces for Sublessee's use.
Sublessor shall retain the exclusive right to use the parking spaces in the area
designated for Sublessor's use in Exhibit B-1.
Rider No. 18:
SUBLESSOR'S OBLIGATIONS.
Sublessor shall fully perform all of its obligations as the "Tenant" under the
Master Lease to the extent (i) Sublessee has not agreed to perform such
obligations under this Sublease, and (ii) Sublessor is not otherwise relieved of
such obligations pursuant to the provisions of this Sublease. Until the term of
this Sublease expires or
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is sooner terminated, Sublessor shall not amend or waive any provision under the
Master Lease in a manner which would materially adversely affect Sublessee's
rights and obligations under this Sublease without Sublessee's prior written
consent, which consent shall not be unreasonably withheld or delayed. Sublessor,
with respect to the obligations of Lessor under the Master Lease, shall use
Sublessor's diligent good faith efforts to cause Lessor to perform such
obligations for the benefit of Sublessee. Such diligent good faith efforts
shall include, without limitation: (a) upon Sublessee's written request,
immediately notifying Lessor of its nonperformance under the Master Lease, and
requesting that Lessor perform its obligations under the Master Lease; and (b)
permitting Sublessee to commence a lawsuit or other action in Sublessor's name
to obtain the performance required from Lessor under the Master Lease; provided,
however, that (i) Sublessee does not allege a constructive eviction in such
lawsuit, (ii) such lawsuit cannot result in the termination of the Master Lease,
and (iii) if Sublessee commences a lawsuit or other action, Sublessee shall pay
all costs and expenses incurred in connection therewith, and Sublessee shall
indemnify Sublessor against, and hold Sublessor harmless from, all reasonable
costs and expenses incurred by Sublessor in connection therewith. Sublessor
shall not:
(i) Exercise any right to terminate the Master Lease pursuant to Section
2.02 thereof; or
(ii) Enter into any agreement to terminate the Master Lease where the
effective date of such termination is prior to the expiration or
sooner termination of the term of this Sublease,
without Sublessee's prior written consent, which consent shall not be
unreasonably withheld or delayed.
Rider No. 19:
SUBLESSOR'S REPRESENTATIONS AND WARRANTIES.
As an inducement to Sublessee to enter into this Sublease, to the best of
Sublessor's actual knowledge, Sublessor represents and warrants that (i) the
Master Lease is in full force and effect, and (ii) there exists under the Master
Lease no default or event of default by either Lessor or Sublessor, nor has
there occurred any event which, with the giving of notice or passage of time or
both, could constitute such a default or event of default. Sublessor further
represents and warrants that the copy of the Master Lease attached to this
Sublease as Exhibit A is a true and complete copy of the Master Lease and that
there are no addenda, amendments, exhibits, or modifications to the Master Lease
except those which are attached hereto as part of the Master Lease.
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Rider No. 20:
AUTHORIZATION TO DIRECT SUBLEASE PAYMENTS.
Sublessor hereby acknowledges that Sublessor's failure to pay the rent and other
sums owing by Sublessor to Lessor under the Master Lease will cause Sublessee to
incur damages, costs, and expenses, especially in those cases where Sublessee
has paid sums to Sublessor hereunder which correspond in whole or in part to the
amounts owing by Sublessor to Lessor under the Master Lease. Accordingly,
Sublessee shall have the right to pay directly to Lessor the rent and additional
rent owed by Sublessor to Lessor under the Master Lease (including, without
limitation, Lessor's Share of the Profits, as defined in the Master Lease) on
the following terms and conditions:
A. Sublessee reasonably believes that Sublessor has failed to make any
payment required to be made by Sublessor to Lessor under the Master Lease and
Sublessor fails to provide adequate proof of payment within two (2) business
days after Sublessee's written demand requesting such proof.
B. Sublessee shall not prepay any amounts owing by Sublessor without the
prior written consent of Sublessor.
C. Sublessee Shall provide to Sublessor concurrently with any payment to
Lessor reasonable evidence of such payment.
D. Sublessee shall pay directly to Sublessor the difference between the sum
of all rent, additional rent, and any other sums payable by Sublessee to
Sublessor under the Sublease, and the amount Sublessee is allowed to, and does
in fact, pay directly to Lessor in accordance with the provisions of this Rider
No. 20.
E. If Sublessor notifies Sublessee that it disputes any amount demanded by
Lessor, Sublessee shall not make any such payment to Lessor unless Lessor has
provided a three (3) day notice to pay such amount or forfeit the Master Lease.
Notwithstanding any provision in this Sublease to the contrary, Sublessor's
notice under this Paragraph D shall be made by telephone to Sublessee followed
by written notice sent in a manner which would be deemed received the following
day under the notice provisions of this Sublease.
Any sums paid directly by Sublessee to Lessor in accordance with this paragraph
shall be credited toward the amounts payable by Sublessee to Sublessor under the
Sublease. In the event Sublessee tenders payment directly to Lessor in
accordance with this paragraph and Lessor refuses to accept such payment,
Sublessee shall have the right to deposit such funds in an account with a
national bank for the benefit of
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Sublessee and Sublessor, and the deposit of said funds in such account shall
discharge Sublessee's obligation under the Sublease to make the payment in
question.
Rider No. 21:
HAZARDOUS MATERIALS.
In addition to all other provisions in the Sublease and Master Lease which
pertain to Hazardous Materials (as defined in the Master Lease), Sublessor and
Sublessee agree to the following additional provisions:
A. Sublessee agrees to complete and sign the Hazardous Materials Disclosure
Certificate in the form attached hereto as Exhibit C concurrently with its full
execution of this Sublease with the understanding that Sublessor will deliver a
copy of the same to Lessor.
B. Sublessor makes no representations or warranties with respect to the
presence or absence of any Hazardous Materials in, on, or about the Premises.
C. Sublessee acknowledges that the preparation and completion of a Hazardous
Materials report or study is not a condition of this Sublease. Sublessor shall
ask Lessor for a copy of any report or study relating to the absence or presence
of Hazardous Materials in, on, or about the Premises which Lessor has in its
possession or anticipates to receive. Sublessor shall deliver to Sublessee a
copy of any such report or study it receives from Lessor.
Rider No. 22.
SUBORDINATION.
Sublessor shall ask Lessor to assist it in efforts to obtain from any lenders or
ground lessors of the Premises or the building in which the Premises are located
a written agreement providing for the non-disturbance and recognition of both
Sublessor's and Sublessee's interests under the Master Lease and Sublease in
the event of a foreclosure of the lender's security interest or termination of
the ground lease.
Rider No. 23:
FIRST RIGHT TO NEGOTIATE.
Subject to and subordinate to (i) the right of Sublessor or Sublessor's
successors and assigns, to use, possess, and/or occupy all or any portion of the
Premises pursuant to the Master Lease, and (ii) Sublessor's and/or Sublessor's
successors and assigns' right
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to sublease the Premises or assign the Master Lease to any of their subsidiary
companies, parent company, or any other entity related or affiliated with
Sublessor or Sublessor's successors or assigns (collectively the "Superior
Entities") Sublessor hereby grants Sublessee a one-time right of first
opportunity to negotiate (the "First Right to Negotiate") an agreement to extend
the Term of this Sublease. Sublessee's First Right to Negotiate shall be a
one-time right only, except that one or more good faith unsolicited inquiries
from Sublessee shall not operate so as to terminate Sublessee's right of first
opportunity hereunder.
A. When and if Sublessor determines that it desires to sublease the Premises
or assign the Master Lease to a person or entity other than the Superior
Entities for the period immediately following the expiration of the Sublease
term, Sublessor shall so inform Sublessee by written notice ("Notice to
Sublease"). Within ten (10) days after the Notice to Sublease, Sublessee shall
inform Sublessor by written notice ("Sublessee's Notice") either: (i) that
Sublessee does not desire an extension of the Term of the Sublease or an
assignment of the Master Lease, in which event Sublessor shall have the right to
negotiate a sublease of the Premises or an assignment of the Master Lease to any
person or entity without further obligation to Sublessee with respect to the
First Right to Negotiate granted pursuant to this Rider No. 23; or (ii) that
Sublessee desires an extension of the Term of the Sublease or an assignment of
the Master Lease. Sublessee's failure to deliver to Sublessor Sublessee's Notice
within such ten (10) day time period shall constitute Sublessee's rejection of
the opportunity to enter into negotiation to extend the Term of the Sublease or
to take an assignment of the Master Lease.
B. In the event Sublessee informs Sublessor of Sublessee's desire for an
extension of the Term of the Sublease or an assignment of the Master Lease, then
Sublessor and Sublessee shall negotiate in good faith a written agreement. In
the event Sublessor and Sublessee do not execute a final written agreement which
fully sets forth the terms and conditions of an extension of the Term of this
Sublease or an assignment of the Master Lease within thirty (30) days of the
Notice to Sublease, then Sublessor shall have the right to negotiate and enter
into a sublease of the Premises or an assignment of the Master Lease with any
person or entity at any time thereafter under any terms, covenants, and
conditions, whether or not they conform to those offered to Sublessee, without
further obligation to Sublessee with respect to the First Right to Negotiate
granted pursuant to this Rider No. 23.
C. Sublessee's First Right to Negotiate an agreement for an extension of the
Term of the Sublease or an assignment of the Master Lease granted under this
Sublease (i) is personal to Bell Microproducts, Inc., the Sublessee named in
this Sublease or to a "Tenant's Affiliate" (as defined in Section 9.02 of the
Master Lease), and no assignee or sublessee of Sublessee shall have any such
right, and (ii) shall automatically terminate if:
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(1) At or after the date Sublessor gives the Notice to Sublease and
before the consummation of any written agreement contemplated in
this Rider No. 23, Sublessee is in material default under this
Sublease;
(2) Sublessee has entered into one or more sub-subleases covering more
than twenty percent (20%) of the net rentable square footage of the
Premises and such sub-subleases have not terminated on or prior to
Sublessee's Notice or will not terminate prior to the Original
Termination Date, or an assignment of the Sublease; or
(3) This Sublease is terminated or has expired.
Rider No. 24:
LIMITATION OF LIABILITY.
A. In consideration of the benefits accruing hereunder, Sublessee on
behalf of itself and all successors and assigns of Sublessee, covenants and
agrees that in the event of any actual or alleged failure, breach, or default
hereunder by Sublessor: (a) Sublessee's recourse against Sublessor for monetary
damages will be limited to the amount equal to Lessor's equity interest in the
Property (as defined in the Master Lease); (b) except as may be necessary to
secure jurisdiction of the corporation or partnership, no partner, director,
officer, legal counsel, agent, or shareholder of Sublessor shall be sued or
named as a party in any suit or action and no service of process shall be made
against any such person or entity; (c) no partner, director, officer, legal
counsel, agent, or shareholder of Sublessor shall be required to answer or
otherwise plead to any service of process; (d) no judgment will be taken against
any partner, director, officer, legal counsel, agent, or shareholder of
Sublessor and any judgment taken against any such person or entity may be
vacated and set aside at any time after the fact; (e) no writ of execution will
be levied against the assets of any partner, director, officer, legal counsel,
agent, or shareholder of Sublessor; (f) the obligations under this Sublease do
not constitute personal obligations of the individual partners, directors,
officers, legal counsel, agents, or shareholders of Sublessor, and Sublessee
shall not seek recourse against the individual partners, directors, officers,
legal counsel, agents, or shareholders of Sublessor or any of their personal
assets for satisfaction of any liability in respect to this Sublease; and (g)
these covenants and agreements are enforceable both by Sublessor and also by any
partner, director, officer, legal counsel, agent, or shareholder of Sublessor.
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B. Notwithstanding anything to the contrary contained in this Sublease,
Sublessor shall not be liable for consequential damages arising out of any loss
of the use and enjoyment of the Premises or any equipment or facilities therein
by Sublessee or any other person or entity.
Rider No. 25:
CONSTRUCTION WARRANTIES.
For the term of this Sublease, Sublessor shall cooperate with Sublease to
enforce any warranties arising from the construction of any tenant improvements
in the Premises, but shall have no obligation to incur any out of pocket costs
or expense in rendering such cooperation.
Rider No. 26:
RESTORATION OF PREMISES AND REDUCTION OF MINIMUM RENT.
Sublessor, at its sole election, may require Sublessee to remove all or any
portion of the Initial Sublease Improvements, and/or the heating, ventilation,
and air conditioning system that services any portion of the manufacturing area
within the Premises (the "HVAC System"), and to repair any damage to the
Premises caused by such removal prior to the expiration or termination of the
Sublease (collectively the "Removal Work"). Sublessor shall notify Sublessee of
Sublessor's election to exercise its rights under this Rider No. 26 any time
prior to the date which is thirty (30) days prior to the expiration date of this
Sublease ("Sublessor's Removal Work Notice"). In the event Sublessor exercises
its rights under this Rider No. 26:
A. Sublessor and Sublessee shall cooperate with each other in obtaining
bids from one or more contractors to perform the Removal Work, provided that
Sublessor shall have the right to determine the exact scope of the Removal Work,
and to select the contractor to perform the Removal Work in its sole discretion;
B. The minimum monthly rent payable by Sublessee under this Sublease
shall be reduced by an amount equal to the cost of the Removal Work;
C. The phrase "cost of the Removal Work" shall include all out-of-pocket
payments made or payable to any third party person or entity in connection with,
relating to, or arising from the performance of the Removal Work;
D. If the cost of the Removal Work is less than Twenty Eight Thousand
Six Hundred Thirty-Eight Dollars and Forty Cents ($28,638.40), the reduction in
monthly minimum rent shall be made to the last minimum rent payment covering at
least a thirty (30) day period;
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E. If the cost of the Removal Work is more than Twenty Eight Thousand Six
Hundred Thirty-Eight Dollars and Forty Cents ($28,638.40), the reduction in
monthly minimum rent shall be spread over the last payments of minimum rent
payable by Sublessee in any manner reasonably determined by Sublessor so that
the minimum rent payable by Sublessee under this Sublease shall not be less than
Fifty-Three Thousand Seven Hundred Seventy-Seven Dollars and Sixty Cents
($53,777.60) for any month;
F. In the event the actual Cost of the Removal Work is greater than the
reduction in minimum rent granted to Sublessee (the "Excess Removal Work Cost"),
and Sublessee has satisfied all rent and additional rent obligations under this
Sublease, Sublessor shall promptly refund to Sublessee from such prior minimum
rent payments a sum equal to the Excess Removal Work Cost; and
G. Notwithstanding any provision to the contrary, Sublessee shall not be
required to expend any amounts under this Rider No. 26 greater than the amount
the minimum rent is reduced and/or refunded;
H. Sublessor shall have the right to require Sublessee to deposit the
amount of savings in minimum rent realized by Sublessee or refunded pursuant to
this Rider No. 26 (concurrently with its rent payments to Sublessor or its
receipt of any refund) into an escrow or reserve account to insure the payment
of the Removal Work. Any amount not utilized for the payment of the cost of the
Removal Work shall be disbursed to Sublessor as rent. Any minimum rent refunded
shall be treated as a reduction of minimum rent in accordance with the
provisions of subparagraph D and E above;
Notwithstanding the foregoing to the contrary, if Sublessee is not in material
default under this Sublease when Sublessor's Removal Work Notice is received (or
deemed received), (i) Sublessor (and not Sublessee) shall be responsible for the
Removal Work, (ii) the Removal Work shall not be commenced until after the
expiration or earlier termination date of the term of this Sublease, (iii)
Sublessor (and not Sublessee) shall enter into a contract with the contractor of
Sublessor's choice to have the Removal Work performed, (iv) Sublessor shall
determine the date (after such expiration or earlier termination date) the
Removal Work shall commence, and (v) all other provisions of this Rider No. 26
shall be applicable. Sublessor shall have the right to retract its election set
forth in the Sublessor's Removal Work Notice (i) at any time and for any reason
whatsoever without Sublessee's consent or approval if Sublessee has not entered
into a contract to have the Removal Work performed, or (ii) with Sublessee's
consent (which shall not be unreasonably withheld or delayed) if Sublessee has
entered into such a contract.
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Rider No. 27:
All references to this "Sublease" herein shall be deemed to refer to the
Sublease, any exhibits, addenda, or riders thereto, and any and all of the
provisions of the Master Lease incorporated herein.
The foregoing Rider provisions are accepted and agreed to by the undersigned:
SUBLESSOR: JOURNAL COMMUNICATIONS, INC.,
a Wisconsin corporation
By: /s/ Douglas Hosking
---------------------------------
Title: Vice President
---------------------------------
Date: 11/20/96
---------------------------------
IMPERIAL PRINTING COMPANY,
a Michigan Corporation
By: /s/ Douglas Hosking
---------------------------------
Title: President
---------------------------------
Date: 11/20/96
---------------------------------
SUBLESSEE: BELL MICROPRODUCTS, INC.,
a California corporation
By: /s/ Robert Sturgeon
---------------------------------
Title: Vice President of Operations
---------------------------------
Date: 11/19/96
---------------------------------
By: /s/ Remo E. Canessa
---------------------------------
Title: Vice President of Finance
---------------------------------
Date: 11/19/96
---------------------------------
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[logo] CB INDUSTRIAL REAL ESTATE LEASE
COMMERCIAL (Single Tenant Facility)
CD COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
EXHIBIT A
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article One explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.01. Date of Lease: December 22, 1995
Section 1.02. Landlord (include legal entity): DiNapoli, DiNapoli and Mulcahy
Trust, a California general partnership Address of Landlord: 99 Almaden
Boulevard, Suite 565, San Jose, CA 95113
Section 1.03. Tenant (include legal entity): Journal Communications, Inc., a
Wisconsin Corporation and Imperial Printing Co., a Michigan Corporation, a
wholly owned subsidiary of Journal Communication, Inc., as joint and several
co-tenants.
Address of Tenant: 333 West State Street
Milwaukee, Wisconsin 53201-0661
Section 1.04. Property: (include street address, approximate square footage
and description)
2020 South Tenth Street, San Jose, California, approximately 141,520 +/-
square foot, single-story facility and connector building
Section 1.05. Lease Term: 9 years 1 months beginning on February 1, 1997 or
such other date as is specified in this Lease, and ending on February 28, 2006
Section 1.06. Permitted Uses: (See Article Five) office, sales, research and
development, light assembly and distribution of software products, and related
legal uses.
Section 1.07. Tenant's Guarantor: (If none, so state) none
Section 1.08. brokers: (See Article Fourteen) (If none, so state)
Landlord's Broker: Cornish & Carey Commercial
Tenant's Broker: CB Commercial
Section 1.09. Commission Payable to Landlord's Broker: (See Article Fourteen)
$ per 1/11/95 Exclusive Leasing Listing Agreement
Section 1.10. Initial Security Deposit: (See Section 3.03) $35,000.00
Section 1.11 Vehicle Parking Spaces Allocated to Tenant: approximately 400
spaces
Section 1.12. Rent and Other Charges Payable by Tenant:
(a) BASE RENT: see Rider to Lease Dollars ($____) per month, for the first
____ months, as provided in Section 3.01, and shall be increased on the first
day of the ________ month(s) after the Commencement Date, either (I) as provided
in Section 3.02, or (II) __________________________. (If (II) is completed, then
(I) and Section 3.02 are inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section 4.02); (ii)
Utilities (See Section 4.03); (iii) Insurance Premiums (See Section 4.04); (iv)
Impounds for Insurance Premiums and Property Taxes (See Section 4.07); (v)
Maintenance, Repairs and Alterations (See Article Six).
Section 1.13. Landlord's Share of Profit on Assignment or Sublease: (See
Section 9.05) fifty percent (50%) of the Profit (the "Landlord's Share")
provided Landlord shall have no share or profit on any assignment or Sublease
during the time period from the Commencement Date through October 31, 1998, so
long as IBM is the sublessee/assignee.
Section 1.14. Riders: The following Riders are attached to and made a part of
this Lease: (If none, so state) Rider containing eight (8) sections is attached
hereto
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ARTICLE TWO: LEASE TERM
Section 2.01 Lease of Property For Lease Term. Landlord leases the Property
to Tenant and Tenant leases the Property from Landlord for the Lease Term. The
Lease Term is for the period stated in Section 1.05 above and shall begin and
end on the dates specified in Section 1.05 above, unless the beginning or end of
the Lease Term is changed under any provisions of this Lease. The "Commencement
Date" shall be the date specified in Section 1.05 above for the beginning of the
Lease Term, unless advanced or delayed under any provision of this Lease.
Section 2.02. Delay in Commencement. Landlord shall not be liable to Tenant
if Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-delivery of the Property to Tenant on that
date shall not affect this Lease or the obligations of Tenant under this Lease
except that the Commencement Date shall be delayed until Landlord delivers
possession of the Property to Tenant and the Lease Term shall be extended for a
period equal to the delay. In delivery of possession of the Property to Tenant,
plus the number of days necessary to end the Lease Term on the last day of a
month. If Landlord does not deliver possession of the Property to Tenant within
sixty (60) days after the Commencement Date, Tenant may elect to cancel this
Lease by giving written notice to Landlord within ten (10) days after the sixty
(60)-day period ends. If Tenant gives such notice, the Lease shall be cancelled
and neither Landlord nor Tenant shall have any further obligations to the other.
If Tenant does not give such notice, Tenant's right to cancel the Lease shall
expire and the Lease Term shall commence upon the delivery of possession of the
Property to Tenant. If delivery of possession of the Property to Tenant is
delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to
this Lease selling forth the actual Commencement Date and expiration date of the
Lease. Failure to execute such amendment shall not affect the actual
Commencement Date and expiration date of the Lease.
Section 2.03. Early Occupancy. If Tenant occupies the Property prior to the
Commencement Date, Tenant's occupancy of the Property shall be subject to all of
the provisions of this Lease except Base Rent. Early occupancy of the Property
shall not advance the expiration date of this Lease. Tenant shall pay all other
charges except Base Rent specified in this Lease for the early occupancy period.
Section 2.04. Holding Over. Tenant shall vacate the Properly upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and Indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Property. If Tenant does not vacate the Property
upon the expiration or earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Property shall be a
"month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. Time and Manner of Payment. Upon execution of this Lease.
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
Section 3.03. Security Deposit; Increases.
(a) Upon the execution of this Lease, Tenant shall deposit with Landlord a
cash Security Deposit in the amount set forth in Section 1.10 above. Landlord
may apply all or part of the Security Deposit to any unpaid rent or other
charges due from Tenant or to cure any other defaults of Tenant. If Landlord
uses any part of the Security Deposit, Tenant shall restore the Security Deposit
to its full amount within ten (10) days after Landlord's written request.
Tenant's failure to do so shall be a material default under this Lease. No
interest shall be paid on the Security Deposit. Landlord shall not be required
to keep the Security Deposit separate from its other accounts and no trust
relationship is created with respect to the Security Deposit.
(b) Each Time the Base Rent is increased, Tenant shall deposit additional
funds with Landlord sufficient to increase the Security Deposit to an amount
which bears the same relationship to the adjusted Base Rent as the Initial
Security Deposit bore to the Initial Base Rent.
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Section 3.04. Termination; Advance Payments. Upon termination of this Lease
under Article Seven (Damages or destruction), Article Eight (Condemnation or any
other termination not resulting from Tenant's default, and after Tenant has
indicated the Property in the manner required by this Lease, Landlord shall
refund or credit to Tenant (or Tenant's successor) the unused portion of the
Security Deposit, any advance rent or other advance payments made by Tenant to
Landlord, and any amounts paid for real property taxes and other reserves which
apply to any time periods after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. Additional Rent. All charges payable by Tenant other than Base
Rent are called "Additional Rent." Unless this Lease provides otherwise, Tenant
shall pay all Additional Rent then due with the next monthly installment of Base
Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. Property Taxes.
(a) Real Property Taxes. Tenant shall pay all real property taxes on the
Property (including any fees, taxes or assessments against, or as a result of,
any tenant improvements installed on the Property by or for the benefit of
Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and Section 4.07
below, such payment shall be made at least ten (10) days prior to the
delinquency date of the taxes. Within such ten (10)-day period, Tenant shall
furnish Landlord with satisfactory evidence that the real property taxes have
been paid. Landlord shall reimburse Tenant for any real property taxes paid by
Tenant covering any period of time prior to or after the Lease Term. If Tenant
fails to pay the real property taxes when due, Landlord may pay the taxes and
Tenant shall reimburse Landlord for the amount of such tax payment as Additional
Rent.
(b) Definition of "Real Property Tax." "Real property tax" means: (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalks,
road maintenance, refuse or other services provided to the Property by any
governmental agency; (iv) any tax imposed upon this transaction or based upon a
re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) Joint Assessment. If the Property is not separately assessed, Landlord
shall reasonably determine Tenant's share of the real property tax payable by
Tenant under Paragraph 4.02(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord within
fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the Property.
(ii) If any of Tenant's personal property is taxed with the Property,
Tenant shall pay Landlord the taxes for the personal property within fifteen
(15) days after Tenant receives a written statement from Landlord for such
personal property taxes.
(e) Tenant's Right to Contest Taxes. Tenant may attempt to have the assessed
valuation of the Property reduced or may initiate proceedings to contest the
real property taxes. If required by law, Landlord shall join in the proceedings
brought by Tenant. However, Tenant shall pay all costs of the proceedings,
including any costs or fees incurred by Landlord. Upon the final determination
of any proceeding or contest, Tenant shall immediately pay the real property
taxes due, together with all costs, charges, interest and penalties incidental
to the proceedings. If Tenant does not pay the real property taxes when due and
contests such taxes, Tenant shall not be in default under this Lease for
nonpayment of such taxes if Tenant deposits funds with Landlord or opens an
interest-bearing account reasonably acceptable to Landlord in the joint names of
Landlord and Tenant. The amount of such deposit shall be sufficient to pay the
real property taxes plus a reasonable estimate of the interest, costs, charges
and penalties which may accrue if Tenant's action is unsuccessful, loss any
applicable tax impounds previously paid by Tenant to Landlord. The deposit shall
be applied to the real property taxes due, as determined at such proceedings.
The real property taxes shall be paid under protest from such deposit if such
payment under protest is necessary to prevent the Property form being sold under
a "tax sale" or similar enforcement proceeding.
Section 4.03. Utilities. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
Section 4.04. Insurance Policies
(a) Liability Insurance. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use of occupancy of the Property. Tenant
shall name Landlord and Landlord's Lender as an additional insured under such
policy. The initial amount of such insurance shall be Three Million Dollars
($3,000,000) per occurrence and shall be subject to periodic increase based upon
initiation, increased liability awards, recommendation of Landlord's
professional insurance advisers and other relevant factors. The liability
insurance obtained by Tenant under this Paragraph 4.04(a) shall (i) be primary
and non-contributing; (ii) contain cross-liability endorsements; and (iii)
insure Landlord against Tenant's performance under Section 5.05, if the matters
giving rise to the indemnity under Section 5.05 result from the negligence of
Tenant. The amount and coverage of such insurance shall not limit Tenant's
liability nor relieve Tenant of any other obligation under this Lease. Landlord
may also obtain comprehensive public liability insurance in an amount and with
coverage determined by Landlord insuring Landlord against liability arising out
of ownership, operation, use of occupancy of the Property. The policy obtained
by Landlord shall not be contributory and shall not provide primary insurance.
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(b) Property and rental Income Insurance. During the Lease Term, Landlord
shall maintain policies of insurance covering loss of or damage to the Property
in the full amount of its replacement value. Such policy shall contain an
inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risks), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant
on the Property. During the Lease Term, Landlord shall also maintain a rental
income insurance policy, with loss payable to Landlord, and Landlord's lender in
an amount equal to one year's Base Rent, plus estimated real property taxes and
insurance premiums. Tenant shall be liable for the payment of any deductible
amount under Landlord's or Tenant's insurance policies maintained pursuant to
this Section 4.04, in an amount not to exceed Twenty-Five Thousand Dollars
($25,000). Tenant shall not do or permit anything to be done which invalidates
any such insurance policies.
(c) Payment of Premiums. Subject to Section 4.07, Tenant shall pay all
premiums for the insurance policies described in Paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant) within fifteen (15) days after Tenant's
receipt of a copy of the premium statement or other evidence of the amount due,
except Landlord shall pay all premiums for non-primary comprehensive public
liability insurance which Landlord elects to obtain as provided in Paragraph
4.04(a). If insurance policies maintained by Landlord cover improvements on real
property other than the Property, Landlord shall deliver to Tenant a statement
of the premium applicable to the Property showing in reasonable detail how
Tenant's share of the premium was computed. If the Lease Term expires before the
expiration of an insurance policy maintained by Landlord, Tenant shall be liable
for Tenant's prorated share of the insurance premiums. Before the Commencement
Date, Tenant shall deliver to Landlord a copy of any policy of insurance which
Tenant is required to maintain under Section 4.04. At least thirty (30) days
prior to the expiration of any such policy, Tenant shall deliver to Landlord a
renewal of such policy. As an alternative to providing a policy of Insurance,
Tenant shall have the right to provide Landlord a certificate of insurance,
executed by an authorized officer of the insurance company, showing that the
insurance which Tenant is required to maintain under this Section 4.04 is in
full force and effect and containing such other information which Landlord
reasonably requires.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under this Lease
shall include a provision which requires the insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or renewal to
Landlord required under this Lease within the prescribed time period or if
any such policy is cancelled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case Tenant
shall reimburse Landlord for the cost of such insurance within fifteen (15)
days after receipt of a statement that indicates the cost of such insurance.
(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-12 or better, as set
forth in the most current issue of "Best Key Rating Guide". Landlord and
Tenant acknowledge the insurance markets are rapidly changing and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described in
this Section 4.04 is for the primary benefit of Landlord. If any time during
the Lease Term, Tenant is unable to maintain the insurance required under the
Lease, Tenant shall nevertheless maintain insurance coverage which is
customary and commercially reasonable in the insurance industry for Tenant's
type of business, as that coverage may change from time to time. Landlord
makes no representation as to the adequacy of such insurance to protect
Landlord's or Tenant's interests. Therefore, Tenant shall obtain any such
additional property or liability insurance which Tenant deems necessary to
protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at the
time of such loss or damage. Upon obtaining the required policies of
insurance, Landlord and Tenant shall give notice to the insurance carriers of
this mutual waiver of subrogation.
Section 4.05. Late Charges. Tenant's failure to pay rent promptly may cause
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within ten
(10) days after it becomes due, Tenant shall pay Landlord a late charge equal to
ten percent (10%) of the overdue amount. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment.
Section 4.06. Interest on Past Due Obligations. Any amount owed by Tenant to
Landlord which is not paid when due shall bear interest at the rate of fifteen
percent (15%) per annum from the due date of such amount. However, interest
shall not be payable on late charges to be paid by Tenant under this Lease. The
payment of interest on such amounts shall not excuse or cure any default by
Tenant under this Lease. If the interest rate specified in this Lease is higher
than the rate permitted by law, the interest rate is hereby decreased to the
maximum legal interest rate permitted by law.
Section 4.07. Impounds for Insurance Premiums and Real Property Taxes. If
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12)-month period,
Tenant shall pay Landlord a sum equal to one-twelth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant under this Lease,
together with each payment of Base Rent. Landlord shall hold such payments in a
non-interest bearing impound account. If unknown, Landlord shall reasonably
estimate the amount of real property taxes and insurance premiums when due.
Tenant shall pay any deficiency of funds in the impound account to Landlord upon
written request. If Tenant defaults under this Lease, Landlord may apply any
funds in the impound account to any obligation then due under this Lease.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. Permitted Uses. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
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Section 5.02. Manner of Use. Tenant shall not cause or permit the Property to
be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
See Rider
Section 5.04. Signs and Auctions. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.05. Indemnity. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or permitted by Tenant to be done in or about the Property; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with any
such claim. As a material part of the consideration to Landlord, Tenant assumes
all risk of damage to property or injury to persons in or about the Property
arising from any cause, and Tenant hereby waives all claims in respect thereof
against Landlord, except for any claim arising out of Landlord's gross
negligence or willful misconduct. As used in this Section, the term "Tenant"
shall include Tenant's employees, agents, contractors and invitees, if
applicable.
Section 5.06. Landlord's Access. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall give
Tenant prior notice of such entry, except in the case of an emergency. Landlord
may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.07. Quiet Possession. If Tenant pays the rent and complies with all
other terms of this Lease, Tenant may occupy and enjoy the Property for the full
Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. Existing Conditions. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto.
Section 6.02. Exemption of Landlord from Liability. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about the
Property or upon other portions of the Project, or from other sources or places;
or (d) any act or omission of any other tenant of the Project. Landlord shall
not be liable for any such damage or injury even though the cause of or the
means of repairing such damage or injury are not accessible to Tenant. The
provisions of this Section 6.02 shall not, however, exempt Landlord from
liability for Landlord's gross negligence or willful misconduct.
Section 6.03. Landlord's Obligations. Subject to the provisions of Article
Seven (Damage or Destruction) and Article Eight (Condemnation), Landlord shall
have absolutely no responsibility to repair, maintain or replace any portion of
the Property at any time, except Landlord shall be responsible to maintain and
repair the structural portions of the building and the roof. Additionally,
Landlord shall maintain and repair the roof membrane until a new ten (10) year
or better roof membrane is installed at Landlord's sole cost, after which time,
the maintenance, repair and replacement of the roof membrane shall become
Tenant's sole obligation. Tenant waives the benefit of any present or future law
which might give Tenant the right to repair the Property at Landlord's expense
or to terminate the Lease due to the condition of the Property.
Section 6.04. Tenant's Obligations.
(a) Except as provided in Article Seven (Damage or Destruction) and Article
Eight (Condemnation), Tenant shall keep all portions of the Property (including
structural, nonstructural, interior, exterior, and landscaped areas, portions,
systems and equipment) in good order, condition and repair (including interior
repainting and refinishing, as needed). If any portion of the
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Property or any system or equipment in the Property which Tenant is obligated
to repair cannot be fully repaired or restored, Tenant shall promptly replace
such portion of the Property or system or equipment in the Property, regardless
of whether the benefit of such replacement extends beyond the Lease Term; but if
the benefit or useful life of such replacement extends beyond the Lease Term (as
such term may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which is
applicable to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor. If any part of the Property is damaged by any act or omission of
Tenant, Tenant shall pay Landlord the cost of repairing or replacing such
damaged property, whether or not Landlord would otherwise be obligated to pay
the cost of maintaining or repairing such property. It is the intention of
Landlord and Tenant that at all times Tenant shall maintain the portions of the
Property which Tenant is obligated to maintain in an attractive, first-class and
fully operative condition in compliance with all then existing applicable law
regulations, codes and ordinances except that Tenant shall not be required to
make any alterations for the purpose of complying with any code or ordinance in
effect as of December 31, 1995.
(b) Tenant shall fulfill all of Tenant's obligations under this Section 6.04
at Tenant's sole expense. If Tenant fails to maintain, repair or replace the
Property as required by this Section 6.04, Landlord may, upon ten (10) days'
prior notice to Tenant (except that no notice shall be required in the case of
an emergency), enter the Property and perform such maintenance or repair
(including replacement, as needed) on behalf of Tenant. In such case , Tenant
shall reimburse Landlord for all costs incurred in performing such maintenance
or repair immediately upon demand.
Section 6.05. Alterations, Additions, and Improvements.
(a) Tenant shall not make any alterations, additions, or improvements to the
Property without Landlord's prior written consent, except for non-structural
alterations which do not exceed Ten Thousand Dollars ($10,000) in cost
cumulatively over the Lease Term and which are not visible from the outside of
any building of which the Property is part. Landlord may require Tenant to
provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.05(a)
upon Landlord's written request. All alterations, additions, and improvements
shall be done in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord. Upon
completion of any such work, Tenant shall provide Landlord with "as built"
plans, copies of all construction contracts, and proof of payment for all labor
and materials.
b) Tenant shall pay when due all claims for labor and material furnished to
the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property. Tenant shall keep
the Property free of mechanics' and materialmens' liens at all times. Tenant, at
Tenant's expense, shall remove or cause to be removed, all such liens within a
reasonable period of time.
Section 6.06. Condition upon Termination. Upon the termination of the Lease,
Tenant shall surrender the Property to Landlord, broom clean and in the same
condition as received except for ordinary wear and fear which Tenant was not
otherwise obligated to remedy under any provision of this Lease. However, Tenant
shall not be obligated to repair any damage which Landlord is required to repair
under Article Seven (Damage or Destruction). In addition, Landlord may require
Tenant to remove any alterations, additions or improvements (whether or not made
with Landlord's consent) prior to the expiration of the Lease and to restore the
Property to its prior condition, all at Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon the
expiration or earlier termination of the Lease, except that Tenant may remove
any of Tenant's machinery or equipment which can be removed without material
damage to the Property. Tenant shall repair, at Tenant's expense, any damage to
the Property caused by the removal of any such machinery or equipment. In no
event, however, shall Tenant remove any of the following materials or equipment
(which shall be deemed Landlord's property) without Landlord's prior written
consent; any power wiring or power panels; lighting or lighting fixtures; wall
coverings; drapes, blinds or other window coverings; carpets or other floor
coverings; heaters, air conditioners or any other heating or air conditioning
equipment; fencing or security gates; or other similar building operating
equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property.
(a) Tenant shall notify Landlord in writing immediately upon the occurrence
of any damage to the Property. If the Property is only partially damaged (i.e.,
less than fifty percent (50%) of the Property is untenantable as a result of
such damage or less than fifty percent (50%) of Tenant's operations are
materially impaired) and if the proceeds received by Landlord from the insurance
policies described in Paragraph 4.04(b) are sufficient to pay for the necessary
repairs, this Lease shall remain in effect and Landlord shall repair the damage
as soon as reasonably possible. Landlord may elect (but is not required) to
repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient to pay
the entire cost of repair, or if the cause of the damage is not covered by the
insurance policies which Landlord maintains under Paragraph 4.04(b), Landlord
may elect either to (i) repair the damage as soon as reasonably possible. In
which case this Lease shall remain in full force and effect, or (ii) terminate
this Lease as of the date the damage occurred. Landlord shall notify Tenant
within thirty (30) days after receipt of notice of the occurrence of the damage
whether Landlord elects to repair the damage or terminate the Lease. If Landlord
elects to repair the damage, Tenant shall pay Landlord the "deductible amount"
(if any) under Landlord's insurance policies and, if the damage was due to an
act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, the difference between the actual cost of repair and any insurance
proceeds received by Landlord. If Landlord elects to terminate the Lease, Tenant
may elect to continue this Lease in full force and effect, in which case Tenant
shall repair any damage to the Property and any building in which the Property
is located. Tenant shall pay the cost of such repairs, except that upon
satisfactory completion of such repairs, Landlord shall deliver to Tenant any
insurance proceeds received by Landlord for the damage repaired by Tenant.
Tenant shall give Landlord written notice of such election within ten (10) days
after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
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Section 7.02. Substantial or Total Destruction. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the preceding
sentence, if the Property can be rebuilt within six (6) months after the date of
destruction, Landlord may elect to rebuild the Property at Landlord's own
expense, in which case this Lease shall remain in full force and effect.
Landlord shall notify Tenant of such election within thirty (30) days after
Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. Temporary Reduction of Rent. If the Property is destroyed or
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which the Tenant's use of the Property is impaired. However, the
reduction shall not exceed the sum of one year's payment of Base Rent, insurance
premiums and real property taxes. Except for such possible reduction in Base
Rent, insurance premiums and real property taxes, Tenant shall not be entitled
to any compensation, reduction, or reimbursement from Landlord as a result of
any damage, destruction, repair, or restoration of or to the Property.
Section 7.04. Waiver. Tenant waives the protection of any statute, code or
judicial decision which grants tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
takes title or possession). If neither Landlord nor Tenant terminates this
Lease, this Lease shall remain in effect as to the portion of the Property not
taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fees, or otherwise. If this Lease
is not terminated, Landlord shall repair any damage to the Property caused by
the Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. Landlord's Consent Required. No portion of the Property or of
Tenant's interest in this Lease may be acquired by any other person or entity,
whether, by sale, assignment, mortgage, sublease, transfer, operation of law, or
act of Tenant, without Landlord's prior written consent, except as provided in
Section 9.02 below. Landlord has the right to grant or withhold its consent as
provided in Section 9.05 below. Any attempted transfer without consent shall be
void and shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than twenty (20%) of the
partnership interests shall require Landlord's consent. If Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation shall require Landlord's consent.
Section 9.02. Tenant Affiliate. Tenant may assign this Lease or sublease the
Property, without Landlord's consent, to any corporation, which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of
Tenant's obligations under this Lease.
Section 9.03. No Release of Tenant. No transfer permitted by this Article
Nine, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the transferee. Landlord may consent to subsequent assignments
or modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability under
this Lease.
Section 9.04. Offer to Terminate. If Tenant desires to assign the Lease or
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.05 with respect to any proposed transfer shall
continue to apply.
Section 9.05. Landlord's Consent.
(a) Tenant's request for consent to any transfer described in Section 9.01
shall set forth in writing the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent, based on the following factors: (i)
the business of the proposed assignee or subtenant and the proposed use of the
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Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only on the other terms of the proposed transfer.
If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Landlord's
Share (stated in Section 1.13) of the Profit (defined below) on such transaction
as and when received by Tenant, unless Landlord gives written notice to Tenant
and the assignee or subtenant that Landlord's Share shall be paid by the
assignee or subtenant to Landlord directly. The "Profit" means (A) all amounts
paid to Tenant for such assignment or sublease, including "key" money, monthly
rent in excess of the monthly rent payable under the Lease, and all fees and
other consideration paid for the assignment or sublease, including fees under
any collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment or
sublease for real estate broker's commissions and costs of renovation or
construction of tenant improvements required under such assignment or sublease.
Tenant is entitled to recover such costs and expenses before Tenant is obligated
to pay the Landlord's Share to Landlord. The Profit in the case of a sublease of
less than all the Property is the rent allcoable to the subleased space as a
percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying all amounts
to be paid from any assignment or sublease of the Property within thirty (30)
days after the transaction documentation is signed, and Landlord may inspect
Tenant's books and records to verify the accuracy of such statement. On written
request, Tenant shall promptly furnish to Landlord copies of all the transaction
documentation, all of which shall be certified by Tenant to be complete, true
and correct. Landlord's receipt of Landlord's Shares shall not be a consent to
any further assignment or subletting. The breach of Tenant's obligation under
this Paragraph 9.05(b) shall be a material default of the Lease.
Section 9.06. No Merger. No merger shall result from Tenant's sublease of the
Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.02. Defaults. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the Property
results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations under
this Lease for a period of thirty (30) days after written notice from Landlord;
provided that if more than thirty (30) days are required to complete such
performance, Tenant shall not be in default if Tenant commences such performance
within thirty (30)-day period and thereafter diligently pursues its completion.
However, Landlord shall not be required to give such notice if Tenant's failure
to perform constitutes a non-curable breach of this Lease. The notice required
by this Paragraph is intended to satisfy any and all notice requirements imposed
by law on Landlord and is not in addition to any such requirement.
(d)(i) If Tenant makes a general assignment or general arrangement for the
benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for
reorganization or rearrangements is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.03. Remedies. On the occurrence of any material default by Tenant,
Landlord may, at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have:
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Tenant would have paid
for the balance of the Lease Term after the time of award exceeds the amount of
such rental loss that Tenant proves Landlord could have reasonably avoided; and
(iv) 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 by likely to result
therefrom, including, but not limited to, any costs or expenses Landlord incurs
in maintaining or preserving the Property after such default, the cost of
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recovering possession of the Property expenses of reletting, including necessary
renovation or alteration of the Property, Landlord's reasonable attorneys' fees
incurred in connection therewith, and any real estate commission paid or
payable. As used in subparts (i) and (ii) above, the "worth at the time of the
award" is computed by allowing interest on unpaid amounts at the rate of fifteen
percent (15%) per annum, or such lesser amount as may then by the maximum lawful
rate. As used in subpart (iii) above, the "worth at the time of the award" is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco of the time of the award, plus one percent (1%). If Tenant
has abandoned the Property, Landlord shall have the option of (i) retaking
possession of the Property and recovering from Tenant the amount specified in
the Paragraph 10.03(a), or (ii) proceeding under Paragraph 10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord under the
laws or judicial decisions of the state in which the Property is located.
Section 10.04. Repayment of "Free" Rent. If this Lease provides for a
postponement of any monthly rental payments, a period of "free" rent or other
rent concession, such postponed rent or "free" rent is called the "Abated Rent".
Tenant shall be credited with having paid all of the Abated Rent on the
expiration of the Lease Term only if Tenant has fully, faithfully, and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Property in the physical condition required
by this Lease. Tenant acknowledges that its right to receive credit for the
Abated Rent is absolutely conditioned upon Tenant's full, faithful and punctual
performance of its obligations under this Lease. If Tenant defaults and does not
cure within any applicable grace period, the Abated Rent shall immediately
become due and payable in full and this Lease shall be enforced as if there were
no such rent abatement or other rent concession. In such case Abated Rent shall
be calculated based on the full initial rent payable under this Lease.
Section 10.05. Automatic Termination. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default shall
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defending of
any action in any bankruptcy court or other court with respect to the Lease; the
obtaining of relief from any stay in bankruptcy restraining any action to evict
Tenant; or the pursuing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base Rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.06. Cumulative Remedies. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to subordinate
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, provided that
Tenant's obligations under this Lease shall not be deprived of its rights under
this Lease. Tenant's right to quiet possession of the Property during the Lease
Term shall not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
Section 11.02. Attornment. If Landlord's interest in the Property is acquired
by any ground lessor, beneficiary under a deed of trust, mortgagee, or purchaser
at a foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Property and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statue or rule
of law which gives or purports to give Tenant any right to terminate this Lease
or surrender possession of the Property upon the transfer of Landlord's
interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. Estoppel Certificate.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been cancelled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within ten (10) days after Landlord's request. Landlord
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
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(b) If Tenant does not deliver such statement to Landlord within such ten
(10)-day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
Section 11.05. Tenant's Financial Condition. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. Legal Proceedings. If Tenant or Landlord shall be in breach or
default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum as attorneys' fees and
costs. The losing party in such action shall pay such attorneys' fees and costs.
Tenant shall also indemnify attorneys' fees and costs. The losing party in such
action shall pay such attorney's fees and costs. The losing party in such action
shall pay such attorney's fees and costs. Tenant shall also indemnify Landlord
against and hold Landlord harmless from all costs, expenses, demands and
liability Landlord may incur if Landlord becomes or is made a party to any claim
or action (a) instituted by Tenant against any third party, or by any third
party against Tenant, or by or against any person holding any interest under or
using the Property by license of or agreement with Tenant; (b) for foreclosure
of any lien for labor or material furnished to or for Tenant or such other
person; (c) otherwise arising out of or resulting from any act or transaction of
Tenant or such other person; or (d) necessary to protect Landlord's interest
under this Lease in a bankruptcy proceeding, or other proceeding under Title 11
of the United States code, as amended. Tenant shall defend Landlord against any
such claim or action at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs Landlord incurs in any such claim or action.
Section 12.02. Landlord's Consent. Tenant shall pay Landlord's reasonable
attorney's fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and it is a condition to
the continuance of this Lease, that there will be no discrimination against, or
segregation of, any person or group of persons on the basis of race, color, sex,
creed, national origin or ancestry in the leasing, subleasing, transferring,
occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. Landlord's Liability; Certain Duties.
(a) As used in this Lease, the term "Landlord" means only the current owner
or owners of the fee title to the Property or the leasehold estate under a
ground lease of the Property at the time in question. Each Landlord is obligated
to perform the obligations of Landlord under this Lease only during the time
such Landlord owns such interest or title. Any Landlord who transfers its title
or interest is relieved of all liability with respect to the obligations of
Landlord under this Lease to be performed on or after the date of transfer.
However, each Landlord shall deliver to its transferee all funds that Tenant
previously paid if such funds have not yet been applied under the terms of this
Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform
any of its obligations under this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not be
in default under this Lease unless Landlord (or such ground lessor, mortgagee or
beneficiary) fails to cure such non-performance within thirty (30) days after
receipt of Tenant's notice. However, if such non-performance reasonably requires
more than thirty (30) days to cure, Landlord shall not be in default if such
cure is commenced within such thirty (30)-day period and thereafter diligently
pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall have
any personal liability under this Lease.
Section 13.03. Severability. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. Interpretation. The captions of the Articles or Sections of
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. Incorporation of Prior Agreements; Modifications. This Lease
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. Notices. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid, or by overnight courier. Notices to
Tenant shall be delivered to the address specified in Section 1.03 above, except
that upon Tenant's taking possession of the Property, the Property shall be
Tenant's address for notice purposes. Notices to Landlord shall be delivered to
the address specified in Section 1.02 above. All notices shall be effective
upon delivery. Either party may change its notice address upon written notice to
the other party.
(c) 1988 Southern California Chapter 10 Initials JPD
of the Society of Industrial ----------
and Office Realtors,(R) Inc. (Single-Tenant Net Form) ----------
<PAGE>
Section 13.07. Waivers. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance to rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. No Recordation. Tenant shall not record this Lease without
prior written consent from Landlord. However, Landlord or Tenant may require
that a "Short Form" memorandum of this Lease executed by both parties be
recorded. A partly requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.09. Binding Effect; Choice of Law. This Lease binds any party who
legally acquires any rights or interest in this Lease from Landlord or Tenant.
However, Landlord shall have no obligation to Tenant's successor unless the
rights or interests of Tenant's successor are acquired in accordance with the
terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10. Corporate Authority; Partnership Authority. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. Within thirty (30)
days after this Lease is signed, Tenant shall deliver to Landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership.
Section 13.11. Joint and Several Liability. All parties signing this Lease as
Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12. Force Majeure. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13. Execution of Lease. This Lease may be executed in counterparts
and, when all counterpart documents are executed, the counterparts shall
constitute a single binding instrument. Landlord's delivery of this Lease to
Tenant shall not be deemed to be an offer to lease and shall not be binding upon
either party until executed and delivered by both parties.
Section 13.14. Survival. All representations and warranties of Landlord and
Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Section 14.01. Broker's Fee. When this Lease is signed by and delivered to
both Landlord and Tenant, Landlord shall pay a real estate commission to
Landlord's Broker named in Section 1.08 above, if any, as provided in the
written agreement between Landlord and Landlord's Broker, or the sum stated in
Section 1.09 above for services rendered to Landlord by Landlord's Broker in
this transaction. Landlord shall not be required to pay Landlord's Broker a
commission if Tenant exercises any option to extend the Lease Term or to buy the
Property, or any similar option or right which Landlord may grant to Tenant.
Such commission shall be the amount set forth in Landlord's Broker's commission
schedule in effect as of the execution of this Lease. If a Tenant's Broker is
named in Section 1.08 above, Landlord's Broker shall pay an appropriate portion
of its commission to Tenant's Broker if so provided in any agreement between
Landlord's Broker and Tenant's Broker. Nothing contained in this Lease shall
impose any obligation on Landlord to pay a commission or fee to any party other
than Landlord's Broker.
Section 14.02. Protection of Brokers. If Landlord sells the Property, or
assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Article Fourteen. Landlord's Broker
shall have the right to bring a legal action to enforce or declare rights under
this provision. The prevailing party in such action shall be entitled to
reasonable attorneys' fees to be paid by the losing party. Such attorneys' fees
shall be fixed by the court in such action. This Paragraph is included in this
Lease for the benefit of Landlord's Broker.
Section 14.03. Agency Disclosure; No Other Brokers.
Landlord and Tenant each warrant that they have dealt with no other real estate
broker(s) in connection with this transaction except: CB Commercial Real Estate
Group, Inc., who represents _________________ and _________________, who
represents___________________.
ARTICLE FIFTEEN: COMPLIANCE
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and The Americans With
Disabilities Act.
(c) 1988 Southern California Chapter 11 Initials JPD
of the Society of Industrial
and Office Realtors, Inc. (Single-Tenant Net Form)
<PAGE>
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE DRAW
A LINE THROUGH THE SPACE BELOW.
A Rider containing eight (8) sections is attached hereto.
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on Jan 4, 1996 DiNapoli, DiNapoli and Mulcahy Trust,
at ____________________________. a California general partnership.
By: /s/ J. Philip DiNapoli
-------------------------------------
J. Philip DiNapoli, as Trustee of
Its: the DiNapoli Revocable Trust UTA
-------------------------------------
dated July 6, 1982, a general partner
By: ___________________________________
Its: __________________________________
"TENANT"
Signed on Jan 4, 1996 Journal Communications, Inc.,
at ____________________________. a Wisconsin Corporation
By: /s/ GREGORY
------------------------------------
Its: Vice President
-----------------------------------
By: ___________________________________
Its: __________________________________
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION OF
THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS, INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS, INC., ITS
LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR
AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL TO
ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL
COUNSEL.
(c) 1988 Southern California Chapter 12 Initials JPD
of the Society of Industrial
and Office Realtors, Inc. (Single-Tenant Net Form)
<PAGE>
RIDER TO LEASE AGREEMENT
1. BASE RENT: The monthly Base Rent shall be as follows:
Months Base Rent per Month
------ -------------------
From date of occupancy to Commencement Date No Base Rent*
1-12 $26,532.00
13-30 $50,947.00
31-60 $53,777.60
61-90 $55,192.80
91-109 $56,608.00
* Although no Base Rent shall be paid during this time period, Tenant shall
still be responsible for payment of all other obligations under the Lease
including payment of real property taxes, insurance premiums, utilities and
all other NNN expenses.
This Base Rent schedule is based on Landlord providing a Tenant Improvement
Allowance of a maximum of $414,600.00 (the "TI Allowance"). If Tenant elects,
in writing, not to utilize any or all of the TI Allowance for the planning,
construction and installation of the Tenant Improvements in the building on
the Property, the amount of the monthly Base Rent for the Property shall be
reduced at the rate of $.01 per square foot per month for each unused $1.00
of the TI Allowance. Promptly after substantial completion of construction of
the Tenant Improvements, Landlord and Tenant shall execute a certificate in
the form attached hereto as Exhibit B, indicating the amount of any such
reduction in the monthly Base Rent Payable by Tenant hereunder.
2. CONSTRUCTION OF TENANT IMPROVEMENTS: Landlord will plan, construct and
install certain alterations and improvements (the "TIs") to the building on
the Property as Tenant may desire be made for Tenant's intended use of the
Property. Notwithstanding anything to the contrary in the Lease, the
construction and installation of the TIs will not affect nor extend the
Commencement Date of the Lease it being the intention of Landlord and Tenant
that Tenant commence paying monthly Base Rent on the Commencement Date
regardless of whether or not the TIs are substantially completed by said
date. The TIs shall be constructed in accordance with the plans and
specifications prepared by Landlord's architect and as approved by both
Landlord and Tenant. Such plans and specifications and the budget for the
construction of the TIs shall be reasonably approved, in writing, by both
Landlord and Tenant as soon as practicable after execution of the Lease, but
prior to the commencement of construction of the TIs. The TIs shall be
installed by Landlord's general contractor. Landlord shall provide a Tenant
Improvement Allowance of a maximum of Four Hundred Fourteen Thousand Six
Hundred Dollars ($414,600.00) (the "TI Allowance") for the planning,
construction and installation of the TIs and all costs associated with such
construction, including, but not limited to, architectural and engineering
fees, general contractor fees and costs, costs to prepare plans and
specifications, all permit and approval fees and costs, and all other direct
and indirect costs of procuring, constructing and installing the TIs
(collectively, the "TI Costs"). Landlord shall not charge nor be paid any
construction management fee in connection with the planning, construction and
installation of the TIs. If the TI Allowance is exhausted, any additional
funds necessary to pay the balance of the TI Costs (including all change
order costs and cost escalations) in order to cause the TIs to be
substantially completed will be paid for by Tenant, in cash, within thirty
(30) days after Landlord delivers to Tenant a written demand therefor. The TI
Allowance shall be used solely for improvements to real property and not for
the acquisition or installation of any of Tenant's equipment, trade fixtures,
furniture, furnishings, telephone equipment, computer equipment or other
personal property. If the Lease is terminated at any time prior to the
scheduled expiration date for any reason due to the default of Tenant of its
obligations under this Lease, in addition to any other remedies available to
Landlord under the Lease, Tenant shall immediately pay to Landlord as
additional rent under the Lease any and all costs incurred by Landlord in
connection with the planning, construction and installation of the TIs and
not reimbursed or otherwise paid by Tenant as part of the Base Rent or
otherwise through the date of termination together with any costs related to
the removal of any improvements constructed by Tenant subsequent to the
Commencement Date and the restoration of any damage caused to the Property,
ordinary wear and tear excepted.
<PAGE>
3. ENTERPRISE ZONE: As of the date of this Lease the Property is located within
a designated Enterprise Zone of the City of San Jose, and, as such, certain
tax credits may be available to Tenant. Landlord has no knowledge of the
specific tax credits that may be available, or of Tenant's eligibility to
benefit from same. Tenant acknowledges that Landlord has made no
representations with regard to the availability or applicability to Tenant of
any benefits arising from such an Enterprise Zone.
4. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS: Concurrently with executing this
Lease, and within fifteen (15) days of a written request from Landlord,
Tenant shall execute, and deliver to Landlord, the Hazardous Materials
Disclosure Certificate in substantially the form attached hereto as Exhibit
C, and any other reasonably necessary documents as requested by Landlord.
Subject to the remaining provisions of this paragraph, Tenant shall be
entitled to use and store only those Hazardous Materials (defined below),
that are necessary for Tenant's business and to the extent disclosed in the
Hazardous Materials Disclosure Certificate, provided that such usage and
storage is in full compliance with any and all local, state and federal
environmental, health and/or safety-related laws, statutes, orders,
standards, courts' decisions, ordinances, rules and regulations (as
interpreted by judicial and administrative decisions), decrees, directives,
guidelines, permits or permit conditions, currently existing and as amended,
enacted, issued or adopted in the future which are or become applicable to
Tenant or the Property (collectively, the "Environmental Laws"). Landlord
shall have the right at all times during the term of this Lease to (i)
inspect the Property, (ii) conduct tests and investigations to determine
whether Tenant is in compliance with the provisions of this paragraph, and
(iii) request lists of all Hazardous Materials used, stored or located on,
under or about the Property; the cost of all such inspections, tests and
investigations shall be borne by Tenant if Hazardous Materials are indicated
by any such inspection, test or investigation to be present in, on or about
the Property arising from or related to the intentional or negligent acts or
omissions of Tenant or any of Tenant's Representatives (defined below).
Tenant shall give to Landlord immediate oral and follow-up written notice of
any spills, releases or discharges of Hazardous Materials on, under or about
the Property. Tenant covenants to promptly investigate, clean up and
otherwise remediate (including without limitation, monitoring and closures)
any spill, release or discharge of Hazardous Materials caused by the
intentional or negligent acts or omissions of Tenant or its agents,
employees, representatives, invitees, licensees, subtenants, customers or
contractors (collectively, "Tenant's Representatives") at Tenant's sole cost
and expense; such investigation, clean up and remediation to be performed
after Tenant has obtained Landlord's written consent, which shall not be
unreasonably withheld; provided, however, that Tenant shall be entitled to
respond immediately to an emergency without first obtaining Landlord's
written consent. If Tenant fails to so promptly investigate, clean up or
otherwise remediate (including without limitation, any monitoring and
closures), Landlord may, but without obligation to do so, take any and all
steps necessary to rectify the same and Tenant shall promptly reimburse
Landlord, upon demand, for all costs and expenses to Landlord of performing
investigation and remediation work. Tenant shall indemnify, defend (with
counsel acceptable to Landlord) and hold Landlord and Landlord's lenders,
partners, property management company (if other than Landlord), directors,
officers, employees, representatives, contractors and shareholders and each
of their respective successors and assigns harmless from and against any and
all claims, judgments, damages, penalties, fines, liabilities; losses, suits,
administrative proceedings and costs (including, but not limited to,
attorneys' and consultant fees and court costs) arising at any time during or
after the term of this Lease in connection with or related to the use,
presence, transportation, storage, disposal, spill, release or discharge of
Hazardous Materials on, in or about the Property as a result (directly or
indirectly) of the intentional or negligent acts or omissions of Tenant or
any of Tenant's Representatives. The burden of proof shall rest with Tenant
with regard to the determination of the cause or source of any Hazardous
Materials found to exist in, on or about the Property. Tenant shall not be
entitled to install any tanks under, on or about the Property for the storage
of Hazardous Materials without the express written consent of Landlord, which
may be given or withheld in Landlord's sole discretion. Neither the written
consent of Landlord to the presence of Hazardous Materials on, under or about
the Property nor the strict compliance by Tenant with all Environmental Laws
shall excuse Tenant from its obligation of indemnification pursuant hereto.
As used in this Lease, the term Hazardous Materials shall mean and include
(a) any hazardous or toxic wastes, materials or substances, and other
pollutants or contaminants, which are or become regulated by any
Environmental Laws; (b) petroleum, petroleum by products, gasoline, diesel
fuel, crude oil or any fraction thereof; (c) asbestos and asbestos containing
materials, in any form, whether friable or non-friable; (d) polychlorinated
biphenyls; (e) radioactive materials; (f) lead and lead-containing materials
(g) any other material, waste or substance displaying toxic, reactive,
ignitable or corrosive characteristics, as all such terms are used in their
broadest sense, and are defined or become defined by any Environmental Laws;
or (h) any materials which cause or threatens to cause a nuisance upon or
waste to any portion of the
<PAGE>
Property or any surrounding property; or poses or threatens to pose a hazard
to the health and safety of persons on the Property or any surrounding
property. The provisions of this Paragraph 4 of the Rider to Lease shall
survive the expiration or earlier termination of this Lease. If Tenant fails
to fully and timely observe, perform or comply with any of the conditions,
covenants or provisions of this Paragraph 4 of the Rider, and such failure is
not cured within ten (10) days of the date on which Landlord delivers written
notice of such failure to Tenant then Tenant shall be considered to be in
material default of this Lease. However, Tenant shall not be in material
default of its obligations hereunder if such failure cannot reasonably be
cured within such ten (10) day period and Tenant promptly commences, and
thereafter diligently proceeds with same to completion, all actions necessary
to cure such failure as soon as is reasonably possible, but in no event shall
the completion of such cure be later than sixty (60) days after the date on
which Landlord delivers to Tenant written notice of such failure, unless
Landlord, acting reasonably and in good faith, otherwise expressly agrees in
writing to a longer period of time based upon the circumstances relating to
such failure as well as the nature of the failure and the nature of the
actions necessary to cure such failure. Tenant covenants and agrees that the
provisions of Section 10.02(c) of the Lease shall not be applicable (nor
available) to any failure of Tenant under this Paragraph 4 of the Rider. If
it is determined by Landlord pursuant to the results of any tests or
investigations that have been performed or pursuant to a notice from any
regulatory authority, that Tenant, its use of the Property, or the condition
of the Property is not in compliance with all Environmental Laws at the
expiration or earlier termination of this Lease due to the intentional or
negligent acts or omissions of Tenant or Tenant's Representatives, then at
Landlord's sole option, Landlord may require Tenant to hold over possession
of the Property until Tenant can surrender the Property to Landlord in
compliance with all Environmental Laws. Any such holdover by Tenant will be
with Landlord's consent, will not be terminable by Tenant in any event or
circumstance and will otherwise be subject to the provisions of Section 2.04
of this Lease except that Tenant may terminate such holdover if (i) Tenant
has remediated the contamination by Hazardous Materials in accordance with a
plan approved by the appropriate regulatory authority, (ii) such regulatory
authority has approved the results of the remediation as being in compliance
with its requirements, and (iii) the only additional requirement of such
regulatory authority is periodic monitoring in anticipation of closure.
5. EXISTING LEASE: The existing lease of the Property dated November 3, 1995,
between D & D Ranch, a California general partnership, and Imperial Printing
Company, a Michigan corporation, dba, IPC Software Services, shall terminate
as of the date of the execution of this Lease by both Landlord and Tenant and
be of no further force or effect thereafter except for any provisions which
are (a) intended to survive its termination, and (b) not superseded or
replaced by the terms and provisions of this Lease.
6. SIMULTANEOUS EXECUTION OF LEASES: Notwithstanding any other provision
contained in this Lease to the contrary, this Lease shall not have any force
or effect and shall not be binding on the parties unless and until the lease
of even date herewith between Tenant and D & D Ranch, a California general
partnership, regarding the premises at 2011 Senter Road, San Jose, California
(the "Second Lease") is executed and delivered by Tenant concurrently with
this Lease.
7. OPTIONS TO EXTEND: If Tenant is not in default in the performance of any of
its obligations under this Lease at the time of Tenant's exercise of the then
applicable option to extend the then applicable term of this Lease, Tenant
shall have the right at its option to extend the term of the Lease for two
(2) successive five (5) year periods (individually the "First Extended Term"
and the "Second Extended Term," respectively, and collectively, the "Extended
Terms"). The Lease of the Property during the Extended Terms shall be upon
the same terms, covenants and conditions as are set forth in this Lease,
other than the monthly Base Rent and the term of the Lease. If Landlord does
not receive from Tenant written notice of Tenant's exercise of this option on
a date which is not less than eighteen months (18) months prior to the end of
the initial term of the Lease or the end of the First Extended Term of this
Lease, as the case may be (the "Option Notice"), all rights under this option
shall automatically lapse and terminate and shall be of no further force and
effect. Time is of the essence herein. Additionally, if Tenant fails to
timely or duly exercise this option for the First Extended Term, all rights
of Tenant under this option to extend into the First Extended Term and the
Second Extended Term shall automatically lapse, terminate and shall be of no
further force and effect, and Tenant shall have no further rights to extend
the term of this Lease. Notwithstanding any other provision contained in this
Section 7 to the contrary, Tenant may only exercise the options to extend the
term of this Lease for each of the Extended Terms if, concurrently with
Tenant's exercise of such option hereunder, Tenant simultaneously exercises
the same option granted to Tenant to extend the corresponding term under the
Second Lease. If Tenant
<PAGE>
does not so simultaneously extend the term of both leases, Tenant shall have
no right to extend the term of this Lease and thereafter the options granted
to Tenant herein shall lapse and be of no force or effect.
The monthly Base Rent for each of the First Extended Term and the Second
Extended Term shall be the then fair market rent for the Property (the "Fair
Rental Value") agreed upon solely by and between Landlord and Tenant and
their agents appointed for this purpose.
The "Fair Rental Value" of the Property shall be defined to mean the fair
market rental value of the Property as of the commencement of the First
Extended Term or the Second Extended Term, as applicable, taking into
consideration all relevant factors, including length of term, the uses
permitted under the Lease, the quality, size, design and location of the
Property, including the condition and value of existing tenant improvements,
and the monthly base rent paid by tenants for premises comparable to the
Property, and located in San Jose, California.
Landlord and Tenant each, at its cost and by giving notice to the other
party, shall appoint a competent and disinterested commercial real estate
broker (hereinafter "broker") with at least five (5) years' full-time
commercial real estate brokerage experience in the geographical area of the
Property to set the Fair Rental Value for the First Extended Term or the
Second Extended Term, as the case may be. If either Landlord or Tenant does
not appoint a broker within ten (10) days after the other party has given
notice of the name of its broker, the single broker appointed shall be the
sole broker and shall set the Fair Rental Value for the First Extended Term
or the Second Extended Term, as the case may be. If two (2) brokers are
appointed by Landlord and Tenant as stated in this paragraph, they shall meet
promptly and attempt to set the Fair Rental Value. If the two (2) brokers are
unable to agree within ten (10) days after the second broker has been
appointed, they shall attempt to select a third broker, meeting the
qualifications stated in this paragraph within ten (10) days after the last
day the two (2) brokers are given to set the Fair Rental Value. If they are
unable to agree on the third broker, either Landlord or Tenant by giving ten
(10) days' notice to the other party, can apply to the Presiding Judge of the
Superior Court of the county in which the Property is located for the
selection of a third broker who meets the qualifications stated in this
paragraph. Landlord and Tenant each shall bear one-half (1/2) of the cost of
appointing the third broker and of paying the third broker's fee. The third
broker, however selected, shall be a person who has not previously acted in
any capacity for either Landlord or Tenant. Within fifteen (15) days after
the selection of the third broker, the third broker shall select one of the
two Fair Rental Values submitted by the first two brokers as the Fair Rental
Value for the First Extended Term or the Second Extended Term, as the case
may be. If either of the first two brokers fails to submit their opinion of
the Fair Rental Value, then the single Fair Rental Value submitted shall
automatically be the monthly Base Rent for the First Extended Term or the
Second Extended Term, as applicable.
8. Any default of Tenant under the Second Lease shall also be a default under
this Lease.
<PAGE>
EXHIBIT "A"
2020 SOUTH TENTH STREET
SAN JOSE, CALIFORNIA
All that certain real property situated in the City of San Jose, County of Santa
Clara, State of California, and described as follows:
All of Parcel 2, as shown on the Parcel Map recorded January 7, 1971 in Book 277
of Maps. Page 16, Santa Clara County records and being a portion of the Chaboya
partition.
<PAGE>
EXHIBIT "B"
TO LEASE AGREEMENT DATED _______________
BY AND BETWEEN DINAPOLI, DINAPOLI AND MULCAHY TRUST, A CALIFORNIA
GENERAL PARTNERSHIP ("LANDLORD")
AND
JOURNAL COMMUNICATIONS, INC., A _________________ CORPORATION ("TENANT")
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement (the "First Amendment") is made into as
of 19__, by and between DiNapoli, DiNapoli and Mulcahy Trust, a California
general partnership ("Landlord"), and Journal Communications, Inc., a California
corporation ("Tenant"), with reference to that certain Lease Agreement (the
"Lease"), dated _________________ by and between Landlord and Tenant for the
leasing of certain premises (the "Premises") located at 2020 South Tenth Street,
San Jose, California, as more particularly described in the Lease.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and in the Lease and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant
hereby agree as follows:
1. The construction of the Tenant Improvements have been completed and accepted
by Tenant and all costs, expenses, liabilities and obligations associated with
the Tenant Improvements have been paid or discharged.
2. Landlords TI Allowance of Four Hundred Fourteen Thousand Six Hundred Dollars
($414,600.00) was not fully expended and, therefore, in accordance with Section
1 of the Rider to the Lease, the amount of __________ ($_____) per month shall
be subtracted from the monthly Base Rent scheduled in Section 1 of the Rider to
the Lease. The amount of the decrease was computed at the rate of One Cent
($0.01) per Dollar ($1.00) of the unused Tenant Allowance.
3. All capitalized terms used in this First Amendment shall have the same
meanings and definitions as set forth in the Lease.
4. Landlord and Tenant hereby further agree that the Lease is in full force and
effect, and that the terms and provisions of the Lease shall remain unchanged
except as modified in this First Amendment.
5. In the event of any conflict or inconsistency between the terms and
provisions of this First Amendment and the Lease, the terms and provisions of
this First Amendment shall prevail.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of
the date and year first written above in this First Amendment.
LANDLORD:
DINAPOLI, DINAPOLI AND MULCAHY TRUST, a California general partnership
By:
THE DINAPOLI REVOCABLE TRUST DATED JULY 6, 1982
By:___________________________________
J. Philip DiNapoli, Trustee
TENANT:
JOURNAL COMMUNICATIONS INC. A _________________ Corporation
By: ______________________________
Its: _____________________________
<PAGE>
Initial Certificate _____________
Annual Update _____________
Date _____________
HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as Tenant. After a lease agreement is signed by you and the Landlord
("Lease Agreement"), on an annual basis in accordance with the provisions of
Section 4 of the Rider to the signed Lease Agreement, you are to provide an
update to the information initially provided by you in this certificate. The
information contained in the Initial Hazardous Materials Disclosure Certificate
and each annual certificate provided by you thereafter will be maintained in
confidentiality by Landlord subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchase(s) of all or any portion of the property on which the
Premises are located, (iii) Landlord to defend itself or its lenders, partners
or representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders or subpoenas. Any and all capitalized terms used herein,
which are not otherwise defined herein, shall have the same meaning ascribed to
such term in the signed Lease Agreement. Any questions regarding this
certificate should be directed to, and when completed, the certificate should
be delivered to:
For purposes of this Hazardous Material Disclosures Certificate, the term
"Hazardous Materials" as used herein shall not include any materials or
substances customarily used in the conduct of general office activities, so long
as the quantity of such materials is not prohibited by Environmental Laws.
Landlord: DiNapoli, DiNapoli and Mulcahy Trust,
a California general partnership
99 Almaden Blvd., Suite 565
San Jose, California 95113
Attention: J. Phillip DiNapoli
(408) 998-2460
Tenant: Journal Communications, Inc.
a _________________ corporation
333 West-State Street
Milwaukee, Wisconsin 53201-0661
__________________
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s): Daryl Byrssom 510-770-8000 x-253
___________________________________________________________________________
Address of
Premises: 2020 South Tenth Street
San Jose, California
Length of Initial Term Nine (9) years and One (1) month
1. GENERAL INFORMATION:
Describe the initial proposed operations to take place in, on, or about the
Premises, including, without limitation, principal products processed,
manufactured or assembled
<PAGE>
services and activities to be provided or otherwise conducted. Existing
lessees should describe any proposed changes to on-going operations.
Warehousing and assembly of literature and media kits.
Duplication of software onto media.
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2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials be used, stored or disposed of in, on or
about the Premises? Existing lessees should describe any Hazardous
Materials which continue to be used, generated, stored or disposed of
in, on or about the Premises.
Wastes Yes No x
Chemical Products Yes No x
Other Yes No x
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, stored or disposed of in, on or about
the Premises, including the applicable hazard class and an estimate of
the quantities of such Hazardous Materials at any given time; estimate
annual throughput; the proposed location(s) and method of storage
(excluding nominal amounts of ordinary household cleaners and
janitorial supplies which are not regulated by any Environmental Laws);
and the proposed location(s) and method of disposal for each Hazardous
Material, including, the estimated frequency, and the proposed
contractors or subcontractors. Existing lessees should attach a list
setting forth the information requested above and such list should
include actual data from on-going operations and the identification of
any variations in such information from the prior year's certificate.
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage of gasoline, diesel, petroleum, or
other Hazardous Materials in tanks or sumps proposed in, on or about
the Premises? Existing lessees should describe any such actual or
proposed activities.
Yes x No
---- ----
If Yes, please explain:
Replacement propane tanks for forklifts.
General cleaning and janitorial supplies.
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4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number? Existing lessees should describe any additional identification
numbers issued since the previous certificates.
Yes No x
---- ----
4.2 Has your company filed a biennial or quarterly reports as a hazardous
waste generator? Existing lessees should describe any new reports
filed.
Yes No x
---- ----
If Yes, attach a copy of the most recent report filed.
<PAGE>
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other waste to:
No storm drain? Yes sewer?
---- -----
No surface water? no wastewater or other
---- ------ wastes discharged.
Existing Lessees should indicate any actual discharges. If so, describe
the nature of any proposed or actual discharge(s).
Human waste.
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5.2 Will such wastewater or waste be treated before discharge?
Yes No x
---- ----
If yes, describe the type of treatment proposed to be conducted.
Existing lessees should describe the actual treatment conducted.
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6. AIR DISCHARGES
6.1 Do you plan for any air filtration systems or stacks to be used in your
company's operations in, on or about the Premises that will discharge
into the air; and will such air emissions be monitored? Existing
lessees should indicate whether or not there are any such air
filtration systems or stacks in use in, on or about the Premises which
discharge into the air and whether such air emissions are being
monitored.
Yes No x
----- -----
If Yes, Please describe:
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<PAGE>
6.2 Do you propose to operate any of the following types of equipment, or
any other equipment requiring an air emissions permit? Existing lessees
should specify any such equipment being operated in, on or about the
Premises.
No Spray booth(s) No Incinerator(s)
-------- --------
No Dip tank(s) Other (please describe)
-------- --------
No Drying oven(s) x No Equipment
-------- -------- Requiring
Air Permits
If Yes, please describe:
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7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a Hazardous
Materials management plan ("Management Plan") pursuant to Fire
Department or other governmental or regulatory agencies' requirements?
Existing lessees should indicate whether or not a Management Plan is
required and has been prepared.
Yes No x
----- -----
If yes, attach a copy of the Management Plan. Existing lessees should
attach a copy of any required updates to the Management Plan.
7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the Premises
regulated under Proposition 65? Existing lessees should indicate
whether or not there are any new Hazardous Materials being so used
which are regulated under Proposition 65.
Yes No x
----- -----
If Yes, please explain:
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8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has your
company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees or has your company received
requests for information, notice or demand letters, or any other
inquiries regarding its operations? Existing lessees
<PAGE>
should indicate whether or not any such actions, orders or decrees have
been, or are in process or being, undertaken or if any such requests
have been received.
Yes _____ No X
If Yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result of these actions, orders, or
decrees and also describe any requests, notices or demands, and attach
a copy of all such documents. Existing lessees should describe and
attach a copy of any new actions, orders, decrees, requests, notices or
demands not already delivered to Landlord pursuant to the provisions of
Section 4 of the Rider to the signed Lease Agreement.
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8.2 Have there ever been, or are there now pending, any lawsuits against
your company regarding any environmental or health and safety concerns:
Yes _____ No X
If Yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other documents
related thereto as requested by Landlord. Existing lessees should
describe and attach a copy of any new complaint(s), cross-complaint(s),
pleadings and all other documents not already delivered to Landlord
pursuant to the provisions of Paragraph 29 of the signed Lease
Agreement.
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8.3 Have there been any problems or complaints form adjacent tenants,
owners or other neighbors at your company's current facility with
regard to environmental or health and safety concerns? Existing lessees
should indicate whether or not there have been any such problems or
complaints from adjacent tenants, owners or other neighbors at, about
or near the Premises.
Yes _____ No X
If Yes, please describe. Existing lessees should describe any such
problems or complaints not already disclosed to Landlord under the
provisions of the signed Lease Agreement.
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9. PERMITS AND LICENSES
9.1 Attach copies of all Hazardous Materials permits and licenses issued to
your company with respect to its proposed operations in, on or about
the Premises, including, without limitation, any wastewater, discharge
permits, air emissions permits, and use permits or approvals. Existing
lessees should attach copies of any new permits and licenses as well as
any renewals of permits or licenses previously issued.
<PAGE>
The undersigned hereby acknowledges and agrees that this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit. The undersigned further
acknowledges and agrees that this Hazardous Materials Disclosure Certificate is
being delivered in accordance with, and as required by, the provisions of
Section 4 of the Rider to the Lease Agreement. The undersigned further
acknowledges and agrees that the Landlord and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness thereof in
entering into the Lease Agreement and the continuance thereof throughout the
term, and any renewals thereof, of the Lease Agreement. I (print name) Andrew
Jenkins, acting with full authority to bind the Tenant and on behalf of the
Tenant, certify, represent and warrant that the information contained in this
certificate is true and correct.
Tenant:
By: /s/ Andrew Jenkins
------------------------
Title: Mgr. of Operations
-----------------------
Date: 11/2/95
------------------------
- --------------------------------------- --------------------------------
Tenant Date
AGREED AND ACCEPTED
- --------------------------------------- --------------------------------
Landlord Date
<PAGE>
NOTICE AND AGREEMENT RE:
DISCLOSURE oF SPECIAL STUDIES AND FLOOD ZONES;
HAZARDOUS SUBSTANCES; BROKER REPRESENTATION;
BROKER INVESTIGATION; COMPLIANCE WITH LAWS
Date: December 22, 1995
Landlord: DiNapoli, DiNapoli and Mulcahy Trust, a California general
partnership
Tenant: Journal Communication, Inc., a Wisconsin Corporation and
Imperial Printing Co., a Michigan Corporation, a wholly
owned subsidiary of Journal Communication, Inc., as joint
and several co-tenants.
Property: 2020 South Tenth Street, San Jose, California.
Brokers: CB Commercial Real Estate Group, Inc., representing Tenant.
Alquist-Priolo Notification: Alquist-Priolo Special Earthquake Studies Zone Act
The Property described above is or may be situated in a Special Studies Zone as
designated under the Alquist-Priolo Special Studies Zone Act, Sections
2621-2630, Inclusive, of the California Public Resources Code; and, as such, the
construction or development on the Property of any structure for human occupancy
may be subject to the findings of a geologic report prepared by a geologist
registered in the State of California, unless such report is waived by the city
or county under the terms of that Act. No representations on the subject are
made by Seller/Lessor or by CB COMMERCIAL REAL ESTATE GROUP, INC., or its
agents or employees, and the Purchase/Tenant should make: his/her/its own
inquiry or investigation.
Special Studies Zone ____Yes _____No Source______________________
Notification re: National Flood Insurance Program
The Property is or may be located in a Special Flood Hazard Area on United
States Department of Housing and Urban Development (HUD) "Special Flood Zone
Area Maps." Federal law requires that as a condition of obtaining federally
related financing on most properties located in "flood zones," banks, savings
and loan associations, and some insurance lenders require flood insurance to be
carried where the property, real or personal, is security for a loan. This
requirement is mandated by the National Flood Insurance Act of 1968 and the
Flood Disaster Protection Act of 1973. The purpose of the program is to provide
flood insurance to property owners at a reasonable cost. Cities or counties
participating in the National Flood Insurance Program may have adopted building
or zoning restrictions, or other measures, as part of their participation in the
program. You should contact the city or county in which the property is located
to determine any such restrictions. The extent of coverage available in your
area and the cost of this coverage may vary, and for further information, you
should consult your lender or insurance carrier.
Flood Zone Designation: ____Yes _____No Source______________________
Hazardous Wastes or Substances Underground Storage Tanks
Comprehensive federal and state laws and regulations have been enacted in the
past several years in an effort to control the use, storage, handling, clean-up,
removal and disposal of hazardous wastes or substances. Some of these laws and
regulations (such as, for example, the Comprehensive Environmental Response
Compensation and Liability Act [CERCLA]) provide for broad liability on the part
of owners, Tenants, or other users of property for clean-up costs and damages,
regardless of fault. Other laws and regulations set standards for the handling
of asbestos, and establish requirements for the use, modification, abandonment,
and closure of underground storage tanks.
It is not practical or possible to list all such laws and regulations in this
Notice. Therefore, Sellers/Lessors and Buyers/Lessees are urged to consult legal
counsel to determine their respective rights and liabilities with respect to the
issues described in this Notice, as well as all other aspects of the proposed
transaction. If hazardous wastes or substances have been, or are going to be
used, stored, handled or disposed of on the Property, or if the Property has or
may have underground storage tanks, it is essential that legal and technical
advice be obtained to determine, among other things, the nature of permits and
approvals which have been obtained or may be required; the estimated costs and
expenses associated with the use, storage, handling, clean-up, disposal or
removal of hazardous wastes or substances; and the nature and extent of
contractual provisions necessary or desirable in this transaction. Broker
recommends expert assistance and site investigation to determine past uses of
the property, which may provide valuable information as to the likelihood of
hazardous wastes or substances, or underground storage tanks, being on the
Property.
<PAGE>
Seller/Lessor agrees to disclose to Broker and to Purchaser/Lessee any and all
information which he/she/it has regarding present and future zoning and
environmental matters affecting the Property and regarding condition of the
Property, including, but not limited to structural, mechanical and soils
conditions, the presence and location of asbestos, PCB transformers, other
toxic, hazardous or contaminated substances, and underground storage tanks, in,
on, or about the Property.
Broker has conducted no investigation regarding the subject matter hereof,
except as may be contained in separate written document signed by Broker. Broker
makes no representations concerning the existence or nonexistence of hazardous
wastes or substances, or underground storage tanks in, on, or about the
Property. Purchaser/Lessee should contact a professional, such as a civil
engineer, industrial hygienist or other persons with experience in these
matters, to advise on these matters.
The term "hazardous wastes of substances" is used herein in its very broadest
sense and includes, but is not limited to, petroleum based products, paints and
solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonium
compounds, asbestos, PCBs and other chemical products. Hazardous wastes or
substances and underground storage tanks may be present on all types of real
property. This Notice is intended to apply to any transaction involving any type
of real property, whether improved or unimproved.
Broker Representation
__ check if applicable. Seller/Lessor and Purchaser/Tenant hereby acknowledge
that Broker represents both parties hereto; and both parties consent thereto.
Broker Disclosure
The parties hereby expressly acknowledge that Broker has made no independent
determination or investigation regarding the following: present or future use or
zoning of the Property; environmental matters affecting the Property; the
condition of the Property, including, but not limited to structural, mechanical
and soils conditions, as well as issues surrounding hazardous wastes or
substances as set out above; violations of the Occupational Safety and Health
Act or any other federal, state, county or municipal laws, ordinances, or
statutes; measurements of land and/or buildings. Purchaser/Lessee agrees to make
its own investigation and determination regarding such items.
Compliance with Laws
The parties hereto agree to comply with all applicable federal, state and local
laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment in Realty Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and The Americans With
Disabilities Act.
Receipt of a copy of this Notice and Agreement is hereby acknowledged.
Dated ____________________,199__ ______________________________
Seller
Dated ____________________,199__ ______________________________
Purchaser
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISORS. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
CB COMMERCIAL REAL ESTATE GROUP, INC. OR ITS AGENTS OR EMPLOYEES AS TO
THE LEGAL EFFECT, INTERPRETATION, OR ECONOMIC CONSEQUENCES OF THE
NATIONAL FLOOD INSURANCE PROGRAM AND RELATED LEGISLATION, NOR OF OTHER
LEGISLATION REFERRED TO HEREIN. THESE ARE QUESTIONS THAT YOU SHOULD
ADDRESS WITH YOUR CONSULTANTS AND ADVISORS.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
[GRAPHIC]
2011 SENTER ROAD
SOUTH TENTH STREET/SENTER ROAD
CONNECTOR BUILDING: Approximately 3,320 Square Feet
PREMISES: This
shaded area totals +/- 141,520 square
feet. This includes the +/- 3,320
square foot Connector building.
2020 S. TENTH
approximately 138,200 Sq. Ft.
8.122 Ac.
1900 S. TENTH
approximately 106,274 Sq. Ft.
7.85 Ac.
2011 Senter Road
approximately 226,329 Sq. Ft.
9.84 Ac.
DROPPED CEILING
<PAGE>
EXHIBIT B-1
SOUTH TENTH STREET
[GRAPHIC]
2011 SENTER ROAD
Sublessee's Exclusive Use:
This boxed-in area is for the
exclusive use of the Sublessee.
Sublessor's Exclusive Use:
This shaded area is for the
exclusive use of the Sublessor.
2020 S. TENTH
approximately 138,200 Sq. Ft.
8.122 Ac.
1900 S. TENTH
approximately 106,274 Sq. Ft.
7.85 Ac.
2011 Senter Road
approximately 226,329 Sq. Ft.
9.84 Ac.
SENTER ROAD
DROPPED CEILING
<PAGE>
EXHIBIT C
Initial Certificate __________
Annual Update __________
Date __________
HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as Tenant. After a lease agreement is signed by you and the Landlord
("Lease Agreement"), on an annual basis in accordance with the provisions of
Section 4 of the Rider to the signed Lease Agreement, you are to provide an
update to the information initially provided by you in this certificate. The
information contained in the Initial Hazardous Materials Disclosure Certificate
and each annual certificate provided by you thereafter will be maintained in
confidentiality by Landlord subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchaser(s) of all or any portion of the property on which the
Premises are located, (iii) Landlord to defend itself or its lenders, partners
or representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders or subpoenas. Any and all capitalized terms used herein,
which are not otherwise defined herein, shall have the same meaning ascribed to
such term in the signed Lease Agreement. Any questions regarding this
certificate should be directed to, and when completed, the certificate should be
delivered to:
For purposes of this Hazardous Material Disclosure Certificate, the term
"Hazardous Materials" as used herein shall not include any materials or
substances customarily used in the conduct of general office activities, so long
as the quantity of such materials is not prohibited by Environmental Laws.
Landlord:
Tenant:
---------------
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number (s): __________________________________________________________
________________________________________________________________________________
Address of
Premises:
Length of Initial Term ______________________
1. GENERAL INFORMATION:
Describe the initial proposed operations to take place in, on, or about the
premises, including, without limitation, principal products processed,
manufactured or assembled
<PAGE>
services and activities to be provided or otherwise conducted. Existing
lessees should describe any proposed changes on-going operations.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials be used, stored or disposed of in, on or
about the Premises? Existing lessees should describe any Hazardous
Materials which continue to be used, generated, stored or disposed of
in, on or about the Premises.
Wastes Yes _____ No _____
Chemical Products Yes _____ No _____
Other Yes _____ No _____
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, stored or disposed of in, on or about
the Premises, including the applicable hazard class and an estimate of
the quantities of such Hazardous Materials at any given time;
estimated annual throughput; the proposed location(s) and method of
storage (excluding nominal amounts of ordinary household cleaners and
janitorial supplies which are not regulated by any Environmental
Laws); and the proposed location(s) and method of disposal for each
Hazardous Material, including, the estimated frequency, and the
proposed contractors or subcontractors. Existing lessees should attach
a list selling forth the information requested above and such list
should include actual data from on-going operations and the
identification of any variations in such information from the prior
year's certificate.
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage or gasoline, diesel, petroleum,
or other Hazardous Materials in tanks or sumps proposed in, on or
about the Premises7 Existing lessees should describe any such actual
or proposed activities.
Yes _____ No _____
If Yes, please explain:
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
4. WASTE MANAGEMENT
4.1 Has your company been issued on EPA Hazardous Waste Generator I.D.
Number? Existing lessees should describe any additional identification
numbers issued since the previous certificate.
Yes _____ No _____
4.2 Has your company filed a biennial or quarterly reports as a hazardous
generator? Existing lessees should describe any new reports filed.
Yes _____ No _____
If Yes, attach a copy of the most recent report filed.
<PAGE>
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other waste to:
__________ storm drain? __________ sewer?
__________ surface water? __________ no wastewater or other
wastes discharged.
Existing lessees should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
5.2 Will any such wastewater or waste be treated before discharge?
Yes _____ No _____
If Yes, describe the type or treatment proposed to be conducted.
Existing lessees should describe the actual treatment conducted.
6. AlR DISCHARGES
6.1 Do you plan for any air filtration systems of stacks to be used in
your company's operations in, on or about the Premises that will
discharge into the air; and will such air emissions be monitored?
Existing lessees should indicate whether or not there are any such air
filtration systems or stacks in use in, on or about the Premises which
discharge into the air and whether such air emissions are being
monitored.
Yes _____ No _____
If Yes, please describe:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
6.2 Do you propose to operate any of the following types of equipment or
and other equipment requiring an air emissions permit? Existing
lessees should specify any such equipment being operated in, on or
about the Premises.
__________ Spray booth(s) __________ Incinerator(s)
__________ Dip tank(s) __________ Other (please describe)
__________ Drying oven(s) __________ No Equipment Requiring
Air Permits
If Yes, please describe:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan") pursuant to
Fire Department or other governmental or regulatory agencies'
requirements? Existing lessees should indicate whether or not a
Management Plan is required and has been prepared.
Yes _____ No _____
If Yes, attach a copy of the Management Plan. Existing lessees should
attach a copy of any required updates to the Management Plan.
7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the Premises
regulated under Proposition 65? Existing lessees should indicate
whether or not there are any new Hazardous Materials being so used
which are regulated under Proposition 65.
Yes _____ No _____
If Yes, please explain:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has your
company ever been subject to any agency enforcement action,
administrative orders, or consent decrees or has your company received
requests for information, notice or demand letters, or any other
inquiries regarding its operations? Existing lessees
<PAGE>
should indicate whether or not any such actions, orders or decrees
have been, or are in the process or being, undertaken or if any such
requests have been received.
Yes _____ No _____
If Yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result or these actions, orders,
or decrees and also describe any requests, notices or demands, and
attach a copy of all such documents. Existing lessees should describe
and attach a copy of any orders, decrees, requests, notices or demands
not already delivered to Landlord pursuant to the provisions of
Section 4 of the Rider to the signed Lease Agreement.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
8.2 Have there ever been, or are there now pending, any lawsuits against
your company regarding any environmental or health and safety
concerns?
Yes _____ No _____
If Yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other documents
related thereto as requested by Landlord. Existing lessees should
describe and attach a copy of any new complaint(s),
cross-complaint(s), pleadings and other related documents not already
delivered to Landlord pursuant to the provisions of Paragraph 29 of
the signed Lease Agreement.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
8.3 Have there been any problems or complaints from adjacent tenants,
owners or other neighbors at your company's current facility with
regard to environmental or health and safety concerns? Existing
lessees should indicate whether or not there have been any such
problems or complaints from adjacent tenants, owners or other
neighbors at, about or near the Premises.
Yes _____ No _____
If Yes, please describe. Existing lessees should describe any such
problems or complaints not already disclosed to Landlord under the
provisions of the signed Lease Agreement.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
9. PERMITS AND LICENSES
9.1 Attach copies of all Hazardous Materials permits and licenses issued
to your company with respect to its proposed operations in, on or
about the Premises, including, without limitation, any wastewater
discharge permits, air emissions permits, and use permits or
approvals. Existing lessees should attach copies of any new permits
and licenses as well as any renewals of permits or licenses previously
issued.
<PAGE>
The undersigned hereby acknowledges and agrees that this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit. The undersigned further
acknowledges and agrees that this Hazardous Materials Disclosure Certificate is
being delivered in accordance with, and as required by, the provisions of
Section 4 of the Rider to the Lease Agreement. The undersigned further
acknowledges and agrees that the Landlord and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness thereof in
entering into the Lease Agreement and the continuance thereof throughout the
term, and any renewals thereof, of the Lease Agreement. I (print name) _________
____________________, acting with full authority to bind the Tenant and on
behalf of the Tenant, certify, represent and warrant that the information
contained in this certificate is true and correct.
Tenant:
By:
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Title:
- ------------------------------------
Date:
- ------------------------------------
- ------------------------------------ ------------------------------------
Tenant Date
AGREED AND ACCEPTED
- ------------------------------------ ------------------------------------
Landlord Date
Confidential Treatment is requested
for portions of this document.
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into by and
between W. Don Bell ("Bell") and Bell Microproducts, Inc., a California
corporation ("Company'), effective as of December 10, 1996.
WITNESETH
WHEREAS, Bell has been serving and continues to serve as the Chairman,
President and Chief Executive Officer of Company; and
WHEREAS, the parties wish to continue Bell's employment with Company for a
period of at least three years from the date of this Agreement and wish to set
forth the terms and conditions of that employment relationship in writing;
NOW, THEREFORE, in consideration of Bell's continued employment with
Company, and other good and valuable consideration, and in consideration of the
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree and contract as follows:
1. Term of Employment. Company hereby agrees to employ Bell as Chairman,
President and Chief Executive Officer for the period commencing with the date
set forth above and ending on December 31, 1999, unless Bell's employment is
terminated earlier pursuant to Paragraph 4 of this Agreement. After December 31,
1999, Bell's employment with Company may be continued by mutual written
agreement of the parties.
2. Duties. Bell accepts employment with Company as its Chairman, President
and Chief Executive Officer. Bell agrees to devote his full time, attention and
best efforts to the business and affairs of Company. Bell shall perform all
duties and responsibilities commensurate with his position as Chairman,
President and Chief Executive Officer and shall follow the reasonable direction
of the Board of Directors of the Company. Company agrees to nominate Bell for
election to Company's Board of Directors, and Bell agrees to serve, for any
period for which he is so elected, without additional compensation therefor.
Bell may serve on corporate, civic or charitable boards or committees, fulfill
speaking engagements and manage personal investments, so long as Company, in its
sole discretion, reasonably determines that such activities do not interfere,
compete with or otherwise pose a conflict of interest with respect to the
performance of Bell's duties and responsibilities under this Agreement. Bell
shall comply with Company's policies and procedures as adopted from time to
time; provided, however, that to the extent any such policies and procedures are
inconsistent with this Agreement, the provisions of this Agreement shall
control.
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Confidential Treatment is requested
for portions of this document.
3. Compensation and Benefit. During the term of this Agreement, Bell shall
be receiving the following compensation and benefits:
a. Base Salary. Bell shall receive a minimum base salary of $375,000
per year, less applicable withholding, payable monthly or more frequently
in accordance with Company's customary payroll practices. The Compensation
Committee of the Company's Board of Directors shall review Bell's base
salary at least annually and may, in its sole discretion, increase the base
salary under its normal compensation policies for executive officers.
b. Annual Incentive Compensation. Bell shall participate in any and
all annual incentive compensation plans, including but not limited to the
Management Incentive Program, which may be established by the Compensation
Committee of Company's Board of Directors for the Chief Executive Officer
from time to time. In no event shall any annual incentive compensation
plans established by the Compensation Committee for the Chief Executive
Officer after the date set forth above be less favorable than the annual
incentive compensation plans currently maintained for the Chief Executive
Officer as of such date.
c. EPS Enhancement Incentive.
(i) Within thirty (30) days following the issuance of the audited
financial statements for the 1997 fiscal year and each fiscal year
thereafter until the termination of this Agreement, Company shall pay Bell
a lump-sum cash incentive payment (the "EPS Enhancement Incentive") equal
to (i) $5,000 for each $0.01 of Company's annual net earnings per share (as
hereinafter defined) over and above [ * ] per share, plus (ii) $3,000 for
each $.01 of Company's annual net earnings per share (as hereinafter
defined) over and above [ * ] per share.
(ii) For purposes of this Paragraph 3(c), the term "annual net
earnings per share" for any fiscal year shall mean the net profits of
Company, after the provision for income taxes, any extraordinary items of
profit or loss and the computation of any payments due under this Paragraph
3(c), expressed on a fully diluted earnings per share basis (based on the
weighted average number of shares of Company's Common Stock outstanding or
equivalent thereto or otherwise treated as outstanding during such annual
fiscal period), computed in accordance with generally accepted accounting
principles by Company's independent public accountants and as reported in
Company's audited financial statements for such fiscal year. The [ * ] and
[ * ] per share thresholds stated herein shall be adjusted to reflect the
effect of any stock dividends on, or stock splits or reverse splits of, or
recapitalizations, reclassifications or other similar transactions
affecting Company's Common Stock which are declared or effected before the
date of this Agreement in the same manner as such dividends, stock splits
or transactions have been reflected in the annual net earnings per share in
accordance with generally accepted
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Confidential Treatment is requested
for portions of this document.
accounting principles and as reported in Company's audited financial
statements, and the $5,000 and $3,000 amounts shall be adjusted consistent
with the goals of the EPS Enhancement Incentive and the amount that would
otherwise be payable without such adjustment pursuant to Section 3(c).
(iii) If, in any fiscal year, the total compensation paid to Bell
would result in a violation of the compensation deduction limits contained
in Section 162(m) of the Internal Revenue Code of 1986 (the "Code"), or any
successor provision, and the regulations issued thereunder, a portion of
the EPS Enhancement Incentive shall be credited to a deferred compensation
account and shall become due and payable upon the effective date of Bell's
termination of employment for any reason. The portion credited to the
deferred compensation account shall be the amount necessary to avoid such
violation of Code Section 162(m). All amounts credited to the deferred
compensation account shall be adjusted for interest, compounded quarterly,
at the prime interest rate quoted by Citicorp, N.A. from time to time,
beginning with the date the deferred compensation account is established
and continuing until all amounts have been paid in full. Upon Bell's
termination of employment, the balance of the deferred compensation account
shall be paid in equal annual installments not to exceed $500,000 per year.
The deferred compensation account shall at all times be entirely unfunded.
Neither Bell nor his successors shall have any interest in the assets of
Company by reason of the right to receive the amounts credited to the
deferred compensation account, and Bell shall have only the rights of a
general unsecured creditor with respect thereto.
d. Long-Term Disability Insurance. Company agrees to pay all premiums
required for long-term disability insurance which shall provide Bell with a
disability benefit equal to sixty percent (60%) of Bell's total
compensation if, as the result of Bell's incapacity due to physical or
mental illness, Bell is unable to perform his duties as President and Chief
Executive Officer. Company may, in its discretion, provide such long-term
disability insurance under its group policy.
e. Business Expenses. Company will reimburse Bell for ordinary and
necessary travel and other out-of-pocket expenses incurred by Bell in
connection with the performance of his duties, provided that Bell promptly
submits to Company receipts verifying such expenses.
f. Other Emp1oyee Benefits. Bell shall be eligible to participate in
any and all other employee benefit plans and programs offered by Company
from time to time, including but not limited to, any medical, dental,
short-term disability and life insurance coverage, stock option plans or
retirement plans, in accordance with the terms and conditions of those
benefit plans and programs and on a basis consistent with that customarily
provided to Company's executive officers. In addition, Company shall
continue to maintain all life insurance policies currently in effect as of
the effective date set forth above.
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Confidential Treatment is requested
for portions of this document.
g. Vacation and Other Absence. Bell shall be entitled paid vacation
each year in accordance with Company's then-current vacation policy for
executive officers. The rules relating to other absences from regular
duties for holidays, sick or disability leave, leave of absence without
pay, or for other reasons, shall be the same as those customarily provided
to Company's executive officers.
4. Terminition. Unless extended by mutual written agreement of the parties,
and except for the provisions hereof which are intended to survive for other
periods of time as specified herein, this Agreement shall terminate (a) upon the
expiration date stated in Paragraph 1 (i.e., December 31 , 1999); (b) at any
time upon mutual written agreement of the parties; (c) immediately upon Bell's
death; (d) by the Company, immediately and without prior written notice, for
"cause" (as defined in Section 5(c) below); or (e) by Bell or by Company for any
reason not otherwise covered by clauses (a), (b), (c) or (d) herein, with at
least thirty (30) days' written notice to the other. Except as otherwise
provided in Paragraph 5, upon the termination of Bell's employment for any
reason, Bell shall be entitled to receive his base salary through his last date
of employment, any annual incentive compensation described in Paragraph 3(b)
which Bell may have earned through his last date of employment, the amounts
credited to the deferred compensation account described in Paragraph 3(c), any
unreimbursed business expenses incurred prior to such termination of employment
and such other employee benefits to the extent permitted by the applicable
policies or plan documents or as required by law.
5. Severance Benefits.
a. Termination Without Cause or Involuntary Termination. If Company
terminates Bell's employment without cause or in the event of an
"involuntary termination" (as defined in Section 5(c) below) at any time
during the term of this Agreement, Bell shall be entitled to the following
additional severance benefits:
(i) Base Salary. Company shall continue to pay Bell his then-current
base salary through the expiration date stated in Paragraph 1, or such
later date as may have been mutually agreed to in writing by the parties.
(ii) Benefits. Company shall continue to provide, at no cost to Bell,
medical, dental, short-term disability and life insurance benefits for Bell
and his dependents through the expiration date stated in Paragraph 1, or
such later date as may have been mutually agreed to by the parties, at the
same level of coverage as was provided to Bell immediately prior to the
termination of his employment, and shall continue to pay all premiums
required for the long-term disability insurance coverage described in
Paragraph 3(d) through the expiration date stated in Paragraph 1, or such
later date as may have been mutually agreed to by the parties.
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Confidential Treatment is requested
for portions of this document.
Company may, in its discretion, provide the benefits described herein
under the Company's group plans or under no less favorable insurance
contracts or arrangements secured by the Company. For purposes of Title X
of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date
of the "qualifying event" for Bell and his dependents shall be the
expiration date stated in Paragraph 1. Company's obligations to provide the
benefits described herein shall cease if Bell and his dependents become
covered under another employer's group medical, dental, short-term
disability, long-term disability or life insurance plans that provide Bell
and his dependents with comparable benefits and levels of coverage.
(iii) portion of EPS Enhancement Incentive for Current Fiscal Year.
Within thirty (30) days after the effective date of Bell's termination of
employment, Bell shall receive a lump-sum cash payment for a portion of the
EPS Enhancement Incentive which he could have earned for the fiscal year in
which his employment terminates. Such portion shall be based on the
cumulative monthly earnings per share for such fiscal year through the end
of the month coinciding with or immediately preceding the effective date of
Bell's termination of employment as reported in Company's interim financial
statements. For purposes of determining such portion of the EPS Enhancement
Incentive, the [ * ] and [ * ] thresholds described in Paragraph 3(c) shall
be pro rated for the number of months counted in such cumulative monthly
earnings per share, rounded down to the nearest cent. Exhibit A sets forth
an example of how the payments required under this Paragraph 5(a)(iii)
shall be calculated, but such Exhibit A shall not, in any manner, limit the
application of this Paragraph 5(a)(iii).
(iv) Average Annual and EPS Enhancement Incentives. Within thirty (30)
days after the effective date of Bell's termination of employment, Bell
shall receive a lump-sum cash payment equal to three times the sum of (A)
the monthly average of the EPS Enhancement Incentive described in Paragraph
3(e) which Bell may have earned for each fiscal year or portion thereof
during the term of this Agreement, including the fiscal year in which
Bell's termination of employment occurs, multiplied by twelve, and (B) the
monthly average of all other annual incentive compensation described in
Paragraph 3(b) which Bell may have earned for each fiscal year or portion
thereof during the term of this Agreement, including the fiscal year in
which Bell's termination of employment occurs, multiplied by twelve.
Exhibit A sets forth an example of how the payments required under this
Paragraph 5(a)(iv) shall be calculated, but such Exhibit A shall not, in
any manner, limit the application of this Paragraph 5(a)(iv).
(v) Acceleration of Stock Options. Notwithstanding anything in the
Amended and Restated 1988 Stock Option Plan, any successor plan, or any
stock option agreement to the contrary, upon the effective date of Bell's
termination of employment, one hundred percent (100%) of the unvested
portion of any stock option or restricted stock award held by Bell shall
automatically be accelerated in full so as to become fully vested, subject
to the restrictions relating to "pooling-of-interests" accounting treatment
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Confidential Treatment is requested
for portions of this document.
contained in Section 3(a)(i)(3) of the Management Retention Agreement
entered into by Bell and the Company on December 31, 1996, if
applicable.
b. Termination Upon Disability. If Bell's employment with Company is
terminated on account of disability at any time during the term of this
Agreement, Bell shall be entitled to the following additional benefits:
(i) Benefits. Company shall continue to provide, at no cost to Bell,
medical, dental and life insurance benefits for Bell and his dependents
through the expiration date stated in Paragraph 1, or such later date as
may have been mutually agreed to by the parties, at the same level of
coverage as was provided to Bell immediately prior to the termination of
his employment.
Company may, in its discretion, provide the benefits described herein
under the Company's group plans or under no less favorable insurance
contracts or arrangements secured by the Company. For purposes of Title X
of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date
of the "qualifying event" for Bell and his dependents shall be the end of
the twenty-four month period following the effective date of Bell's
termination of employment. Company's obligations to provide the benefits
described herein shall cease if Bell and his dependents become covered
under another employer's group medical, dental or life insurance plans that
provide Bell and his dependents with comparable benefits and levels of
coverage.
(ii) Portion of EPS Enhancement Incentive for Current Fiscal Year.
Within thirty (30) days after the effective date of Bell's termination of
employment on account of disability, Bell shall receive a lump-sum cash
payment for a portion of the EPS Enhancement Incentive which he could have
earned for the fiscal year in which his employment terminates. Such portion
shall be based on the cumulative monthly earnings per share for such fiscal
year through the end of the month coinciding with or immediately preceding
the effective date of Bell's termination of employment, as reported in
Company's interim financial statements. For purposes of determining such
portion of the EPS Enhancement Incentive, the [ * ] and [ * ] thresholds
described in Paragraph 3(e) shall be pro rated for the number of months
counted in such cumulative monthly earnings per share, rounded down to the
nearest cent.
c. Definitions.
(i) Cause. "Cause" shall mean (i) any act of personal dishonesty taken
by Bell in connection with his duties and responsibilities as President and
Chief Executive Officer and intended to result in substantial personal
enrichment of Bell, (ii) Bell's conviction of a felony or (iii) a willful
act by Bell which constitutes gross misconduct and which is injurious to
the Company.
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Confidential Treatment is requested
for portions of this document.
(ii) Disability. "Disability" shall have the same meaning as set
forth in the long-term disability insurance contract referred to in
Paragraph 3(d).
(iii) Involuntary Termination. "Involuntary termination" shall
mean:
(A) without Bell's express written consent, the significant
reduction of Bell's duties, authority or responsibilities,
relative to his duties, authority or responsibilities as in
effect immediately prior to such reduction, or the assignment to
Bell of such reduced duties, authority or responsibilities;
(B) without Bell's express written consent, a substantial
reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to
Bell immediately prior to such reduction;
(C) a reduction by Company in Bell's base salary as in
effect immediately prior to such reduction;
(D) a material reduction by Company in the kind or level of
employee benefits, including bonuses, to which Bell was entitled
immediately prior to such reduction with the result that Bell's
overall benefits package is significantly reduced;
(E) Bell's relocation to a facility or a location more than
thirty-five (35) miles from Bell's then present location, without
Bell's express written consent;
(F) any purported relation of Bell by Company which is not
effected for disability or for cause, or any purported
termination for which the grounds relied upon are not valid;
(G) the failure of Company to obtain the assumption of this
Agreement by any successors contemplated in Paragraph 8 below; or
(H) any act or set of facts or circumstances which would,
under California law or statute constitute a constructive
termination of Bell.
6. Covenant Not to Compete. In consideration of Bell's employment hereunder
and other good and valuable consideration, and in consideration of the covenants
confined herein, the receipt and sufficiency of which are hereby acknowledged,
all of which are express payments for the obligations set forth in this
Paragraph 6, Bell agrees that, during his employment and for a period of two (2)
years after the termination of this Agreement, he will not, directly or
indirectly, engage in (whether as an employee, consultant, proprietor, partner,
director or otherwise), have any ownership interest in, or participate in the
financing, operation,
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Confidential Treatment is requested
for portions of this document.
management or control of any firm, corporation or business that engages in or
intends to engage in business that is in direct competition with the Company's
principal business (as defined and discussed in Company's documents fled with
the Securities Exchange Commission); provided, however, that nothing contained
herein shall prevent Bell from owning or purchasing securities of any business
entity whose securities are regularly traded on any national securities exchange
or in the over-the-counter market if such ownership does not result in his or
his affiliates' owning directly or beneficially at any time five percent (50%)
of the voting securities of any corporation engaged in any business competitive
to the business then carried on by Company.
7. Remedies. The restriction contained in Paragraph 6 is necessary for
Company's protection, and any breach thereof will cause Company irreparable
damage for which there is no adequate remedy at law. Bell agrees that, in the
event of such breach, Company shall, in addition to any other remedy which
Company may have at law or in equity, be entitled to seek such equitable and
injunctive relief as may be available without the necessity of proving damages.
Company agrees that, in the event of a breach of this Agreement by Company, Bell
shall have all such remedies as may be available at law or in equity.
8. Successors.
a. Company's Successors. Any successor to Company (whether direct or
indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same manner and to the
same extent as Company would be required to perform such obligations in the
absence of succession. For all purposes under this Agreement, the term
"Company" shall include any successor to Company's business and/or assets
which executes and delivers the assumption agreement contemplated by this
Paragraph 8(a) or which becomes bound by the terms of this Agreement by
operation of law.
b. Employee's Successors. The terms of this agreement and all of
Bell's hereunder shall inure to the benefit of, and be enforceable by,
Bell's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
9. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of Bell, mailed notices shall
be addressed to him at the home address which he most recently communicated to
Company in writing. In the case of Company, mailed notices shall be addressed to
its corporate headquarters, and all notices shall be directed to the attention
of its Secretary.
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Confidential Treatment is requested
for portions of this document.
10. Coordination of Agreements. In the event of any conflict between this
Agreement and the Management Retention Agreement entered into by Bell and
Company on November, 1996, the terms of this Agreement shall control.
11. Miscellaneous Provisions.
a. No Duty to Mitigate. Bell shall not be required to mitigate the
amount of any payment contemplated by this Agreement, nor shall any such
payment be reduced by any earnings that Bell may receive from any other
source.
b. Amendment Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed
to in writing and signed by Bell and by an authorized officer of Company
(other than Bell). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or
of the same condition or provision at any other time.
c. Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not
expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes in their entirety any prior or contemporaneous agreements,
whether written, oral, express or implied, relating to the subject matter
hereof.
d. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
e. Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full
force and effect.
f. Withholding. All payments made pursuant to this Agreement will be
subject to the withholding of all applicable federal, state or local income
and employment
g. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
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Confidential Treatment is requested
for portions of this document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year set forth above.
COMPANY: BELL MICROPRODUCTS, INC.
/s/ Edward L. Gelbach
----------------------------------------
Dated: 12/10/96
----------------------------------
BELL:
/s/ W. Don Bell
----------------------------------------
W. Don Bell
Dated: 12/10/96
----------------------------------
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Confidential Treatment is requested
for portions of this document.
EXHIBIT A
This Exhibit A sets forth an example of how the payments required under
Paragraphs 5(a)(iii) and 5(a)(iv) should be calculated, but shall not, in any
manner, limit the application of such provisions.
Example: Assume that Bell is terminated on June 30, 1997. Company's earnings per
share ("EPS") for FY 1997 are as follows:
First Quarter [ * ]
Second Quarter [ * ]
Third Quarter [ * ]
Fourth Quarter [ * ]
During FY 1997, Bell earned the following incentive bonuses:
First Quarter [ * ]
Second Quarter [ * ]
1. Paragraph 5(a)(iii) - EPS Enhancement Incentive for 1997.
Cumulative Monthly EPS: [ * ]
Pro Rata Threshhold: [ * ]
EPS Enhancement
Incentive for 1997: [ * ]
2. Paragraph 5(a)(iv) - Average Annum and EPS Enhancement Incentives.
(A) EPS Enhancement Incentive: [ * ]
Monthly Aveme EPS: [ * ]
Average Annual EPS: [ * ]
Three-Year Payout: [ * ]
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Confidential Treatment is requested
for portions of this document.
(B) Other Incentive Bonuses:
Monthly Average
Inventive Bonus: [ * ]
Average Annual Bonus: [ * ]
Three-Year Payout: [ * ]
Total Payout equals the sum of (A) and (B): [ * ]
A-2
BELL MICROPRODUCTS, INC.
MANAGEMENT RETENTION AGREEMENT
This Management Retention Agreement (the "Agreement") is made and
entered into by and between __________ (the "Employee") and Bell Microproducts,
Inc. (the "Company"), effective as of the latest date set forth by the
signatures of the parties hereto below (the "Effective Date").
R E C I T A L S
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee
with certain severance benefits upon Employee's termination of employment
following a Change of Control which provides the Employee with enhanced
financial security and provides incentive and encouragement to the Employee to
remain with the Company notwithstanding the possibility of a Change of Control.
D. Certain capitalized terms used in the Agreement are defined in
Section 4 below.
The parties hereto agree as follows:
1. Term of Agreement. This Agreement shall terminate three years
following the Effective Date, unless a Change of Control has occurred as of such
time, in which case this Agreement shall terminate upon the date that all
obligations of the parties hereto with respect to this Agreement have been
satisfied. This Agreement may be extended unilaterally by the Company by written
resolutions adopted by the Board prior to the termination of this Agreement.
2. At-Will Employment. The Company and the Employee acknowledge that
the Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available
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in accordance with the Company's written employee plans or pursuant to other
written agreements with the Company.
3. Severance Benefits.
(a) Termination Following A Change of Control. If the
Employee's employment terminates at any time within twelve (12) months following
a Change of Control, then, subject to Section 4, the Employee shall be entitled
to receive the following severance benefits:
(i) Involuntary Termination. If the Employee's
employment is terminated as a result of Involuntary Termination other than for
Cause, then the Employee shall receive the following severance benefits from the
Company:
(1) Severance Payment. A cash payment in an
amount equal to one hundred percent (100%) of the Employee's Base Salary.
(2) Continued Employee Benefits. One hundred
percent (100%) Company-paid health, dental and life insurance coverage at the
same level of coverage as was provided to such employee immediately prior to the
Change of Control (the "Company-Paid Coverage") under the Company's plans. Such
coverage shall be provided under either (at the Company's discretion) (i) the
Company's plans, or (ii) no less favorable plans or arrangements secured by the
Company. If such coverage included the Employee's dependents immediately prior
to the Change of Control, such dependents shall also be covered at Company
expense. Company-Paid Coverage shall continue until the earlier of (i) one year
from the date of the Change of Control, or (ii) the date that the Employee and
his dependents become covered under another employer's group health, dental or
life insurance plans that provide Employee and his dependents with comparable
benefits and levels of coverage. For purposes of Title X of the Consolidated
Budget Reconciliation Act of 1985 ("COBRA"), the date of the "qualifying event"
for Employee and his dependents shall be the date upon which the Company-Paid
Coverage terminates.
(3) Stock Option Accelerated Vesting. One
hundred percent (100%) of the unvested portion of any stock option held by the
Employee shall automatically be accelerated in full so as to become completely
vested; provided, however, that if such potential vesting acceleration would
cause a contemplated Change of Control transaction that was intended to be
accounted for as a "pooling-of-interests" transaction to become ineligible for
such accounting treatment under generally accepted accounting principles, as
determined by the Company's independent public accountants (the "Accountants")
prior to the Change of Control, Employee's stock options and restricted stock
shall not have their vesting so accelerated.
(b) Timing of Severance Payments. Any severance payment to
which Employee is entitled under Section 4(a)(i) shall be paid by the Company to
the Employee (or to the Employee's successors in interest, pursuant to Section
7(b)) in cash and in full, not later than thirty (30) calendar days following
the Termination Date.
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(c) Voluntary Resignation; Termination For Cause. If the
Employee's employment terminates by reason of the Employee's voluntary
resignation (and is not an Involuntary Termination), or if the Employee is
terminated for Cause, then the Employee shall not be entitled to receive
severance or other benefits except for those (if any) as may then be established
under the Company's then existing written employee plans or pursuant to other
written agreements with the Company.
(d) Disability; Death. If the Company terminates the
Employee's employment as a result of the Employee's Disability, or such
Employee's employment is terminated due to the death of the Employee, then the
Employee shall not be entitled to receive severance or other benefits except for
those (if any) as may then be established under the Company's then existing
written employee plans or pursuant to other written agreements with the Company.
(e) Termination Apart from Change of Control. In the event the
Employee's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twelve (12)-month period
following a Change of Control, then the Employee shall be entitled to receive
severance and any other benefits only as may then be established under the
Company's existing severance and benefits plans and practices or pursuant to
other agreements with the Company.
4. Limitation on Payments. In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 4, would be subject to the excise tax imposed by Section 4999 of the
Code, then the Employee's severance benefits under Section 3(a)(i) shall be
reduced as to such lesser extent as would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code. Unless the
Company and the Employee otherwise agree in writing, any determination required
under this Section 4 shall be made in writing by the Company's independent
public accountants immediately prior to Change of Control (the "Accountants"),
whose determination shall be conclusive and binding upon the Employee and the
Company for all purposes. For purposes of making the calculations required by
this Section 4, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 4.
5. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Base Salary. "Base Salary" means an amount equal to
twelve (12) times Employee's monthly Company salary for the last full month
preceding the Change of Control.
-3-
<PAGE>
(b) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by the Employee in connection with his responsibilities as an
employee and intended to result in substantial personal enrichment of the
Employee, (ii) the conviction of a felony, (iii) a willful act by the Employee
which constitutes gross misconduct and which is injurious to the Company, and
(iv) following delivery to the Employee of a written demand for performance from
the Company which describes the basis for the Company's belief that the Employee
has not substantially performed his duties, continued violations by the Employee
of the Employee's obligations to the Company which are demonstrably willful and
deliberate on the Employee's part.
(c) Change of Control. "Change of Control" means the
occurrence of any of the following events:
(i) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities; or
(ii) A change in the composition of the Board
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date hereof, or
(B) are elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the Incumbent Directors at the time of such
election or nomination (but shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company); or
(iii) The stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets.
(d) Disability. "Disability" shall mean that the Employee has
been unable to perform his Company duties as the result of his incapacity due to
physical or mental illness, and such inability, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Employee or the Employee's
legal representative (such Agreement as to acceptability not to be unreasonably
withheld). Termination resulting from Disability may only be effected after at
least 30 days' written notice by the Company of its intention to terminate the
Employee's employment. In the event that the Employee resumes the performance of
substantially all of his duties hereunder before the termination of his
employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.
-4-
<PAGE>
(e) Involuntary Termination. "Involuntary Termination" shall
mean (i) without the Employee's express written consent, the significant
reduction of the Employee's duties, authority or responsibilities, relative to
the Employee's duties, authority or responsibilities as in effect immediately
prior to such reduction, or the assignment to Employee of such reduced duties,
authority or responsibilities; (ii) without the Employee's express written
consent, a substantial reduction, without good business reasons, of the
facilities and perquisites (including office space and location) available to
the Employee immediately prior to such reduction; (iii) a reduction by the
Company in the base salary of the Employee as in effect immediately prior to
such reduction; (iv) a material reduction by the Company in the kind or level of
employee benefits, including bonuses, to which the Employee was entitled
immediately prior to such reduction with the result that the Employee's overall
benefits package is significantly reduced; (v) the relocation of the Employee to
a facility or a location more than thirty-five (35) miles from the Employee's
then present location, without the Employee's express written consent; (vi) any
purported termination of the Employee by the Company which is not effected for
Disability or for Cause, or any purported termination for which the grounds
relied upon are not valid; (vii) the failure of the Company to obtain the
assumption of this agreement by any successors contemplated in Section 6(a)
below; or (viii) any act or set of facts or circumstances which would, under
California case law or statute constitute a constructive termination of the
Employee.
(f) Termination Date. "Termination Date" shall mean (i) if
this Agreement is terminated by the Company for Disability, thirty (30) days
after notice of termination is given to the Employee (provided that the Employee
shall not have returned to the performance of the Employee's duties on a
full-time basis during such thirty (30)-day period), (ii) if the Employee's
employment is terminated by the Company for any other reason, the date on which
a notice of termination is given, provided that if within thirty (30) days after
the Company gives the Employee notice of termination, the Employee notifies the
Company that a dispute exists concerning the termination or the benefits due
pursuant to this Agreement, then the Termination Date shall be the date on which
such dispute is finally determined, either by mutual written agreement of the
parties, or a by final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected), or (iii) if the Agreement is terminated by the Employee, the
date on which the Employee delivers the notice of termination to the Company.
6. Successors.
(a) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this Section
6(a) or which becomes bound by the terms of this Agreement by operation of law.
-5-
<PAGE>
(b) Employee's Successors. The terms of this Agreement and all
rights of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
7. Notice.
(a) General. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or certified
mail, return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for
Cause or by the Employee as a result of a voluntary resignation or an
Involuntary Termination shall be communicated by a notice of termination to the
other party hereto given in accordance with Section 7(a) of this Agreement. Such
notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated, and
shall specify the termination date (which shall be not more than 30 days after
the giving of such notice). The failure by the Employee to include in the notice
any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Employee hereunder or preclude the
Employee from asserting such fact or circumstance in enforcing his rights
hereunder.
8. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required
to mitigate the amount of any payment contemplated by this Agreement, nor shall
any such payment be reduced by any earnings that the Employee may receive from
any other source.
(b) Waiver. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Employee and by an authorized officer of
the Company (other than the Employee). No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes in their entirety any prior or contemporaneous agreements, whether
written, oral, express or implied, relating to the subject matter hereof.
-6-
<PAGE>
(d) Choice of Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California.
(e) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) Withholding. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(g) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year set forth below.
COMPANY BELL MICROPRODUCTS, INC.
------------------------------------------------
EMPLOYEE
------------------------------------------------
Date:
-7-
EXHIBIT 23.1
BELL MICROPRODUCTS INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Numbers 33-83398, 33-66580 and 333-10837) of Bell
Microproducts Inc. of our report dated March 26, 1997 appearing on page F-1 of
this Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
March 26, 1997
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<CURRENT-ASSETS> 159,626
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0
0
<OTHER-SE> 71,043
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<SALES> 483,316
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