<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
COMMISSION FILE NO. 0-22700
PROXIM, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 77-0059429
(State of incorporation) (I.R.S. Employer Identification No.)
295 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 960-1630
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------
Former name, former address and former fiscal year, if changed since last
report: Not Applicable.
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
<TABLE>
<CAPTION>
Title of Class Outstanding as of March 31, 1999
-------------- --------------------------------
<S> <C>
Common Stock, par value $.001 per share 10,673,355
</TABLE>
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PROXIM, INC.
Index
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements:
Balance Sheet at March 31, 1999 and December 31, 1998 ................. 3
Statement of Operations for the Three Months Ended
March 31, 1999 and 1998.............................................. 4
Statement of Cash Flows for the Three Months Ended
March 31, 1999 and 1998.............................................. 5
Notes to Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation ........................................ 7
PART II - OTHER INFORMATION
Item 5. Other Information.................................................. 19
Item 6. Reports on Form 8-K................................................ 19
</TABLE>
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PROXIM, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 29,239 $ 38,509
Marketable securities ......................................... 40,597 28,178
Accounts receivable, net ...................................... 8,371 9,193
Inventories ................................................... 12,682 11,825
Deferred tax assets ........................................... 1,612 1,612
Other current assets .......................................... 323 297
-------- --------
Total current assets ....................................... 92,824 89,614
Property and equipment, net ...................................... 3,520 3,355
Deferred tax assets .............................................. 1,273 1,273
-------- --------
$ 97,617 $ 94,242
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 2,143 $ 2,321
Other current liabilities ...................................... 7,141 6,451
-------- --------
Total current liabilities ................................... 9,284 8,772
-------- --------
Stockholders' equity:
Common Stock, $001 par value, 25,000 shares authorized;
10,673 and 10,435 shares issued and outstanding ............. 11 10
Additional paid-in capital ..................................... 85,291 83,165
Retained earnings .............................................. 3,031 2,295
-------- --------
Total stockholders' equity .................................. 88,333 85,470
-------- --------
$ 97,617 $ 94,242
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PROXIM, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Revenue .............................................. $ 14,750 $ 10,250
Cost of revenue ...................................... 7,674 5,299
-------- --------
Gross profit ......................................... 7,076 4,951
-------- --------
Operating expenses:
Research and development .......................... 3,108 1,811
Selling, general and administrative ............... 3,096 2,698
-------- --------
Total operating expenses ....................... 6,204 4,509
-------- --------
Income from operations ............................... 872 442
Interest and other income, net ....................... 852 795
-------- --------
Income before income taxes ........................... 1,724 1,237
Provision for income taxes ........................... 988 371
-------- --------
Net income ........................................... $ 736 $ 866
======== ========
Basic net income per share ........................... $ 0.07 $ 0.08
======== ========
Weighted average common shares ....................... 10,593 10,251
======== ========
Diluted net income per share ......................... $ 0.06 $ 0.08
======== ========
Weighted average common shares and equivalents ....... 12,041 10,875
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PROXIM, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 736 $ 866
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ................................... 388 428
Changes in assets and liabilities:
Accounts receivable, net ..................................... 822 (465)
Inventories .................................................. (857) 441
Other assets ................................................. (26) 43
Accounts payable ............................................. (178) (152)
Other current liabilities .................................... 690 (2,130)
-------- --------
Net cash provided by (used in) operating activities ........ 1,575 (969)
-------- --------
Cash flows used in investing activities:
Purchases of property and equipment .......................... (553) (160)
Purchase of marketable securities ............................ (12,419) (22,638)
-------- --------
Net cash used in investing activities ...................... (12,972) (22,798)
-------- --------
Cash flows provided by financing activities from issuance of
Common Stock ................................................... 2,127 455
-------- --------
Net increase (decrease) in cash and cash equivalents ............... (9,270) (23,312)
Cash and cash equivalents, beginning of period ..................... 38,509 62,296
-------- --------
Cash and cash equivalents, end of period ........................... $ 29,239 $ 38,984
======== ========
</TABLE>
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PROXIM, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying financial statements include all adjustments (consisting
only of normal recurring adjustments) which Proxim, Inc. (the "Company")
considers necessary for a fair presentation of the results of operations for the
interim periods covered and the financial condition of the Company at the date
of the balance sheets. The interim financial information is unaudited. This
Quarterly Report on Form 10-Q should be read in conjunction with the Company's
audited financial statements for the year ended December 31, 1998, included in
the 1998 Annual Report on Form 10-K. The results of operations for the three
months ended March 31, 1999 are not necessarily indicative of results that may
be expected for the entire year ending December 31, 1999.
INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Raw materials .......................................... $ 6,098 $ 5,149
Work-in-process ........................................ 6,029 6,028
Finished goods ......................................... 555 648
------- -------
$12,682 $11,825
======= =======
</TABLE>
NET INCOME PER SHARE:
The following table is a reconciliation of the numerators and denominators
of the basic and diluted net income per share calculations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
BASIC NET INCOME PER SHARE:
Net income available to Common Stockholders ........ $ 736 $ 866
======== ========
Weighted average common shares ..................... 10,593 10,251
======== ========
Basic net income per share ......................... $ .07 $ .08
======== ========
DILUTED NET INCOME PER SHARE:
Net income available to Common Stockholders ........ $ 736 $ 866
======== ========
Weighted average common shares ..................... 10,593 10,251
Dilutive common stock equivalents .................. 1,448 624
-------- --------
Weighted average common shares and equivalents ..... 12,041 10,875
======== ========
Diluted net income per share ....................... $ .06 $ .08
======== ========
</TABLE>
Options to purchase 50,000 and 172,287 shares of common stock were
outstanding at March 31, 1999 and 1998, respectively, and were antidilutive and
excluded from the dilutive net income per share calculations because the
options' exercise prices were greater than the average market price of the
common shares.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis below contain trend analysis and other
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. The Company
may from time to time make additional written and oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to stockholders. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below under "Certain Factors That May
Affect Future Operating Results" and elsewhere in this report. The Company does
not undertake to update any forward-looking statement that may be made from time
to time by or on behalf of the Company. Readers should carefully review the risk
factors described in other documents the Company files from time to time with
the Securities and Exchange Commission.
The following discussion should be read in conjunction with the Company's
1998 Financial Statements and Notes thereto.
The following table presents the percentages of total revenue represented by
certain line items from the Statement of Operations for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
------ ------
<S> <C> <C>
Revenue ................................................ 100.0% 100.0%
Cost of revenue ........................................ 52.0% 51.7%
------ ------
Gross profit ........................................... 48.0% 48.3%
------ ------
Operating expenses:
Research and development ............................ 21.1% 17.7%
Selling, general and administrative ................. 21.0% 26.3%
------ ------
Total operating expenses ......................... 42.1% 44.0%
------ ------
Income from operations ................................. 5.9% 4.3%
Interest and other income, net ......................... 5.8% 7.7%
------ ------
Income before income taxes ............................. 11.7% 12.0%
Provision for income taxes ............................. 6.7% 3.6%
------ ------
Net income ............................................. 5.0% 8.4%
====== ======
</TABLE>
RESULTS OF OPERATIONS
REVENUE
Revenue increased 44% in the first quarter of 1999 compared to the first
quarter of 1998. The increase in revenue in the first quarter of 1999 compared
to the first quarter of 1998 was primarily attributable to shipments to
distributors and OEM customers that sell RangeLAN2-based 2.4 GHz product lines
in North America, Europe and Japan and, to a lesser extent, shipments of
Symphony cordless home networking products sold through retail and online
channels. The increase was partially offset by lower revenue from sales of 900
MHz products.
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GROSS PROFIT
Gross profit as a percentage of revenue was 48.0% and 48.3% in the first
quarter of 1999 and 1998, respectively. Gross profit as a percentage of revenue
decreased in the first quarter of 1999 compared to the first quarter of 1998 due
to declining average selling prices on RangeLAN2 products, an increase in
revenue from lower gross margin Symphony products and a decrease in revenue from
higher gross margin 900 MHz products, partially offset by cost reductions on
RangeLAN2 products.
RESEARCH AND DEVELOPMENT
Research and development expenses increased in absolute dollars during the
first quarter of 1999 compared to the first quarter of 1998 primarily due to the
increased number of engineering employees, continued investment in integrating
the Company's technology into application specific integrated circuits
("ASICs"), development of wireless protocols and network software drivers, costs
related to product performance enhancements, cost reductions in the RangeLAN2
architecture, costs related to both domestic and international product
certifications, development of products based on Institute of Electrical and
Electronics Engineers ("IEEE") 802.11 standard, development of 5 GHz high-speed
wireless LAN technology and a $1,100,000 charge related to a minority investment
in a startup company developing ultra-broadband wireless products. Research and
development expenses increased as a percentage of revenue in the first quarter
of 1999 compared to the first quarter of 1998 primarily due to the increase in
personnel and development program costs and the charge in the first quarter of
1999. To date, all of the Company's research and development costs have been
expensed as incurred. The Company expects that research and development expenses
will continue to increase in absolute dollars but may vary over time as a
percentage of revenue.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased in absolute dollars
during the first quarter of 1999 compared to the first quarter of 1998 primarily
due to the hiring of additional marketing and sales personnel to support the
Company's growth, particularly its expansion into international and consumer
markets, as well as increased trade show and promotional expenses. Selling,
general and administrative expenses decreased as a percentage of revenue in the
first quarter of 1999 compared to the first quarter of 1998 primarily due to the
increase in revenue partially offset by higher personnel and promotional
expenses. The Company expects that selling, general and administrative expenses
will vary over time as a percentage of revenue.
INTEREST AND OTHER INCOME, NET
Interest and other income, net increased in the first quarter of 1999
compared to the first quarter of 1998 primarily due to higher invested cash
balances.
INCOME TAXES
The Company's estimated effective income tax rate was 35% for the first
quarter of 1999 before the non-deductible charge, compared to 30% for the first
quarter of 1998. The 1998 estimated effective income tax rate was less than the
combined federal and state statutory rates based primarily on tax credits.
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 1999, $1,575,000 of cash and cash equivalents were
provided by operating activities, primarily by net income, a decrease in
accounts receivable and an increase in other current liabilities, partially
offset by cash used to fund an increase in inventory and a decrease in accounts
payable. In the first
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quarter of 1998, $969,000 of cash and cash equivalents were used in operating
activities, primarily to fund an increase in accounts receivable and a decrease
in other current liabilities and accounts payable, partially offset by net
income for the period and cash provided by a decrease in inventory.
In the first quarters of 1999 and 1998, the Company purchased $553,000 and
$160,000, respectively, of property and equipment. Capital expenditures in the
first quarters of 1999 and 1998 were primarily for manufacturing and engineering
test equipment.
At March 31, 1999, the Company had working capital of $83,540,000, including
$29,239,000 in cash and cash equivalents and $40,597,000 in marketable
securities. The Company believes that its working capital and cash generated
from operations, if any, will be sufficient to finance cash acquisitions which
the Company may consider and provide adequate working capital for the
foreseeable future. However, to the extent that additional funds may be required
in the future to address working capital needs and to provide funding for
capital expenditures, expansion of the business or acquisitions, the Company
will consider raising additional financing. There can be no assurance that such
financing will be available on terms acceptable to the Company, if at all.
YEAR 2000 READINESS DISCLOSURE
Customary computer programming practices, developed prior to the upcoming
change in the century becoming a concern, have used two digits rather than four
to identify the year in a date field. If not corrected, many computer
applications may fail to treat year dates intended to represent years in the
twenty-first century as such but instead treat them as still in the twentieth
century. This failure could potentially result in system failure or
miscalculations disruptive to business operations, including, among other
things, an inability to initiate, receive, process, invoice or otherwise
complete normal business activities. These Year 2000 issues affect virtually all
companies and organizations.
The Year 2000 issues affect the Company's internal operations. Management is
engaged in a comprehensive program to assess its Year 2000 risk exposure and to
plan and implement remedial and corrective action where necessary. The Company
has several computer software programs and operating systems in its internal
operations, including applications used in its financial, human resources (HR),
order management and manufacturing information systems. Management has reviewed
all of its major internal systems, including HR, financial and manufacturing
systems, to assess Year 2000 readiness and to identify critical systems that
require correction or remediation. The Company's existing HR, financial and
manufacturing information systems will be Year 2000 ready by the second quarter
of 1999.
Management is working with consultants to develop and implement a new
manufacturing and finance information system. The new system was identified as a
strategic business initiative independent of Year 2000 considerations. While the
new information system will be a dynamic one permitting ongoing improvements as
business needs are identified, the basic operational systems are expected to be
substantially completed in 1999 at a total estimated expenditure of
approximately $2 million. These time and cost targets are management's current
best estimates based on presently available information and numerous
assumptions. Given the uncertainties and complexities inherent in any new system
installation, there can be no assurance that the project will be completed
within the estimated time and cost parameters. A significant disruption of the
Company's financial or manufacturing information systems would adversely impact
its ability to process orders, manage production and issue and pay invoices, and
may have a material adverse impact on operating results and financial condition.
The Company's manufacturing processes incorporate sophisticated computer
integrated manufacturing test systems that depend on a mix of proprietary
software and systems and software purchased from third parties. Failure of these
systems would cause a disruption in the manufacturing process and could result
in a delay in completion and shipment of products. Management's assessment of
the Year 2000 readiness of its
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manufacturing systems is approximately 90% complete. Based on information
currently available, management believes that its internal systems will not be
materially impacted by Year 2000 issues. However, the Company cannot guaranty
that a significant disruption in its systems resulting from a Year 2000 problem
will not occur. If the computer integration system fails for this or any other
reason, there could be a material adverse impact on operating results and
financial condition.
Management is working with critical suppliers of products and services to
assess their Year 2000 readiness with respect both to their operations and the
products and services they supply to the Company. Comprehensive inquiries have
been sent and responses are being monitored, with appropriate follow-up where
required. This analysis will continue throughout 1999, with corrective action
taken commensurate with the criticality of affected products and services.
Management is currently developing various types of contingency plans to
address potential problems with critical internal systems and third party
interactions. Management's contingency plans include procedures for dealing with
a major disruption of internal business systems, plans for a long term factory
shutdown and identification of alternative vendors of critical materials in the
event of a Year 2000 related disruption in supply. Contingency planning will
continue through at least 1999, and will depend heavily on the results of the
remediation and testing of critical systems. The potential ramifications of a
Year 2000 type failure are potentially far-reaching and largely unknown. The
Company cannot guaranty that a contingency plan in effect at the time of a
system failure will adequately address the immediate or long term effects of a
failure, or that such a failure would not have a material adverse impact on its
operations or financial results in spite of prudent planning.
The Company's costs to date related to the Year 2000 issue consist primarily
of reallocation of internal resources to evaluate and assess the system as
described above and to plan remediation and testing efforts. The Company has not
maintained detailed accounting records, but based on its review of department
budgets and staff allocations, the Company believes these costs to be
immaterial. Management currently estimates that the total cost of ongoing
assessment, remediation, testing and planning directly related to Year 2000
issues will amount to approximately $2.5 million. Of this, approximately $2
million is expected to consist of expenses attributed to cost of software and
external consulting fees and $500,000 for capital expenditures. The capital
expenditures represent early replacement of information technology equipment and
software to obtain the full benefits of Year 2000 protections versus the normal
technical obsolescence replacement cycle. The estimate is based on the current
assessment of the projects and is subject to change as the projects progress.
The Company cannot guaranty that remediation and testing will identify issues
which require additional expenditure of material amounts which could result in
an adverse impact on financial results in future reporting periods.
Based on currently available information, management does not believe that
the Year 2000 issues discussed above related to internal systems will have a
material adverse impact on the Company's operations and financial condition.
However, the Company is uncertain to what extent it may be affected by such
matters. In addition, the Company cannot assure you that the failure to ensure
Year 2000 capability by a supplier not considered critical or another third
party would not have a material adverse effect on its operations and financial
condition.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In addition to the other information in this Form 10Q, the following are
important factors that should be considered carefully in evaluating the Company
and its business.
Potential Fluctuations in Future Operating Results. The Company has
experienced, and may in the future continue to experience, significant annual
and quarterly fluctuations in revenue, gross margins and operating
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results due to numerous factors, many of which are outside the Company's
control. These factors include fluctuating market demand for, and declines in
the average selling prices of, the Company's products, the timing of and delays
or cancellations of significant orders from major customers, loss of one or more
of the Company's major customers, the cost, availability and quality of
components from the Company's suppliers, the cost, availability, and quality of
assemblies from contract and subcontract manufacturers, the lengthy sales and
design-in cycles for OEM products, delays in the introduction of the Company's
new products, competitive product announcements and introductions, market
adoption of new technologies, market adoption of standards-based products (such
as those compliant with the IEEE 802.11 standard or the HomeRF SWAP standard),
the mix of products sold, the effectiveness of the Company's distribution
channels, the success of the Company in developing new distribution channels,
the sell through rate of the Company's Symphony products through consumer retail
channels, management of retail channel inventories, the failure to anticipate
changing customer product requirements, seasonality in demand, manufacturing
capacity and efficiency, changes in the regulatory environment, product health
and safety concerns, Year 2000 issues and general economic conditions.
Historically, the Company has not operated with a significant order backlog
and a substantial portion of the Company's revenue in any quarter has been
derived from orders booked and shipped in that quarter. Accordingly, the
Company's revenue expectations are based almost entirely on its internal
estimates of future demand and not on firm customer orders. Planned operating
expense levels are relatively fixed in the short term and are based in large
part on these estimates, and if orders and revenue do not meet expectations, the
Company's operating results could be materially adversely affected. In this
regard, in the third quarter of 1997, the Company experienced a decrease in
revenue and an operating loss as a result of a significant decrease in orders
from two of the Company's major customers. There can be no assurance that the
Company will not experience future quarter to quarter decreases in revenue or
quarterly operating losses. In addition, due to the timing of orders from OEM
customers, the Company has often recognized a substantial portion of its revenue
in the last month of a quarter. As a result, minor fluctuations in the timing of
orders and the shipment of products have caused, and may in the future cause,
operating results to vary significantly from quarter to quarter.
It is possible that due to the potential fluctuations identified above or
other factors, the Company's future operating results could be below the
expectations of securities analysts and investors. In such an event, or in the
event that adverse market conditions prevail or are perceived to prevail
generally or with respect to the Company's business, the price of the Company's
Common Stock would likely decline. For example, in the third quarter of 1997 the
Company announced that revenue and operating results were expected to be
significantly below expectations of securities analysts and investors, resulting
in a decrease in the market price of the Company's Common Stock.
Dependence on a Limited Number of OEM Customers. Historically, a substantial
portion of the Company's revenue has been derived from a limited number of
customers, most of which are OEM customers. Approximately 58%, 59% and 62% of
the Company's sales during the first quarter of 1999, and calendar years 1998
and 1997, respectively, were to OEM customers. In addition, sales to two
customers represented approximately 32% and 12% of the Company's revenue during
the first quarter of 1999. Sales to two customers represented approximately 41%
and 11% of the Company's revenue during 1998. Sales to three customers
represented approximately 28%, 17% and 10% of the Company's revenue during 1997.
The Company expects that sales to a limited number of OEM customers will
continue to account for a substantial portion of its revenue for the foreseeable
future. The Company also has experienced quarter to quarter variability in sales
to each of its major OEM customers and expects this pattern to continue in the
future.
Sales of many of the Company's wireless networking products depend in
significant part upon the decision of a prospective OEM customer to develop and
market wireless solutions which incorporate the Company's wireless technology.
OEM customers' orders are affected by a variety of factors such as new product
introductions, regulatory approvals, end user demand for OEM customers'
products, product life cycles,
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inventory levels, manufacturing strategy, contract awards, competitive
conditions and general economic conditions. Sales of wireless LAN products
generally involve significant commitments of capital and other resources by the
Company and its customers, with the attendant delays associated with procedures
to approve such commitments. In this regard, in the fourth quarters of 1997 and
1998, the Company recorded charges of $2,400,000 and $1,000,000 respectively, to
selling, general and administrative expense related to investments in two
startup companies: one in a startup wireless services company utilizing wireless
LAN technology and the other in a developer of mobile thin-client computing
technology. Due to the nature of these entities and their operations, there can
be no assurance that these investments will be realizable or will result in
marketable and/or successful products. For these and other reasons, the
design-in cycle associated with the purchase of the Company's wireless products
by OEM customers is quite lengthy, generally ranging from six months to two
years, and is subject to a number of significant risks, including customers'
budgeting constraints and internal acceptance reviews, that are beyond the
Company's control. Because of the lengthy sales cycle, the Company typically
plans its production and inventory levels based on internal forecasts of OEM
customer demand, which is highly unpredictable and can fluctuate substantially.
In addition, the Company's agreements with OEM customers typically do not
require minimum purchase quantities and a significant reduction, delay or
cancellation of orders from any of these customers could have a material adverse
effect on the Company's results of operations. If revenue forecasted from a
specific customer for a particular quarter is not realized in that quarter, the
Company's operating results for that quarter could be materially adversely
affected. The loss of one or more of, or a significant reduction in orders from,
the Company's major OEM customers could have a material adverse effect on the
Company's results of operations. For example, in the third quarter of 1997, the
Company experienced a significant decrease in orders from two of the Company's
major customers resulting in a decrease in revenue, an operating loss and higher
inventory levels. In addition, there can be no assurance that the Company will
become a qualified supplier for new OEM customers or that the Company will
remain a qualified supplier for existing OEM customers.
Sole or Limited Sources of Supply. Certain parts and components used in the
Company's products, including the Company's proprietary Application Specific
Integrated Circuits ("ASICs"), Monolithic Microwave Integrated Circuits
("MMICs") and assembled circuit boards, are only available from single sources,
and certain other parts and components are only available from a limited number
of sources. The Company's reliance on these sole source or limited source
suppliers involves certain risks and uncertainties, including the possibility of
a shortage or discontinuation of certain key components and reduced control over
delivery schedules, manufacturing capability, quality and costs. Any reduced
availability of such parts or components when required could materially impair
the Company's ability to manufacture and deliver its products on a timely basis
and result in the cancellation of orders, which could have a material adverse
effect on the Company's operating results. In addition, the purchase of certain
key components involves long lead times and, in the event of unanticipated
increases in demand for the Company's products, the Company has in the past
been, and may in the future be, unable to manufacture certain products in a
quantity sufficient to meet its customers' demand in any particular period. The
Company has no guaranteed supply arrangements with its sole or limited source
suppliers, does not maintain an extensive inventory of parts or components, and
customarily purchases sole or limited source parts and components pursuant to
purchase orders placed from time to time in the ordinary course of business.
Business disruptions, production shortfalls or financial difficulties of a sole
or limited source supplier could materially and adversely impact the Company by
increasing product costs, or reducing or eliminating the availability of such
parts or components. In such event, the inability of the Company to develop
alternative sources of supply quickly and on a cost-effective basis could
materially impair the Company's ability to manufacture and deliver its products
on a timely basis and could have a material adverse effect on its operating
results.
Manufacturing Risks. The Company currently has limited manufacturing
capability and has no experience in large scale manufacturing. If the Company's
customers were to place or concurrently place orders for unexpectedly large
quantities of the Company's products, the Company's present manufacturing
capacity might be inadequate to meet such demand. There can be no assurance that
the Company will be able to develop or
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contract for additional manufacturing capacity on acceptable terms on a timely
basis. In addition, in order to compete successfully, the Company will need to
achieve significant product cost reductions. Although the Company intends to
achieve cost reductions through engineering improvements and production
economies, there can be no assurance that the Company will be able to do so. In
order to remain competitive, the Company must continue to introduce new products
and processes into its manufacturing environment. The Company currently conducts
its manufacturing operations for all of its products in a single facility in
Mountain View, California. In addition, the Company relies on certain outside
contract manufacturers for circuit board assemblies which subjects the Company
to a number of risks, including a potential inability to obtain an adequate
supply of assembled circuit boards as well as reduced control over the price,
timely delivery and quality of such assembled circuit boards. If the Company's
Mountain View facility were to become incapable of operating, even temporarily,
or were unable to operate at or near its current or full capacity for an
extended period, the Company's business and operating results could be
materially adversely affected. Further, in order to remain competitive the
Company expects to continue to introduce new processes into its manufacturing
environment. Changes in the manufacturing operations to incorporate new products
and processes could cause disruptions, which, in turn, could adversely affect
customer relationships, cause a loss of market opportunities and have a material
adverse effect on the Company's business and operating results.
The Company has in the past experienced higher than expected demand for its
products. This resulted in delays in the delivery of certain products due to
temporary shortages of certain components, particularly components with long
lead times, and insufficient manufacturing capacity. Although the Company has
taken certain steps to minimize such delays in the future by increasing its
manufacturing capacity and stocking certain critical and long lead time
components, due to the complex nature of the Company's products and
manufacturing processes, the worldwide demand for certain wireless technology
components and other factors, there can be no assurance that delays in the
delivery of products will not occur in the future.
The Company's principal facility is currently located in approximately
40,000 square feet of office space in Mountain View, California under a lease
that expires June 30, 2000. In addition, the Company recently entered into a
lease for approximately 139,000 square feet in two buildings in Sunnyvale,
California near its current facility. This lease expires on August 31, 2003. The
Company plans to relocate its current facility to Sunnyvale in July 1999. The
current expansion and relocation could cause a disruption in operations and
unexpected costs which could have a material adverse effect on the Company's
business and operating results.
Rapid Technological Change; Ongoing New Product Development Requirements;
Evolving Industry Standards. The wireless communications industry is
characterized by rapid technological change, short product life cycles and
evolving industry standards. To remain competitive, the Company must develop or
gain access to new technologies in order to increase product performance and
functionality, reduce product size and maintain cost-effectiveness. The
Company's research and development efforts are focused on implementing
enhancements to existing products, investigating new technologies and developing
new products. Since 1994 the Company's research and development efforts have
been concentrated on enhancing features and performance and reducing the cost of
the RangeLAN2-based products, including development of the Symphony product
line. These efforts include developing and integrating the Company's technology
into ASICs/MMICs, development of wireless protocols and network software
drivers, performance enhancements and cost reductions to wireless adapter and
access point products and efforts related to both domestic and international
product certification. In 1997 and 1998, and in the first quarter of 1999 the
Company substantially increased its research and development efforts in
developing Institute of Electrical and Electronics Engineers ("IEEE") 802.11
standard based products and 5 GHz high-speed wireless LAN technology based on
the HiperLAN standard.
The Company's success is also dependent on its ability to develop new
products for existing and emerging wireless communications markets, to introduce
such products in a timely manner and to have them designed into new products
developed by OEM customers. The development of new wireless networking products
is highly complex, and wireless LAN companies, including Proxim, from time to
time have experienced delays in
13
<PAGE> 14
developing and introducing new products. Due to the intensely competitive nature
of the Company's business, any delay in the commercial availability of new
products could have a material adverse effect on the Company's operating
results. If the Company is unable to develop or obtain access to advanced
wireless networking technologies as they become available, or is unable to
design, develop and introduce competitive new products on a timely basis, or is
unable to hire or retain qualified engineers to develop such technologies and
products, its future operating results would be materially and adversely
affected. In particular, the Company has expended substantial resources in
developing products that are designed to conform to the IEEE 802.11 standard
that received final approval in June 1997. There can be no assurance that the
Company's IEEE 802.11 compliant products or the IEEE 802.11 standard will have a
meaningful commercial impact.
The Company has substantially increased its research and development
expenses to develop new technologies related to 5 GHz high-speed wireless LAN
products. In this regard, in the fourth quarter of 1997, the Company took a
charge of $2,500,000 to research and development expense for the acquisition of
certain technology to be used in developing a new family of 5 GHz high-speed
wireless LAN products. Additionally, in the first quarter of 1999, the Company
took a $1,100,000 charge related to a minority investment in LAN startup company
developing ultra-broadband wireless products. In addition, the Company is a core
member of the HomeRF Working Group, an industry consortium that is establishing
an open industry standard (SWAP specification) for wireless digital
communications between PCS and consumer electronic devices, including a common
interface specification that supports wireless data and voice services in and
around the home. There can be no assurance that the HomeRF SWAP specification,
or products developed by the Company to comply with the specification will have
a meaningful commercial impact. Given the emerging nature of the wireless LAN
market, there can be no assurance that the RangeLAN2 products and technology, or
the Company's other products or technology, will not be rendered obsolete by
alternative technologies.
Competition. The wireless local area networking market is intensely
competitive. The principal competitive factors in this market include effective
RF coverage area, data throughput, wireless networking protocol sophistication,
network scalability, roaming capability, power consumption, product
miniaturization, product reliability, product time to market, product
certifications, price, effective distribution channels, ability to support new
industry standards and company reputation. Although the Company believes that it
currently competes favorably on the basis of these factors, the Company could be
at a disadvantage to companies that have broader distribution channels and offer
more diversified product lines.
Proxim has several competitors in its commercial wireless LAN business,
including Lucent Technologies, Symbol Technologies and Telxon, among others.
Proxim also faces competition from a variety of companies that offer different
technologies in the nascent home networking market, including several companies
developing competing wireless networking products. Additionally, numerous
companies have announced their intention to develop competing products in both
the commercial wireless LAN and home networking markets. In addition to
competition from companies that offer or have announced their intention to
develop wireless LAN products, the Company could face future competition from
companies that offer products which replace network adapters or offer
alternative wireless communications solutions, or from large computer companies,
PC peripheral companies as well as networking equipment companies. Furthermore,
the Company could also face competition from certain of its OEM customers which
have, or could acquire, wireless engineering and product development
capabilities. There can be no assurance that the Company will be able to compete
successfully against these competitors or that competitive pressures faced by
the Company will not adversely affect its business or operating results.
Many of the Company's present and potential competitors have substantially
greater financial, marketing, technical and other resources than the Company
with which to pursue engineering, manufacturing, marketing, and distribution of
their products and may succeed in establishing technology standards or strategic
alliances in the wireless LAN market, obtain more rapid market acceptance for
their products, or otherwise gain a competitive advantage. There can be no
assurance that the Company will succeed in developing products or
14
<PAGE> 15
technologies that are more effective than those developed by its competitors.
Furthermore, the Company competes with companies that have high volume
manufacturing and extensive marketing and distribution capabilities, areas in
which the Company has limited experience. Increased competition, direct and
indirect, could adversely affect the Company's revenue and profitability through
pricing pressure and loss of market share. There can be no assurance that the
Company will be able to compete successfully against existing and new
competitors as the market evolves and the level of competition increases.
International Sales. Revenue from shipments by the Company to customers
outside the United States, principally to a limited number of distributors and
OEM customers, represented 22%, 17% and 26% of total revenue during the first
quarter of 1999, and calendar years 1998 and 1997. The Company expects that
revenue from shipments to international customers will vary as a percentage of
total revenue. Sales to international customers or to U.S. OEM customers who
ship to international locations are subject to a number of risks and
uncertainties including, but not limited to, changes in foreign government
regulations and telecommunications standards, export license requirements,
tariffs and taxes, other trade barriers, fluctuations in currency exchange
rates, difficulty in collecting accounts receivable, difficulty in staffing and
managing foreign operations, and potential political and economic instability.
While international sales are typically denominated in U.S. dollars and the
Company typically extends limited credit terms, fluctuations in currency
exchange rates could cause the Company's products to become relatively more
expensive to customers in a particular country, leading to a reduction in sales
or profitability in that country. Additionally, payment cycles for international
distributors are typically longer than for distributors in the United States.
There can be no assurance that foreign markets will continue to develop or that
the Company will receive additional orders to supply its products to foreign
customers. The Company's business and operating results could be materially and
adversely affected if foreign markets do not continue to develop or if the
Company does not receive additional orders to supply its products for use by
foreign customers. In the latter part of 1997 and throughout 1998, capital
markets in Asia were highly volatile, resulting in fluctuations in Asian
currencies and other economic instabilities. These instabilities may continue or
worsen, either of which could have a material adverse effect on the Company's
results of operations. In this regard, in the third of 1997 and continuing
through the second quarter of 1998, the Company experienced a significant
decrease in orders from NTT-IT, one of the Company's major Japanese customers,
resulting in a significant decrease in quarterly revenue and an operating loss
in the third quarter of 1997.
Protection of Proprietary Rights. The Company relies on a combination of
patents, trademarks and non-disclosure agreements in order to establish and
protect its proprietary rights. Proxim has been issued four U.S. patents which
were issued in 1991, 1993, 1995 and 1999, and are important to the current
business of the Company, and has five patent applications pending in the U.S.
which relate to the Company's core technology. There can be no assurance that
patents will issue from any of these pending applications or, if patents do
issue, that the claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any patents
issued to the Company will not be challenged, invalidated or circumvented, or
that the rights granted thereunder will adequately protect the Company. Since
U.S. patent applications are maintained in secrecy until patents issue, and
since publication of inventions in the technical or patent literature tends to
lag behind such inventions by several months, the Company cannot be certain that
it was the first creator of the inventions covered by its issued patents or
pending patent applications or that it was the first to file patent applications
for such inventions or that the Company is not infringing on the patents of
others. In addition, the Company has filed, or reserved its rights to file, a
number of patent applications internationally. There can be no assurance that
any such international patent applications will issue or that the laws of
foreign jurisdictions will protect the Company's proprietary rights to the same
extent as the laws of the United States.
In view of the rapid technological change in this industry, Proxim believes
that the technical expertise and creative skills of its engineers and other
personnel are crucial in determining the Company's future success. The Company's
ability to compete in the marketplace may be enhanced by its ability to protect
its proprietary
15
<PAGE> 16
information through the ownership of patents, registrations and trademarks. The
Company attempts to protect its trade secrets and other proprietary information
through agreements with customers and suppliers, proprietary information and
invention assignment agreements with employees and other security measures.
However, although the Company intends to protect its rights vigorously, there
can be no assurance that these measures will be successful. Litigation may be
necessary to enforce the Company's patents, trademarks or other intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on the Company's
business and operating results. No intellectual property of the Company has been
invalidated or declared unenforceable. However, there can be no assurance that
in the future such rights will be upheld. Furthermore, there can be no assurance
that any issued patents will provide the Company with a competitive advantage or
will not be challenged by third parties or that the patents of others will not
have an adverse effect on the Company's ability to do business. As the number of
products in the wireless LAN market increase, and related functionalities and
features overlap, the Company may become increasingly subject to infringement
claims. These claims also might require the Company to enter into royalty or
license agreements. Any such claims, with or without merit, could cause costly
litigation and could require significant management time. There can be no
assurance that, if required, the Company could obtain such royalty or license
agreement on terms acceptable to management. There can be no assurance that the
measures taken by the Company will prevent misappropriation of its technology.
In addition, there can be no assurance that others will not independently
develop similar products, design around the Company's proprietary technology or
duplicate the Company's products.
Management of Growth. The Company's growth to date has caused, and will
continue to cause, a significant strain on its management, operational,
financial and other resources. The Company's ability to manage its growth
effectively will require it to improve its management, operational and financial
processes and controls as well as the related information and communications
systems. These demands will require the addition of new management personnel and
the development of additional expertise by existing management. The failure of
the Company's management team to effectively manage growth, should it occur,
could have a material adverse impact on the Company's results of operations.
Uncertain Government Regulation. In the United States, the Company is
subject to various FCC rules and regulations. Current FCC regulations permit
license-free operation in certain FCC-certified bands in the radio spectrum.
Proxim's spread spectrum wireless products are certified for unlicensed
operation in the 902-928 MHz and 2.4-2.4835 GHz frequency bands. Operation in
these frequency bands is governed by rules set forth in Part 15 of the FCC
regulations. The Part 15 rules are designed to minimize the probability of
interference to other users of the spectrum and, thus, accord Part 15 systems
secondary status. In the event that there is interference between a primary user
and a Part 15 user, a higher priority user can require the Part 15 user to
curtail transmissions that create interference. In this regard, if users of the
Company's products experience excessive interference from primary users, market
acceptance of the Company's products could be adversely affected, thereby
materially and adversely affecting the Company's business and results of
operations. The FCC, however, has established certain standards which create an
irrebuttable presumption of noninterference for Part 15 users and the Company
believes that its products comply with such requirements. There can be no
assurance that the occurrence of regulatory changes, including changes in the
allocation of available frequency spectrum or modification to the standards
establishing an irrebuttable presumption for unlicensed Part 15 users, would not
significantly impact the Company's operations by rendering current products
obsolete, restricting the applications and markets served by the Company's
products or increasing the opportunity for additional competition.
The Company's products are also subject to regulatory requirements in
international markets and, therefore, the Company has been monitoring the
development of spread spectrum regulations in certain countries that represent
potential markets for its products. The Company has extensive experience in
gaining regulatory approval outside of the United States. Several foreign
countries, such as Canada, have regulations that closely
16
<PAGE> 17
follow those of the FCC. To date, Proxim or its distribution partners have
obtained certifications for or authorizations to ship the Company's products
into over 50 countries. Each new Proxim product or OEM customer product must be
certified or otherwise qualified for use in each country. The Company has an
ongoing program to obtain certifications for its products and to assist certain
OEM customers in obtaining certification for their products in all available
markets. While there can be no assurance that the Company will be able to comply
with regulations in any particular country, the Company has designed its
RangeLAN2, RangeLAN802 and Symphony products to minimize the design
modifications required to meet various 2.4 GHz international spread spectrum
regulations. In addition, the Company will seek to obtain international
certifications for the Symphony product line in countries where there is a
substantial market for home PCs and Internet connectivity. Changes in, or the
failure by the Company to comply with, applicable domestic and international
regulations could have a material adverse effect on the Company's business and
operating results. In addition, with respect to those countries that do not
follow FCC regulations, Proxim may need to modify its products to meet local
rules and regulations.
Regulatory changes, including changes in the allocation of available
frequency spectrum, could significantly impact the Company's operations by
restricting the Company's development efforts, rendering current products
obsolete or increasing the opportunity for additional competition. In September
1993 and in February 1995, the FCC allocated additional spectrum for personal
communications services. In January 1997, the FCC authorized 300 MHz of
additional unlicensed frequencies in the 5 GHz frequency range. These changes in
the allocation of available frequency spectrum could create opportunities for
other wireless networking products and services. There can be no assurance that
new regulations will not be promulgated which could have a material adverse
effect on the Company's business and results of operations.
Emission of Electromagnetic Radiation. The intentional emission of
electromagnetic radiation has been the subject of recent public concern
regarding possible health and safety risks, and though the Company's products,
when installed in any of the intended configurations, will not exceed the
maximum permissible exposure limits listed in Section 1.1311 of the Federal
Communications Commission Regulations, there can be no assurance that such
safety issues will not arise in the future and will not have a materially
adverse effect on the Company's business.
Expanded Distribution Required for Branded Products. To date, a substantial
percentage of Proxim's revenue has been derived from OEM customers through the
Company's direct sales force. The Company sells its branded RangeLAN2 products
through domestic and international distributors. In general, distributors offer
products of several different companies, including products that may compete
with the Company's products. Accordingly, these distributors may give higher
priority to products of other suppliers, thus reducing their efforts to sell the
Company's products. Agreements with distributors are generally terminable at the
distributor's option. A reduction in sales efforts or termination of a
distributor's relationship with the Company may have a material adverse effect
on the Company's future operating results. Use of distributors also entails the
risk that distributors will build up inventories in anticipation of substantial
growth in sales. If such growth does not occur as anticipated, these
distributors may substantially decrease the amount of product ordered in
subsequent quarters. Such fluctuations could contribute to significant
variations in the Company's future operating results.
Dependence on Key Employees. The Company is highly dependent on the
technical and management skills of its key employees, in particular David C.
King, Chairman, President and Chief Executive Officer, and Juan Grau, Vice
President of Engineering. The Company does not have employment agreements with,
or life insurance on the life of, either person. The loss of the services of any
key employee could adversely affect the Company's business and operating
results. The Company's success also depends in large part on a limited number of
key technical, marketing and sales employees and on the Company's ability to
continue to attract, assimilate and retain additional highly talented personnel.
Competition for qualified personnel in the wireless data communications and
networking industries is intense. There can be no assurance that the Company
will be
17
<PAGE> 18
successful in retaining its key employees or that it can attract, assimilate or
retain the additional skilled personnel as required.
Volatility of Stock Price. Recently, the price of the Company's Common Stock
has been volatile. The Company believes that the price of its Common Stock may
continue to fluctuate, perhaps substantially, as a result of factors such as
announcements of developments relating to the Company's business, fluctuations
in the Company's operating results, general conditions in the wireless
communications industry or the worldwide economy, a shortfall in revenue or
earnings from securities analysts' expectations or other changes in financial
estimates by securities analysts, announcements of technological innovations or
new products or enhancements by the Company or its competitors, developments in
patent, copyrights or other intellectual property rights and developments in the
Company's relationships with its customers, distributors and suppliers. In the
third quarter of 1997, the Company announced revenue and operating results below
expectations of securities analysts and investors, resulting in a decrease in
the market price of the Company's Common Stock. In addition, in recent years the
stock market in general, and the market for shares of high technology stocks in
particular, have experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. There can be no
assurance that the market price of the Company's Common Stock will not
experience significant fluctuations in the future, including fluctuations that
are unrelated to the Company's performance.
18
<PAGE> 19
PART II
ITEM 5. OTHER INFORMATION
Pursuant to Rule 14a-4(c)(1) under the Securities Exchange Act of 1934, the
proxies of management would be allowed to use their discretionary voting
authority with respect to any non Rule 14a-8 stockholder proposal raised at the
Company's annual meeting of stockholders, without any discussion of the matter
in the proxy statement, unless the stockholder has notified the Company of such
proposal at least 45 days prior to the month and day on which the Company mailed
its prior year's proxy statement. Since the Company mailed its proxy statement
for the 1999 annual meeting of stockholders on April 30, 1999, the deadline for
receipt of any such stockholder proposal for the 1999 annual meeting of
stockholders is March 16, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION OF DOCUMENT
--------- -----------------------
<S> <C>
10.15 Sublease agreement dated March 30, 1999 between Applied Materials, Inc and Proxim, Inc.
</TABLE>
19
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mountain View, State of
California, on the 14th day of May, 1999.
PROXIM, INC.
By: /s/ Keith E. Glover
------------------------------------
Keith E. Glover,
Vice President of Finance and
Administration and
Chief Financial Officer
Dated: May 14, 1999
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ------------
<S> <C>
10.15 Sublease agreement dated March 30, 1999 between Applied
Materials, Inc and Proxim, Inc.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.15
* * * * * * * * * * * * * * * * * * * *
Sublease
OAKMEAD WEST BUILDINGS PROJECT
BUILDINGS A AND B
510 DEGUIGNE DRIVE
935 STEWART DRIVE
* * * * * * * * * * * * * * * * * * * *
Between
APPLIED MATERIALS, INC.
(Sublandlord)
and
PROXIM, INC.
(Subtenant)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SCHEDULE......................................................................1
1. SUBLEASE AGREEMENT.....................................................3
2. RENT...................................................................3
3. CONSTRUCTION OF INTERIOR IMPROVEMENTS
AND POSSESSION.........................................................8
4. SERVICES AND UTILITIES.................................................9
5. ALTERATIONS............................................................9
6. USE OF PREMISES.......................................................12
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES..........................13
8. REPAIR AND MAINTENANCE................................................14
9. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE..........................15
10. FIRE AND OTHER CASUALTY...............................................18
11. EMINENT DOMAIN........................................................18
12. RIGHTS RESERVED TO LANDLORD AND SUBLANDLORD...........................19
13. SUBTENANT'S DEFAULT...................................................20
14. SUBLANDLORD REMEDIES..................................................21
15. SURRENDER.............................................................23
16. HOLDOVER..............................................................24
17. SUBORDINATION TO GROUND LEASES AND MORTGAGES..........................24
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
18. ASSIGNMENT AND SUBLEASE...............................................25
19. CONVEYANCE BY SUBLANDLORD OR LANDLORD.................................27
20. ESTOPPEL CERTIFICATE..................................................27
21. FINANCIAL STATEMENTS..................................................28
22. LEASE DEPOSIT.........................................................28
23. FORCE MAJEURE.........................................................29
24. NOTICES...............................................................29
25. QUIET POSSESSION......................................................29
26. REAL ESTATE BROKERS...................................................30
27. MISCELLANEOUS.........................................................30
28. UNRELATED BUSINESS INCOME.............................................32
29. HAZARDOUS SUBSTANCES..................................................32
30. EXCULPATION...........................................................34
31. RIGHT OF FIRST REFUSAL................................................34
32. SUBLANDLORD OBLIGATIONS...............................................36
33. SUBLANDLORD'S REPRESENTATIONS AND WARRANTIES..........................36
34. SUBTENANT CURE RIGHT..................................................36
35. AUTHORIZATION TO DIRECT SUBLEASE PAYMENTS.............................37
36. APPROVALS; EXPENDITURES...............................................37
37. CONDITIONS PRECEDENT..................................................37
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
38. DIRECT LEASE WITH LANDLORD............................................37
</TABLE>
(iii)
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A DESCRIPTION OF PROJECT AND PREMISES/BUILDINGS
EXHIBIT B RULES AND REGULATIONS
EXHIBIT C WORK LETTER AGREEMENT
EXHIBIT D MORTGAGES CURRENTLY AFFECTING THE PROJECT
EXHIBIT E SHELL UPGRADES
EXHIBIT F LETTER OF CREDIT
EXHIBIT G LIST OF HAZARDOUS SUBSTANCES AND QUANTITIES
USED BY TENANT
EXHIBIT H MASTER LEASE
EXHIBIT I CONSENT
EXHIBIT J SIGNAGE
</TABLE>
(iv)
<PAGE> 6
SUBLEASE
THIS SUBLEASE (the "Sublease") is made as of March ___, 1999
(dated for reference purposes only and referred to herein as the "Effective
Date") between APPLIED MATERIALS, INC., a Delaware corporation (the
"Sublandlord") and PROXIM, INC., a Delaware corporation ("Subtenant"). The term
"Project" means the seven (7) buildings ("Buildings") and other improvements
commonly known as the "Oakmead West Buildings Project" located on the land (the
"Land") in Sunnyvale, California, described on EXHIBIT A-1.
Sublandlord is lessee of the Project pursuant to the Lease dated
September 9, 1997 ("Master Lease") between Sublandlord as Tenant and CarrAmerica
Realty Corporation as Landlord.
The following schedule (the "Schedule") is an integral part of
this Sublease. Terms defined in this Schedule shall have the same meaning
throughout the Sublease.
SCHEDULE
1. SUBTENANT: Proxim, Inc.
2. PREMISES: The "Premises" means and includes 510 DeGuigne
Drive ("Building A") and 935 Stewart Drive ("Building B"),
Sunnyvale, California, together with a nonexclusive right,
in common with other tenants of the Project, to use the
Project Common Areas subject to the Master Lease. Building
A and Building B may be referred to individually as "a
Building".
3. RENTABLE SQUARE FOOTAGE OF THE PREMISES:
Building A 75,093 sq. ft.
Building B 63,781 sq. ft.
4. SUBTENANT'S PROPORTIONATE SHARE: The Percentage listed
below for Landlord's Operating Costs and Taxes not
allocated to specific Buildings by Landlord or
Sublandlord.
<TABLE>
<CAPTION>
Proportionate Share
<S> <C>
Building A 17.63%*
Building B 14.97%*
---------- -------
Premises Total 32.60%
</TABLE>
* The percentages stated represent the ratio of the square
footage of each Building in the Premises to the aggregate
square footage of all Buildings in the Project. If the
aggregate square footage of all Buildings subject to the
Master Lease changes, this percentage may be adjusted to a
percentage equal to the ratio of the square footage of the
Premises to the aggregate square
1
<PAGE> 7
footage of the Buildings then subject to the Master Lease
for allocations by Sublandlord.
5. LEASE DEPOSIT: A security deposit in the form of cash or
an irrevocable letter of credit in the amount of
$284,691.70 plus one month's estimated net expenses of
$34,718.50.
6. PERMITTED USE: Office; storage and shipping of products;
assembly, repair and testing of products; research,
testing and demonstration laboratory; product research and
development; marketing and sales; customer service and
support; electronics manufacturing; and ancillary uses
permitted under applicable laws.
7. SUBTENANT'S REAL ESTATE BROKER FOR THIS LEASE: Colliers
International
8. SUBLANDLORD'S REAL ESTATE BROKER FOR THIS LEASE: Wayne
Mascia Associates
9. TENANT IMPROVEMENTS: To be constructed by Subtenant. See
Work Letter Agreement attached as EXHIBIT C.
10. COMMENCEMENT DATE: Building A: Approximately July 1, 1999;
Building B: Approximately July 15, 1999
See Paragraph 1.A.
11. TERM: Commencing on the Commencement Date and expiring
August 31, 2003 ("Termination Date")
12. GUARANTOR: None
13. BASE RENT:
<TABLE>
<CAPTION>
Monthly/ Monthly
Months Square Foot Base Rent
<S> <C> <C>
1-12 $ 1.85 $256,916.90
13-24 $ 1.90 $263,860.60
25-36 $ 1.95 $270,804.30
37-48 $ 2.00 $277,748.00
49-50 $ 2.05 $284,691.70
</TABLE>
14. MASTER LEASE: Lease dated September 9, 1997 between
Applied Materials, Inc. as Tenant and CarrAmerica Realty
Corporation as Landlord
15. LANDLORD OR MASTER
LANDLORD: CarrAmerica Realty Corporation
2
<PAGE> 8
1. SUBLEASE AGREEMENT. On the terms stated in this Sublease,
Sublandlord leases the Premises to Subtenant, and Subtenant leases the Premises
from Sublandlord, for the Term beginning on the Commencement Date and ending on
the Termination Date unless sooner terminated pursuant to this Sublease.
A. Commencement Date. The Commencement Date shall be the date
established pursuant to this section, and the Sublease shall expire on the
Termination Date set forth in the Schedule.
The Commencement Date for Building A (510 DeGuigne Drive) shall be July 1, 1999,
and the Commencement Date for Building B (935 Stewart Drive) shall be July 15,
1999, plus, for each Building, a number of days equal to the number of days of
Sublandlord Delay as defined in the Work Letter Agreement attached as EXHIBIT C
("Work Letter Agreement").
B. Delays. Subtenant shall commence payment of Rent as to
Building A on July 1, 1999, and as to Building B on July 15, 1999, as each are
extended by the number of days of Sublandlord Delay. If Subtenant is unable to
complete the Tenant Improvements for a Building due to (1) governmental
moratoria which prohibit issuance of necessary permits, (2) embargoes on
necessary materials, (3) earthquake, fire or other casualty damage to a
Building, (4) war or insurrection which significantly disrupts labor or
materials availability, and such delay continues for more than thirty (30)
consecutive days, the obligation to pay Rent for a Building shall be suspended
until the date of Substantial Completion of the Tenant Improvements (as defined
in the Work Letter Agreement). Sublandlord Delays shall mean those defined as
Sublandlord Delays in the Work Letter Agreement. If the date of Substantial
Completion of the Tenant Improvements has not occurred by January 1, 2000 due to
delays described in the preceding sentence, either party may terminate this
Sublease by written notice to the other on or before January 30, 2000; provided
that if Subtenant has entered into a direct lease of the Premises with Landlord
commencing as of the Termination Date of this Sublease, Sublandlord shall not
have the right to terminate this Sublease. If this Sublease is terminated
pursuant to the immediately preceding sentence, Sublandlord shall return the
Security Deposit within ten (10) business days. Except as provided in the Work
Letter, Subtenant shall have no obligations hereunder for the payment of Rent
(including Base Rent, Operating Costs Share Rent, or Tax Share Rent) as to
Building A or Building B until the applicable Commencement Date for each such
Building and Subtenant's obligation to pay Rent hereunder, shall be prorated
such that Subtenant shall not be responsible for payment of Rent hereunder
allocable to Building A or Building B until the applicable Commencement Date for
each Building.
C. Delivery Date. Sublandlord shall deliver the Premises to
Subtenant for construction within two (2) days after the date of execution of
this Sublease ("Delivery Date").
2. RENT.
A. Types of Rent. Commencing on the Commencement Date for each
of Building A and Building B, Subtenant shall pay the following Rent in the form
of a check (or via
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wire transfer) to Sublandlord pursuant to instructions to be given by
Sublandlord to Subtenant prior to the Commencement Date.
(1) Base Rent in monthly installments in advance, the
first monthly installment due on or prior to the first day of the second (2nd)
month following the Commencement Date (the Advance Rent Deposit shall be applied
against the first month's Base Rent), and thereafter on or before the first day
of each month of the Term in the amount set forth on the Schedule. Monthly Base
Rent for each Building shall be calculated according to the square footage and
Base Rent per square foot set forth in the Schedule.
(2) Operating Costs Share Rent in an amount equal to
Subtenant's Proportionate Share of the Operating Costs for the applicable fiscal
year of the Sublease charged to Sublandlord by Landlord pursuant to the Master
Lease ("Landlord's Operating Costs"), subject to the provisions of Paragraph 2.C
below. Operating Costs Share Rent shall be due monthly in advance in an
estimated amount, commencing with the Commencement Date, and thereafter on or
before the first day of each month of the Term. Definitions of Operating Costs
and Subtenant's Proportionate Share, and the method for billing and payment of
Operating Costs Share Rent are set forth in Sections 2B, 2C and 2D.
(3) Tax Share Rent in an amount equal to Taxes
applicable to the Premises for the applicable fiscal year of this Sublease, paid
semi-annually as set forth in Section 2B(1) below. A definition of Taxes and the
method for billing and payment of Tax Share Rent are set forth in Sections 2B,
2C and 2D.
(4) Additional Rent in the amount of all costs,
expenses, liabilities, and amounts which Subtenant is required to pay under this
Sublease, excluding Base Rent, Operating Costs Share Rent, and Tax Share Rent,
but including any interest for late payment of any item of Rent.
(5) Rent as used in this Sublease means Base Rent,
Operating Costs Share Rent, Tax Share Rent, and Additional Rent. Subtenant's
agreement to pay Rent is an independent covenant, with no right of setoff,
deduction or counterclaim of any kind.
B. Payment of Operating Costs Share Rent and Tax Share Rent.
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(1) Payment of Estimated Landlord Operating Costs
Share Rent and Tax Share Rent. Pursuant to the Master Lease, Landlord shall
estimate the Landlord Operating Costs and Taxes (defined in Section 2A(2) by
reference to the term "Operating Costs" defined in the Master Lease, and which
definition shall be used hereinafter) of the Project by April 1 of each fiscal
year, or as soon as reasonably possible thereafter. Landlord may revise these
estimates whenever it obtains more accurate information, such as an increase in
utility or maintenance costs for the Project Common Areas; provided in no event
shall the estimate be revised more than once in any calendar year. Sublandlord
shall deliver such estimates to Subtenant promptly upon receipt from Landlord.
Within ten (10) days after receiving the original or revised estimate from
Sublandlord, Subtenant shall pay Sublandlord one-twelfth (1/12th) of Subtenant's
Proportionate Share of this estimate, multiplied by the number of months that
have elapsed in the applicable fiscal year to the date of such payment including
the current month, minus payments previously made by Subtenant for the months
elapsed. On the first day of each month thereafter, Subtenant shall pay
Sublandlord one-twelfth (1/12th) of Subtenant's Proportionate Share of this
estimate, until a new estimate becomes applicable. Notwithstanding the
foregoing, Landlord's estimate shall exclude the portion of the Taxes payable
semi-annually to the County of Santa Clara pursuant to property tax bills for
the Project (the "Property Tax Bills"). With respect to Taxes payable in
connection with Property Tax Bills, Sublandlord shall deliver copies of such
bills to Subtenant at least thirty (30) days prior to the Delinquency Date set
forth therein, and Subtenant shall pay to Sublandlord, at least fifteen (15)
days prior to the Delinquency Date, Property Taxes allocated to the Premises, or
if the Property Tax Bills or County Assessor's records do not allocate the
Property Taxes applicable to the Project among Buildings, Subtenant's
Proportionate Share of the amount payable thereunder. Any interest or penalties
payable by Sublandlord as a result of Subtenant's failure to timely pay such
Taxes to Sublandlord shall be deemed Additional Rent payable by Subtenant
hereunder.
(2) Correction of Operating Costs Share Rent.
Sublandlord shall deliver to Subtenant a report for the previous fiscal year
(the "Operating Costs Report") promptly after receipt from Landlord of
Landlord's Operating Costs Report, which pursuant to the Master Lease shall be
April 1 of each year, or as soon as reasonably possible thereafter, setting
forth (a) the actual Landlord Operating Costs incurred and charged to
Sublandlord, (b) the amount of Operating Costs Share Rent due from Subtenant,
and (c) the amount of Operating Costs Share Rent paid by Subtenant. Within
thirty (30) days after such delivery, Subtenant shall pay to Sublandlord the
amount due minus the amount paid. If the amount paid exceeds the amount due,
Sublandlord shall apply the excess to Subtenant's payments of Operating Costs
Share Rent next coming due.
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(3) Correction of Tax Share Rent. Sublandlord shall
deliver to Subtenant a report for the previous fiscal year (the "Tax Report") by
April 1 of each year, or as soon as reasonably possible thereafter, setting
forth (a) the actual Taxes, (b) the amount of Tax Share Rent due from Subtenant,
and (c) the amount of Tax Share Rent paid by Subtenant. Within thirty (30) days
after such delivery, Subtenant shall pay to Sublandlord the amount due from
Subtenant minus the amount paid by Subtenant. If the amount paid exceeds the
amount due, Sublandlord shall apply any excess as a credit against Subtenant's
payments of Tax Share Rent next coming due.
C. Definitions.
(1) Included Operating Costs. "Landlord Operating
Costs" means all Operating Costs as defined in the Master Lease. Landlord
Operating Costs charged to Subtenant by Sublandlord shall not exceed Five
Thousand Dollars ($5,000.00) per year in connection with repair and maintenance
of the roof membrane of each Building, which amount shall be increased by four
percent (4%) per year, and shall not include Landlord Operating Costs for
structural maintenance and repair and elevator maintenance for buildings in the
Project other than the Premises.
(3) Taxes. "Taxes" means any and all taxes,
assessments and charges of any kind, general or special, ordinary or
extraordinary, levied against the Project, which Landlord or Sublandlord shall
pay or become obligated to pay in connection with the ownership, leasing,
renting, management, use, occupancy, control or operation of the Project or
Premises or of the personal property, fixtures, machinery, equipment, systems
and apparatus used in connection therewith. Taxes shall include real estate
taxes, personal property taxes, sewer rents, water rents, special or general
assessments, transit taxes, ad valorem taxes, and any tax levied on the rents
hereunder or the interest of Landlord or Sublandlord under this Sublease (the
"Rent Tax"). Taxes shall also include all fees and other costs and expenses paid
by Landlord or Sublandlord in seeking a refund or reduction of any Taxes,
whether or not the Landlord or Sublandlord is ultimately successful; provided
that the amount paid by Landlord or Sublandlord in any calendar year shall not
exceed the greater of (i) $5,000, or (ii) thirty five percent (35%) of the
annual savings achieved during that taxable year as a result of such refund or
reassessment. Subtenant may, at its cost and expense, seek a refund of Taxes
applicable to the Premises, and Sublandlord shall reasonably cooperate with
Subtenant in such effort. Taxes shall also include any assessments or fees paid
to any business park owners association, or similar entity, which are imposed
against the Project pursuant to any Covenants, Conditions and Restrictions
("CC&R's") recorded against the Land and any installments of principal and
interest required to pay annual debt service for any existing or future general
or special assessments for public improvements, services or benefits, and any
increases resulting from reassessments imposed in connection with any change in
ownership or new construction.
For any year, the amount to be included in Taxes (a) from taxes
or assessments payable in installments, shall be the amount of the installments
(with any interest) due and payable during such year, and (b) from all other
Taxes, at Landlord's or Sublandlord's election, as the case may be, shall be the
amount accrued, assessed, or otherwise imposed for such year or the amount
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due and payable in such year. Any refund or other adjustment to any Taxes by the
taxing authority shall apply during the year in which the adjustment is made.
Taxes shall not include any net income (except Rent Tax), capital, stock,
succession, transfer, franchise, gift, estate or inheritance tax, except to the
extent that such tax shall be imposed in lieu of any portion of Taxes.
(4) Lease Year. "Lease Year" means each consecutive
twelve-month period beginning on the Commencement Date, prorated for partial
years.
(5) Fiscal Year. "Fiscal Year" means the calendar
year, except that the first fiscal year and the last fiscal year of the Term may
be a partial calendar year.
(6) "Project Common Areas" means the areas and
facilities within the Project, exclusive of the Buildings and their interiors,
provided and designated by Landlord for the general use of the tenants of the
Project, including plazas, benches, landscape areas, parking areas, sidewalks,
service areas, and trash disposal facilities, subject to the reasonable rules
and regulations promulgated from time to time by Landlord.
D. Computation of Base Rent and Rent Adjustments.
(1) Prorations. If the Commencement Date as to
Building A or Building B occurs on a day other than the first day of a month,
the Base Rent, Operating Costs Share Rent and Tax Share Rent shall be prorated
for such partial month based on the actual number of days in such month. If the
Commencement Date as to Building A or Building B occurs on a day other than the
first day, or ends on a day other than the last day, of the fiscal year,
Operating Costs Share Rent and Tax Share Rent shall be prorated for the
applicable fiscal year.
(2) Default Interest. Any sum due from Subtenant to
Sublandlord not paid when due shall bear interest from the date due until paid
at a rate (the "Interest Rate") equal to the lesser of twelve percent (12%) per
annum and the maximum rate permitted by law.
(3) Rent Adjustments. The square footage of the
Premises set forth in the Schedule is conclusively deemed to be the actual
square footage thereof, without regard to any subsequent remeasurement of the
Project or the Premises. If any Operating Costs paid in one fiscal year relates
to more than one fiscal year, Landlord or Sublandlord, as the case may be, may
proportionately allocate such Operating Costs among the related fiscal years.
(4) Books and Records. Pursuant to the Master Lease,
Landlord shall maintain books and records reflecting the Operating Costs and
Taxes in accordance with sound accounting and management practices. Sublandlord
shall maintain books and records reflecting the Operating Costs and Taxes
(including both Landlord Operating Costs and Taxes and Sublandlord Operating
Costs and Taxes) charged to and paid by Sublandlord. Subtenant and its certified
public accountant shall have the right to inspect Sublandlord's books and
records regarding such matters at Sublandlord's offices in Santa Clara,
California during the ninety (90) days following the delivery
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of the Operating Costs Report. Sublandlord may, at its sole discretion and upon
reasonable request by Subtenant shall, exercise any right Sublandlord may have
to inspect Landlord's books and records under the Master Lease. Subtenant shall
use good faith, reasonable efforts and due diligence to keep confidential the
results of any such inspection of which Subtenant is informed. Unless Subtenant
sends to Sublandlord any written exception to either such report within thirty
(30) days prior to expiration of said ninety (90) day period, such report shall
be deemed final and accepted by Subtenant. Subtenant shall pay the amount shown
on both reports in the manner prescribed in this Sublease, whether or not
Subtenant takes any such written exception, without any prejudice to such
exception. If Subtenant makes a timely exception, Sublandlord, on behalf of
Subtenant, shall exercise its right, with Landlord, to choose an independent
certified public accountant or another firm with at least five (5) years of
experience in auditing the books and records of commercial office projects to
issue a final and conclusive resolution of Subtenant's exception. Subtenant
shall pay the cost of such certification unless Landlord is required to pay such
cost pursuant to the Master Lease.
(5) Miscellaneous. So long as Subtenant is in default
of any obligation under this Sublease, Subtenant shall not be entitled to any
refund of any amount from Sublandlord. If this Sublease is terminated for any
reason prior to the annual determination of Operating Costs Share Rent or Tax
Share Rent, either party shall pay the full amount due to the other within
fifteen (15) days after Sublandlord's notice to Subtenant of the amount when it
is determined. Sublandlord may commingle any payments made with respect to
Operating Costs Share Rent or Tax Share Rent, without payment of interest.
3. CONSTRUCTION OF INTERIOR IMPROVEMENTS AND POSSESSION.
A. Building Shell. As of the date hereof, Subtenant has
received and approved final drawings, plans and specifications (the "Shell Final
Plans") for Building A and Building B and the improvements described in 3.A.(1)
below (the "Shell Upgrade Plans").
(1) The "Building Shell" shall mean the Building
structure, exterior walls, glass, floor slab, utilities (phone, gas, electric,
plumbing, fire, and water) to the Building, and roof, and shall include the
parking lot, landscaping, and the base for the street monument sign. Landlord is
responsible for bringing phone, electrical, gas and plumbing service to the
Building (i.e., stubbed but not distributed) and for installing the main fire
sprinkler trunks (i.e., installed but not distributed or "dropped"). The
Building Shell does not include any elevators, stairs, HVAC, roof screens or
thermal insulation. Notwithstanding the foregoing, Landlord has installed all
elevators, and Sublandlord has installed the improvements listed on EXHIBIT E
(the "Shell Upgrades").
(2) Sublandlord represents that:
(i) The Building Shell (including the
related landscaping and hard scape), elevator, and the Shell Upgrades for each
Building have been constructed in accordance with the Shell Final Plans and
Shell Upgrade Plans delivered to and approved by Subtenant.
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(ii) The Building Shell and elevator and
Shell Upgrades for each Building have been designed and constructed in
accordance with applicable Building codes and laws, including the Americans With
Disabilities Act ("ADA") as interpreted by the applicable governmental authority
which issues the building permit.
(iii) The Building Shell and elevator and
Shell Upgrades for each Building have been constructed in a good and workmanlike
manner, and of materials in accordance with specifications delivered to and
approved by Subtenant.
(iv) To the best of Sublandlord's actual
knowledge, each Building and its in-place operating systems are in good working
order and condition.
Notwithstanding anything to the contrary herein,
Sublandlord's warranties in subsections (i)-(iii) herein with respect to the
Building Shell and elevator for each Building are not warranties independent
from Landlord's warranties under the Master Lease, and Sublandlord's sole
obligation under this section, and Subtenant's sole remedy for breach of such
warranties, shall be that Sublandlord shall diligently pursue its remedies, as
reasonably requested by Subtenant, against Landlord for breach of its warranties
under the Master Lease and shall provide to Subtenant any benefit of recovery
from Landlord.
B. Construction of Interior Improvements. Except for
Sublandlord's obligation to provide the Improvements Allowance in accordance
with the Work Letter Agreement, Sublandlord is leasing the Premises to Subtenant
"as is," without any obligation to alter, remodel, improve, or decorate any part
of the Premises or Project. Subtenant shall cause the Tenant Improvements to be
completed in accordance with the terms, conditions and limitations set forth in
the Work Letter Agreement.
C. Subtenant's Possession/Condition of Premises and Project.
Sublandlord shall deliver the Premises on the Delivery Date free of debris or
construction materials. Subtenant's taking possession of the Premises shall be
conclusive evidence that the Premises were in good order, repair and condition
[subject only to those "punch list" items noted in writing to Sublandlord within
the thirty (30) day period immediately following the date on which Subtenant
takes possession of such portion of the Premises].
4. SERVICES AND UTILITIES. As of the applicable Commencement Date,
Subtenant shall promptly pay, as the same become due, all charges for water,
gas, electricity, telephone, sewer service, waste pick-up and any other
utilities, materials and services furnished directly to or used by Subtenant on
or about the Premises during the Term, including without limitation, (i) meter,
use and/or connection fees, hook-up fees, or standby fees (excluding any
connection fees or hook-up fees which relate to making the existing electrical,
gas, and water service available to the Premises as of the Commencement Date),
and (ii) penalties for discontinued interrupted service. If any utility service
is not separately metered to the Premises, then Subtenant shall pay Subtenant's
proportionate share of the cost of such utility service with all others served
by the service not separately metered.
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However, if Sublandlord or Landlord reasonably determine that Subtenant is using
a disproportionate amount of any utility service not separately metered, then
Landlord or Sublandlord at its election may (i) periodically charge Subtenant,
as Additional Rent, a sum equal to Landlord's or Sublandlord's reasonable
estimate of the cost of Subtenant's excess use of such utility service, or (ii)
install, at Subtenant's expense, a separate meter to measure the utility service
supplied to the Premises. Any interruption or cessation of utilities resulting
from any causes, including any entry for repairs pursuant to this Sublease, and
any renovation, redecoration or rehabilitation of any area of the Project shall
not render Sublandlord or Landlord liable for damages to either person or
property or for interruption or loss to Subtenant's business, nor be construed
as an eviction of Subtenant, nor work an abatement of any portion of Rent, nor
relieve Subtenant from fulfillment of any covenant or agreement hereof;
provided, however, in the event that an interruption of the Project or Premises
services causes the Premises to be untenantable for a period of at least ten
(10) consecutive business days, monthly Rent shall be abated proportionately.
5. ALTERATIONS.
A. LANDLORD'S AND SUBLANDLORD'S CONSENT AND CONDITIONS.
Subtenant shall not make any improvements or alterations to the Premises (the
"Work") without in each instance submitting plans and specifications for the
Work to Landlord and Sublandlord and obtaining Landlord's and Sublandlord's
prior written consent, which shall not be unreasonably withheld, unless (a) the
cost thereof is less than $50,000 per occurrence, (b) such Work does not impact
the base structural components or systems of a Building, (c) such Work will not
impact any other tenant's premises, and (d) such Work is not visible from
outside a Building. Sublandlord hereby consents to construction of the Initial
Tenant Improvements (defined in Section 5.E). Provided that Sublandlord receives
all necessary information and plans from Subtenant, Sublandlord agrees to
respond to Subtenant's request for Sublandlord's prior written consent to such
alterations within seven (7) business days in the case of Work costing between
$50,000 and $100,000, and within ten (10) business days for Work costing over
$100,000. For purposes of the $50,000 and $100,000 thresholds, Subtenant may
exclude costs associated with performing alterations which are solely cosmetic
in nature, such as recarpeting and repainting the Premises. However, even if
Sublandlord's or Landlord's prior written consent is not required, Subtenant
shall provide Sublandlord and Landlord with prior written notice at least seven
(7) days in advance of commencing the Work so that Sublandlord and Landlord may
post and record a notice of nonresponsibility or other notices deemed
appropriate before the commencement of such Work. Subtenant shall pay Landlord's
and Sublandlord's actual out-of-pocket costs incurred for reviewing of all of
the plans and all other items submitted by Subtenant. Landlord and/or
Sublandlord will be deemed to be acting reasonably in withholding its consent
for any Work which (a) impacts the base structural components or systems of a
Building, and (b) impacts any other tenant's premises. As part of the Work,
Sublandlord agrees that, subject to Landlord's consent, Subtenant shall have the
right to install exterior equipment pads for each Building, in a location and of
a size subject to Sublandlord's reasonable approval after review of plans for
such Work.
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Subtenant shall pay for the cost of all Work, including the cost
of any and all approvals, permits, fees and other charges which may be required
as a condition of performing such Work. Upon completion all Work shall become
the property of Landlord, except for Subtenant's trade fixtures and for items
which Landlord requires Subtenant to remove at Subtenant's cost at the
termination of the Sublease pursuant to Section 5E and except for Subtenant's
anechoic chamber which shall remain Subtenant's property and be treated herein
as a trade fixture.
The following requirements shall apply to all Work:
(1) Prior to commencement, Subtenant shall furnish to
Sublandlord and Landlord building permits, certificates of insurance
satisfactory to Landlord and Sublandlord, and, at Landlord's and Sublandlord's
reasonable request, security for payment of all costs.
(2) Subtenant shall perform all Work so as to maintain
peace and harmony among other contractors serving the Project and shall avoid
interference with other work to be performed or services to be rendered in the
Project.
(3) The Work shall be performed in a good and workmanlike
manner, meeting the standard for construction and quality of materials in the
Building, and shall comply with all insurance requirements and all applicable
governmental laws, ordinances and regulations ("Governmental Requirements").
(4) Subtenant shall perform all Work so as to minimize or
prevent disruption to other tenants of the Building or of the Project, and
Subtenant shall comply with all reasonable requests of Landlord or Sublandlord
in response to complaints from other tenants.
(5) Subtenant shall perform all Work in compliance with any
"Policies, Rules and Procedures for Construction Projects" which may be in
effect at the time the Work is performed.
(6) Subtenant shall permit Landlord and Sublandlord to
observe all Work.
(7) Upon completion, Subtenant shall furnish Landlord and
Sublandlord with contractor's affidavits and full and final statutory waivers of
liens covering all labor and materials, as-built plans and specifications, and
all other close-out documentation related to the Work, including any other
information required under any "Policies, Rules and Procedures for Construction
Projects" which may be in effect at such time.
B. Damage to Systems. If any part of the mechanical, electrical
or other systems in the Premises (e.g., HVAC, life safety or automatic fire
extinguisher/sprinkler system) shall be damaged during the performance of the
Work, Subtenant shall promptly notify Sublandlord, and Sublandlord, or Landlord
at its election, shall repair such damage at Subtenant's expense. Landlord and
Sublandlord may also at any reasonable time make any repairs or alterations
which Landlord or Sublandlord deems necessary for the safety or protection of
the Project or a Building, or which
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Landlord or Sublandlord is required to make by any court or pursuant to any
Governmental Requirement. The cost of any repairs made by Landlord or
Sublandlord on account of Subtenant's default, or on account of the mis-use or
neglect by Subtenant or its invitees, contractors or agents anywhere in the
Project, shall become Additional Rent payable by Subtenant on demand.
C. No Liens. Subtenant has no authority to cause or permit any
lien or encumbrance of any kind to affect Landlord's or Sublandlord's interests
in the Project or a Building; any such lien or encumbrance shall attach to
Subtenant's interest only. If any mechanic's lien shall be filed or claim of
lien made for work or materials furnished to Subtenant, then Subtenant shall at
its expense within ten (10) days thereafter either discharge or contest the lien
or claim. If Subtenant contests the lien or claim, then Subtenant shall (i)
within such ten (10) day period, provide Landlord or Sublandlord adequate
security for the lien or claim, (ii) contest the lien or claim in good faith by
appropriate proceedings that operate to stay its enforcement, and (iii) pay
promptly any final adverse judgment entered in any such proceeding. If Subtenant
does not comply with these requirements, Landlord or Sublandlord may discharge
the lien or claim, and the amount paid, as well as attorney's fees and other
expenses incurred by Landlord or Sublandlord, as the case may be, shall become
Additional Rent payable by Subtenant on demand.
D. Ownership of Improvements. All Work as defined in this
Section 5, hardware, equipment, machinery and all other improvements and all
fixtures except trade fixtures, constructed in the Premises by either Landlord,
Sublandlord or Subtenant, (i) shall become Landlord's property upon installation
without compensation to Subtenant, unless Landlord consents otherwise in
writing, and (ii) shall at Landlord's option (which shall be stated at the time
Landlord and Sublandlord consent to such Work) either (a) be surrendered to
Landlord with the Premises at the termination of the Sublease or of Subtenant's
right to possession, or (b) be removed in accordance with Subsection 5E below
(unless Landlord at the time it gives its consent to the performance of such
construction expressly waives in writing the right to require such removal).
Notwithstanding the foregoing, all Tenant Improvements installed by Sublandlord
and financed in whole or in part by Landlord or Sublandlord from the Tenant
Improvement Allowance described in the Work Letter Agreement shall be the
property of Landlord, Sublandlord, and Subtenant during the term of this
Sublease in the proportions that each has financed the cost thereof, and shall
become the property of Landlord upon expiration of this Sublease. In the event
that this Sublease is terminated prior to the scheduled expiration date due to a
default by Subtenant, Sublandlord shall have the right to remove all Work at
Subtenant's expense (unless Sublandlord and Landlord have previously waived such
right).
E. Removal Upon Termination. Upon the termination of this
Sublease or Subtenant's right of possession, Subtenant shall remove from the
Premises its trade fixtures, furniture, moveable equipment and other personal
property, any improvements which Landlord elects shall be removed by Subtenant
pursuant to Section 5D, and any improvements to any portion of the Project other
than the Premises. If Subtenant does not timely remove such property, then
Subtenant shall be conclusively presumed to have, at Sublandlord's election (i)
conveyed such property to Sublandlord without compensation or (ii) abandoned
such property, and Sublandlord
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may dispose of or store any part thereof in any manner at Subtenant's sole cost,
without waiving Sublandlord's right to claim from Subtenant all expenses arising
out of Subtenant's failure to remove the property, and without liability to
Subtenant or any other person. Neither Landlord nor Sublandlord shall have any
duty to be a bailee of any such personal property. If Sublandlord elects
abandonment, Subtenant shall pay to Sublandlord, upon demand, any expenses
incurred for disposition. Notwithstanding the foregoing, Subtenant shall have no
obligation to remove the Tenant Improvements to be constructed in accordance
with the Work Letter Agreement ("Initial Tenant Improvements").
6. USE OF PREMISES.
A. LIMITATION ON USE. Subtenant shall use the Premises only for
the Permitted Use stated in the Schedule. Subtenant shall not allow any use of
the Premises which will negatively affect the cost of coverage of Landlord's or
Sublandlord's insurance on the Project, unless Subtenant pays any additional
premiums as a result of such use. Subtenant shall not allow any inflammable or
explosive liquids or materials to be kept on the Premises, other than those
materials reasonably required for Subtenant's Permitted Use under this Lease;
provided that such materials are handled in strict accordance with all
applicable governmental requirements. Subtenant shall not allow any use of the
Premises which would cause the value or utility of any part of the Premises to
diminish or would interfere with any other tenant or with the operation of the
Project by Landlord or Sublandlord. Subtenant shall not permit any nuisance or
waste upon the Premises, or allow any offensive noise or odor in or around the
Premises. At the end of each business day, or more frequently if necessary,
Subtenant shall deposit all garbage and other trash (excluding any inflammable,
explosive and/or hazardous materials) in trash bins or containers approved by
Sublandlord in locations designated by Sublandlord from time to time. If any
governmental authority shall deem the Premises to be a "place of public
accommodation" under the Americans with Disabilities Act or any other comparable
law as a result of Subtenant's peculiar use, Subtenant shall either modify its
use to cause such authority to rescind its designation or be responsible for any
alterations, structural or otherwise, required to be made to the Building under
such laws.
B. SIGNS. Subtenant shall not place on any portion of the
Premises any sign, placard, lettering, banner, displays or other advertising or
communicative material which is visible from the exterior of the Building
without the prior written approval of Landlord and Sublandlord. Sublandlord
hereby agrees that Subtenant shall have the right to place its standard name and
logo sign on a Sublandlord or Landlord-installed street monument in front of
each Building and place its name and divisional occupant in an appropriate
location on the Building. Any approved signs shall strictly conform to all
Governmental Requirements, any CC&R's recorded against the Project, and any sign
criteria which may be established by Landlord or Sublandlord and in effect at
the time, and shall be installed (and removed upon the Termination Date) at
Subtenant's expense. Subtenant, at its sole cost and expense, shall maintain
such signs in good condition and repair, including the repair of any damage
caused to a Building and/or Project upon the removal of such signs). Sublandlord
hereby approves Subtenant's installation of signage as described in EXHIBIT J
hereto.
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C. PARKING. Subtenant shall have the right to 555 parking
spaces on an unreserved basis in parking facilities subject to the Master Lease,
upon terms and conditions as may from time to time be established by Landlord or
Sublandlord. Subtenant may stripe or otherwise designate up to ten (10) visitor
parking spaces adjacent to the front of each Building for visitor parking.
Subtenant agrees not to overburden the parking facilities (i.e., use more than
its prorata share of the unallocated parking stalls available) and agrees to
cooperate with Landlord and Sublandlord and other tenants in the Project in the
use of the parking facilities. Under the Master Lease, Landlord has reserved the
right in its discretion to determine whether the parking facilities are becoming
crowded and to allocate and assign parking spaces among Subtenant and the other
tenants in the Project. Neither Landlord nor Sublandlord shall be liable to
Subtenant, nor shall this Sublease be affected, if any parking is impaired by
moratorium, initiative, referendum, law, ordinance, regulation or order passed,
issued or made by any governmental or quasi-governmental body. Sublandlord
agrees that it shall not grant to subtenants of the Project rights to more
parking spaces than exist in the Project.
D. PROHIBITION AGAINST USE OF ROOF AND STRUCTURE OF BUILDING.
Subtenant shall be prohibited from using all or any portion of the roof of a
Building or any portion of the structure of a Building during the Term of this
Sublease for any purposes (including without limitation for the installation,
maintenance and repair of a satellite dish and/or other telecommunications
equipment), without the prior written consent of Landlord and Sublandlord, which
consent Landlord and Sublandlord may withhold in their reasonable discretion.
Notwithstanding the foregoing, Subtenant shall have the right, subject to all
requirements regarding Work set forth in Section 5, to penetrate the roof to
install antennae or satellite dishes for communication purposes, subject to
Landlord's consent and compliance with all requirements of the Master Lease.
Subtenant shall be solely responsible for repairing any damage to the roof and
or Building caused by Subtenant's installation, operation or removal of any
equipment. Upon the termination of this Sublease for any reason, Subtenant, at
its sole cost and expense, shall remove any equipment from each Building and
repair any damage cause to the roof or Building during such removal.
7. GOVERNMENTAL REQUIREMENTS AND BUILDING RULES. Subtenant
shall comply with all Governmental Requirements applying to its use of the
Premises. Subtenant shall also comply with all reasonable rules for the Project
which may be established and amended from time to time by Landlord or
Sublandlord. The present rules and regulations promulgated by Landlord are
contained in EXHIBIT B. Failure by another tenant to comply with the rules or
failure by Landlord or Sublandlord to enforce them shall not relieve Subtenant
of its obligation to comply with the rules or make Landlord or Sublandlord
responsible to Subtenant in any way. Sublandlord shall apply (as to
Sublandlord's rules and regulations), and shall use reasonable efforts to cause
Landlord to apply, Landlord's rules and regulations uniformly with respect to
Subtenant and tenants in the Project. In the event of alterations and repairs
performed by Subtenant, Subtenant shall comply with the provisions of Section 5
of this Sublease and any applicable "Policies, Rules and Regulations for
Construction Projects" which may be established by Landlord and in effect at the
time.
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<PAGE> 20
8. REPAIR AND MAINTENANCE.
A. LANDLORD'S OBLIGATIONS. Pursuant to the terms of the Master
Lease, Landlord is obligated to keep in good order, condition and repair (i) the
structural parts of a Building, which structural parts include only the
foundation and subflooring of the Building and the structural condition of the
roof (including the roof membrane), and the exterior walls of the Building (but
excluding the interior surfaces of exterior walls and exterior and interior of
all windows, doors, ceiling and plateglass which shall be maintained and
repaired by Subtenant), (ii) the Building elevator, and (iii) the Project Common
Areas, including all utilities and related utility lines and pipes outside of a
Building ("Landlord's Maintenance Obligations"), and the costs incurred by
Landlord to perform the foregoing obligations with respect to a Building to the
extent they are deemed "Operating Costs" (as defined in Section 2C) shall be
passed through to Subtenant as provided in Section 2, except that any damage to
any of the foregoing caused by the negligence or willful acts or omissions of
Subtenant or of Subtenant's agents, employees or invitees, or by reason of the
failure of Subtenant to perform or comply with any terms of this Sublease, or
caused by Subtenant or Subtenant's agents, employees or contractors during the
performance of any work may be repaired by Sublandlord, solely at Subtenant's
expense, or at Sublandlord's election, such repairs shall be made by Subtenant,
at Subtenant's expense, with contractors approved by Landlord and Sublandlord.
As between Sublandlord and Subtenant, Sublandlord shall be responsible for
performance of Landlord's Maintenance Obligations if Landlord fails to do so and
shall be entitled to charge Subtenant the cost of such work to the same extent
as Landlord pursuant to the Master Lease and otherwise on the terms and
conditions of this Sublease. At Sublandlord's election, except in case of roof
repairs, which shall be commenced within five (5) days after notice to
Sublandlord, or emergency repairs, Sublandlord may first demand in writing that
Landlord perform any work required to be done by Landlord with respect to
Landlord's Maintenance Obligations, and use reasonable efforts to obtain
Landlord's performance. Subtenant agrees to exercise reasonable efforts to give
Landlord and Sublandlord prompt notification of the need for any repairs or
maintenance; provided that such notification shall not affect Landlord's
obligation to perform periodic inspections of the Project during the Lease Term.
Subtenant waives the provisions of Sections 1941 and 1942 of the California
Civil Code and any similar or successor law regarding Subtenant's right to make
repairs and deduct the expenses of such repairs from the Rent due under this
Sublease.
B. SUBTENANT'S OBLIGATIONS. Subtenant shall at all times and at
its own expense clean, keep and maintain in good order, condition and repair
every part of the Premises (including Subtenant's trade fixtures and personal
property) which is not within Landlord's Maintenance Obligation pursuant to
Section 8A. Subtenant's repair and maintenance obligations shall include,
without limitation, all plumbing and sewage facilities within the Premises,
fixtures, interior walls and ceiling, walls, floors, windows (including
repairing, resealing, cleaning and replacing, as necessary of exterior windows),
doors, entrances, plateglass showcases skylights, all electrical facilities and
equipment, including lighting fixtures, lamps, fans and any exhaust equipment
and systems, electrical motors and all other appliances and equipment of every
kind and nature located in, upon or about the Premises. Subtenant shall also be
responsible for all pest control within each Building and for trash removal from
each Building. Subtenant shall obtain HVAC systems
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<PAGE> 21
preventive maintenance contracts with bimonthly or monthly service in accordance
with manufacturer recommendations, subject to the reasonable prior written
approval of Landlord and Sublandlord, and which shall provide for and include
replacement of filters, oiling and lubricating of machinery, parts replacement,
adjustment of drive belts, oil changes and other preventive maintenance,
including annual maintenance of duct work, interior unit drains and caulking at
sheet metal, and recaulking of jacks and vents on an annual basis. Sublandlord
shall use reasonable efforts to cause Subtenant to have the benefit of all
warranties available to Landlord regarding the equipment in such HVAC systems.
Alternatively, Landlord may elect to perform all repairs and maintenance itself,
at Subtenant's expense, to a Building's mechanical, electrical, or other systems
(e.g., HVAC, life safety and automatic fire extinguisher/sprinkler systems).
Landlord or Sublandlord may also perform any maintenance or repairs, at
Subtenant's expense, to the extent Subtenant fails to perform such maintenance
or repairs as required herein.
9. WAIVER OF CLAIMS; INDEMNIFICATION; INSURANCE.
A. WAIVER OF CLAIMS. To the extent permitted by law, Subtenant
waives any claims it may have against Sublandlord or their officers, directors,
employees or agents for business interruption or damage to property sustained by
Subtenant as the result of any act or omission of Sublandlord, its agents,
employees or invitees. To the extent permitted by law, Sublandlord waives any
claims it may have against Subtenant or its officers, directors, employees or
agents for loss of rents or damage to the Premises sustained by Sublandlord as
the result of any act or omission of Subtenant, its agents, employees or
invitees. Notwithstanding anything to the contrary in this Sublease, except for
any obligations arising under Section 9B below, Sublandlord and Subtenant hereby
release each other, and their respective agents, employees, successors, and
assigns, from any claims against the other for injury or death to persons or
damage to property occurring in, on or about the Premises or the Project, and to
the fixtures, personal property, improvements, and alterations of either
Sublandlord or Subtenant in or on the Premises or the Project that are caused by
or result from any risks coverable by property insurance policies required by
this Sublease or that are actually covered by property insurance carried by
either party, regardless of the negligence of the party causing the harm. Each
party shall notify the carrier of its insurance of the existence of this waiver
and shall cause each insurance policy obtained by it to provide that the carrier
waives all right of recovery by way of subrogation against the other party in
connection with any damage covered by any policy.
B. INDEMNIFICATION. Subtenant shall indemnify, defend and hold
harmless Sublandlord and Landlord and their officers, directors, employees and
agents against any claim by any third party for injury to any person or damage
to or loss of any property occurring in the Project or Building and arising from
the use of the Premises or from any other act or omission or negligence of
Subtenant, its employees, agents or invitees, or Subtenant's breach of its
obligations under this Sublease, provided that Subtenant's obligations under
this paragraph shall not apply to a claim to the extent it is due to the
negligence or intentional misconduct of Landlord or Landlord's breach of its
obligations under the Master Lease. Subtenant's obligations under this section
shall survive the termination of this Sublease.
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Sublandlord shall indemnify, defend and hold harmless Subtenant
and its officers, directors, employees and agents against any claim by any third
party for injury to any person or damage to or loss of any property occurring in
the Premises caused by the negligence or intentional misconduct of Sublandlord
or any of Sublandlord's employees or agents, or Sublandlord's breach of its
obligations under this Sublease. Sublandlord's obligations under this section
shall survive the termination of this Sublease.
C. SUBTENANT'S INSURANCE. Subtenant shall maintain insurance as
follows, with such other terms, coverages and insurers, as Landlord or
Sublandlord shall reasonably require from time to time:
(1) Commercial general liability insurance, with (a)
contractual liability including the indemnification provisions contained in this
Sublease, (b) a severability of interest endorsement, (c) limits of not less
than Two Million Dollars ($2,000,000) combined single limit per occurrence and
not less than Two Million Dollars ($2,000,000) in the aggregate for bodily
injury, sickness or death, and property damage.
(2) Property Insurance against "All Risks" of physical loss
covering the replacement cost of all improvements, fixtures and personal
property. Subtenant waives all rights of subrogation, and Subtenant's property
insurance shall include a waiver of subrogation in favor of Landlord and
Sublandlord.
(3) Workers' compensation or similar insurance in form and
amounts required by law, and Employer's Liability with not less than the
following limits:
<TABLE>
<S> <C>
Each Accident $1,000,000
Disease--Policy Limit $1,000,000
Disease--Each Employee $1,000,000
</TABLE>
Such insurance shall contain a waiver of subrogation provision in
favor of Landlord and Sublandlord and their agents.
Subtenant's insurance shall be primary and not contributory to
that carried by Sublandlord, or Landlord, its agents, or mortgagee, if any.
Sublandlord, its building manager or agent, Landlord, Landlord's building
manager or agent, mortgagee and ground lessor shall be named as additional
insureds as respects to insurance required of the Subtenant in Sections 9C(1)
and 9C(2) (for Tenant Improvements). The company or companies writing any
insurance which Subtenant is required to maintain under this Sublease, as well
as the form of such insurance, shall at all times be subject to Landlord's
written approval. Such insurance companies shall have a A.M. Best rating of A VI
or better.
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<PAGE> 23
(4) Subtenant shall cause any general contractor of Subtenant
performing Work on the Premises to maintain insurance as follows, with such
other terms, coverages and insurers, as Landlord shall reasonably require from
time to time:
(a) Commercial General Liability Insurance, including
contractor's liability coverage, contractual liability coverage, completed
operations coverage, broad form property damage endorsement, and contractor's
protective liability coverage, to afford protection with limits, for each
occurrence, of not less than One Million Dollars ($1,000,000) with respect to
personal injury, death or property damage. Such policy or policies shall also
cover any Work which is performed by subcontractors hired by the general
contractor.
(b) Workers' compensation or similar insurance in form and
amounts required by law, and Employer's Liability with not less than the
following limits:
<TABLE>
<S> <C>
Each Accident $1,000,000
Disease--Policy Limit $1,000,000
Disease--Each Employee $1,000,000
</TABLE>
Such insurance shall contain a waiver of subrogation provision in
favor of Sublandlord, Landlord and their agents.
Subtenant's contractor's insurance shall be primary and not
contributory to that carried by Subtenant, Sublandlord, or Landlord, its agents
or mortgagees. Subtenant, Sublandlord and Landlord, and if any, Landlord's
building manager or agent, mortgagee or ground lessor shall be named as
additional insured on Subtenant's contractor's insurance policies.
D. INSURANCE CERTIFICATES. Subtenant shall deliver to Landlord and
Sublandlord certificates evidencing all insurance required to be maintained by
Subtenant by the earlier of (a) Subtenant's entry of the Building pursuant to
Paragraph 1C, or (b) five (5) days prior to the Commencement Date, and
thereafter five (5) days prior to each renewal date for such policies. Each
certificate will provide for thirty (30) days prior written notice of
cancellation to Landlord, Sublandlord and Subtenant.
E. LANDLORD'S INSURANCE. Pursuant to the Master Lease, Landlord
shall maintain "All-Risk" property insurance at full replacement cost, including
loss of rents for twelve (12) months (including taxes and insurance), on the
Building, and commercial general liability insurance policies of not less that
Five Million Dollars ($5,000,000.00) covering the common areas of the Project,
each with such terms, coverages and conditions as are normally carried by
reasonably prudent owners of properties similar to the Project, including
coverage for personal injury, property damage and contractual liability
endorsement. With respect to property and worker's compensation insurance,
Sublandlord and Subtenant mutually waive all rights of subrogation, and the
respective "All-Risk" coverage property insurance and worker's compensation
policies carried by Sublandlord, Landlord and Subtenant shall contain
enforceable waiver of subrogation endorsements.
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<PAGE> 24
10. FIRE AND OTHER CASUALTY.
A. TERMINATION. If a fire or other casualty causes substantial
damage to a Building, pursuant to the terms of the Master Lease, Landlord shall
engage a registered architect to certify within one (1) month of the casualty to
both Landlord and Sublandlord the amount of time needed to restore the Building
to tenantability, using standard working methods without the payment of overtime
and other premiums. Sublandlord shall deliver a copy of such notice to Subtenant
upon receipt. If the time needed exceeds twelve (12) months from the beginning
of the restoration, or two (2) months therefrom if the restoration would begin
during the last twelve (12) months of the Sublease, then either Sublandlord,
subject to the succeeding sentence, or Subtenant may terminate this Sublease
with respect to such Building by notice to the other party within ten (10) days
after the notifying party's receipt of the architect's certificate. Sublandlord
shall have the right to terminate the Sublease in the event of such casualty
only if (1) Landlord terminates the Master Lease with respect to such Building,
or (2) an Event of Default by Subtenant exists, or (3) in the reasonable
judgment of Sublandlord's treasury department, Subtenant's creditworthiness
compared to its Sublease obligations for the balance of the Sublease term is not
acceptable and Sublandlord terminates the Master Lease with respect to such
Building. If sufficient insurance proceeds will not be available to Landlord to
cover the cost of any restoration to a Building, because (i) the casualty was
not required to be insured against by the Master Lease and was not actually
insured, or (ii) of insolvency or financial condition of Landlord's insurance
carrier, Landlord may terminate the Master Lease and this Sublease by written
notice to Sublandlord. Any termination pursuant to this Section 10A shall be
effective thirty (30) days from the date of such termination notice and Rent
shall be paid by Subtenant to that date, with an abatement for any portion of
the space which has been untenantable after the casualty.
B. RESTORATION. If a casualty causes damage to a Building but
this Sublease is not terminated for any reason, then subject to the rights of
any mortgagees or ground lessors, pursuant to the Master Lease, Landlord shall
obtain the applicable insurance proceeds and diligently restore the Building
subject to current Governmental Requirements. Landlord's obligation, should it
elect or be obligated to repair or rebuild, shall be limited to the Building
Shell, and Subtenant shall, at Subtenant's expense, replace or fully repair its
damaged improvements (including any Tenant Improvements constructed within the
Premises), personal property and fixtures. Rent shall be abated on a per diem
basis during the restoration for any portion of the Premises which is
untenantable. Subtenant shall not be entitled to any compensation or damages
from Landlord or Sublandlord for loss of the use of the Premises, damage to
Subtenant's personal property and trade fixtures or any inconvenience occasioned
by such damage, repair or restoration. Subtenant hereby waives the provisions of
Section 1932, Subdivision 2, and Section 1933, Subdivision 4, of the California
Civil Code, and the provisions of any similar law hereinafter enacted.
11. EMINENT DOMAIN. If a part of the Project is taken by eminent
domain or deed in lieu thereof which is so substantial that the Premises cannot
reasonably be used by Subtenant for
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<PAGE> 25
the operation of its business, then either party may terminate this Sublease
effective as of the date of the taking. Rent shall abate from the date of the
taking in proportion to any part of the Premises taken. If there is a temporary
taking of a part of the Premises which is so substantial that the Premises
cannot reasonably be used by Subtenant for the operation of its business, then
Rent shall abate from the date of the taking in proportion to any part of the
Premises taken. The entire award for a taking of any kind shall be paid to
Landlord or Sublandlord, and Subtenant shall have no right to share in the
award, except (i) for the portion of any award based on the value of the Tenant
Improvements financed by Subtenant in excess of the Tenant Improvement
Allowance; provided, however, that nothing contained herein shall be deemed to
give Landlord or Sublandlord any interest in or require Subtenant to assign to
Landlord or Sublandlord any separate award made to Subtenant for the taking of
Subtenant's personal property and trade fixtures, or its relocation costs, and
(ii) in the event of a temporary taking in which there was no Rent abatement
under this Sublease, then Subtenant shall be entitled to any portion of the
award which was intended to compensate Sublandlord for lost rent during the
period of the temporary taking. All obligations accrued to the date of the
taking shall be performed by each party.
12. RIGHTS RESERVED TO LANDLORD AND SUBLANDLORD. Landlord and
Sublandlord may exercise at any time any of the following rights respecting the
operation of the Project or the Building without liability to Subtenant of any
kind:
A. Name. To change the name of any Building or (as to Landlord)
the Project; provided, however, that so long as Subtenant leases fifty percent
(50%) or more of a Building, then Sublandlord may not change, and will not
consent to a change of, the name of such Building without Subtenant's prior
consent, which consent shall not be unreasonably withheld or delayed.
B. Signs. To install, modify and/or maintain necessary and
appropriate signs on the exterior and in the interior of a Building or on the
Project, and to approve prior to installation, any of Subtenant's signs in the
Premises visible from the exterior of a Building.
C. Window Treatments. To approve, at its discretion, prior to
installation, any shades, blinds, ventilators or window treatments of any kind,
as well as any lighting within the Premises that may be visible from the
exterior of a Building.
D. Keys. To retain and use "Knox Box" passkeys to enter the
Premises or any door within the Premises in accordance with Section 12E and to
access mechanical rooms for inspection or maintenance. Subtenant shall not alter
or add any lock or bolt to such doors.
E. Access. To have access to the Premises with twenty-four hour
prior notice and in accordance with Subtenant's reasonable security program
procedures (except in the case of an emergency in which case Landlord and
Sublandlord shall have the right to immediate access) to inspect the Premises,
and to perform its obligations, or make repairs, alterations, additions or
improvements, as permitted by the Master Lease or this Sublease.
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<PAGE> 26
F. Preparation for Reoccupancy. To decorate, remodel, repair,
alter or otherwise prepare the Premises for reoccupancy at any time after
Subtenant abandons the Premises, without relieving Subtenant of any obligation
to pay Rent.
G. Heavy Articles. To approve the weight, size, placement and
time and manner of movement within the Building of any safe, central filing
system or other heavy article of Subtenant's property. Subtenant shall move its
property entirely at its own risk.
H. Show Premises. To show the Premises to prospective
purchasers, lenders, mortgagees, investors, or rating agencies at any reasonable
time, or, as to Landlord only, prospective tenants during the last twelve (12)
months of the Term; provided that Landlord or Sublandlord, as the case may be,
gives prior notice to Subtenant and does not materially interfere with
Subtenant's use of the Premises.
I. Use of Lockbox. To designate a lockbox collection agent for
collections of amounts due Sublandlord. In that case, the date of payment of
Rent or, as to Landlord only, other sums shall be the date of the agent's
receipt of such payment or the date of actual collection if payment is made in
the form of a negotiable instrument thereafter dishonored upon presentment.
However, Sublandlord may reject any payment for all purposes as of the date of
receipt or actual collection by mailing to Subtenant within 21 days after such
receipt or collection a check equal to the amount sent by Subtenant.
J. Repairs and Alterations. To make repairs or alterations to
the Project and in doing so transport any required material through the
Premises, to close entrances, doors, corridors, elevator and other facilities in
a Building or the Project, to open any ceiling in the Premises, or to
temporarily suspend services or use of common areas in a Building. Without
limiting the foregoing, Sublandlord shall have the right to access the Premises
for the installation and/or alteration of the conduit connections among the
Buildings within the Project. Landlord or Sublandlord, as the case may be, may
perform any such repairs or alterations during ordinary business hours, except
that Subtenant may require any work in the Premises to be done after business
hours if Subtenant pays Landlord or Sublandlord, as the case may be, for
overtime and any other additional expenses incurred. Landlord may do or permit
any work on any nearby building, land, street, alley or way.
K. Sublandlord's Agents. If Subtenant is in default under this
Sublease, possession of Subtenant's funds or negotiation of Subtenant's
negotiable instrument by any of Sublandlord's agents shall not waive any breach
by Subtenant or any remedies of Sublandlord under this Sublease.
L. CC&R's. Landlord may at any time promulgate and record a set
of CC&R's which will govern the access, parking, design, signage and other
rights of the tenants in the Project, so long as such CC&R's do not impose any
new payment obligation on Subtenant (i.e., a dues requirement) or require
Subtenant to modify any of the then existing improvements.
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<PAGE> 27
13. SUBTENANT'S DEFAULT. Any of the following shall constitute an
Event of Default by Subtenant:
A. Rent Default. Subtenant fails to pay any Rent within five
(5) days after notice that such payment was not paid when due, provided that
Subtenant acknowledges that such notice shall be in addition to any notice
required to be given by Sublandlord to commence an unlawful detainer action (or
similar eviction proceeding) under the then applicable law;
B. Assignment/Sublease or Hazardous Substances Default.
Subtenant defaults in its obligations under Section 18 Assignment and Sublease
or Section 29 Hazardous Substances;
C. Other Performance Default. Subtenant fails to perform any
other obligation to Sublandlord under this Sublease or commits any act, or fails
to perform any act, which commission or failure would constitute or cause a
breach of the Master Lease, and this failure continues for thirty (30) days
after written notice from Landlord or Sublandlord, except that if Subtenant
begins to cure its failure within the thirty (30) day period but cannot
reasonably complete its cure within such period, then, so long as Subtenant
continues to diligently attempt to cure its failure, the thirty (30) day period
shall be extended to one hundred twenty (120) days, or such lesser period as is
reasonably necessary to complete the cure;
D. Credit Default. One of the following credit defaults occurs:
(1) Subtenant commences any proceeding under any law
relating to bankruptcy, insolvency, reorganization or relief of debts, or seeks
appointment of a receiver, trustee, custodian or other similar official for the
Subtenant or for any substantial part of its property, or any such proceeding is
commenced against Subtenant and either remains undismissed for a period of sixty
(60) days or results in the entry of an order for relief against Subtenant which
is not fully stayed within seven (7) days after entry;
(2) Subtenant becomes insolvent or bankrupt, does not
generally pay its debts as they become due, or admits in writing its inability
to pay its debts, or makes a general assignment for the benefit of creditors;
(3) Any third party obtains a levy or attachment under
process of law against Subtenant's leasehold interest; and
E. Abandonment Default. Subtenant abandons the Premises.
14. SUBLANDLORD REMEDIES. Upon a default, Sublandlord shall have the
following remedies, in addition to all other rights and remedies provided by law
or otherwise provided in this Sublease, to which Sublandlord may resort
cumulatively or in the alternative:
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<PAGE> 28
A. Sublandlord may continue this Sublease in full force and
effect, and this Sublease shall continue in full force and effect as long as
Sublandlord does not terminate this Sublease, and Sublandlord shall have the
right to collect Rent when due.
B. Sublandlord may enter the Premises or any part thereof and
release them or any part thereof to third parties for Subtenant's account for
any period, whether shorter or longer than the remaining Term. Subtenant shall
be liable immediately to Sublandlord for all costs Sublandlord incurs in
reletting the Premises or any part thereof, including, without limitation,
broker's commissions, expenses of cleaning and redecorating the Premises
required by the reletting and like costs. Subtenant shall pay to Sublandlord the
Rent and other sums due under this Sublease on the date the Rent is due, less
the rent and other sums received by Sublandlord from any releasing. No act by
Sublandlord other than giving written notice to Subtenant shall terminate this
Sublease. Acts of maintenance, efforts to relet the Premises or the appointment
of a receiver on Sublandlord's initiative to protect Sublandlord's interest
under this Sublease shall not constitute a termination of Subtenant's right to
possession.
C. Sublandlord may terminate this Sublease by giving Subtenant
written notice of termination, in which event this Sublease shall terminate on
the date for termination set forth in such notice. Subtenant shall immediately
vacate the Premises and deliver possession to Sublandlord, and Sublandlord may
repossess the Premises and may, at Subtenant's sole cost, remove any of
Subtenant's signs and any of its other property, without relinquishing its right
to receive Rent or any other right against Subtenant. On termination,
Sublandlord has the right to recover from Subtenant as damages:
(1) The worth at the time of award of unpaid Rent and other
sums due and payable which had been earned at the time of termination; plus
(2) The worth at the time of award of the amount by which
the unpaid Rent and other sums due and payable which after termination until the
time of award exceeds the amount of such Rent loss that Subtenant proves could
have been reasonably avoided; plus
(3) The worth at the time of award of the amount by which
the unpaid Rent and other sums due and payable for the balance of the Term after
the time of award exceeds the amount of such Rent loss that Subtenant proves
could be reasonably avoided; plus
(4) Any other amount necessary to compensate Sublandlord
for all the detriment proximately caused by Subtenant's failure to perform
Subtenant's obligations under this Sublease, or which, in the ordinary course of
things, would be likely to result therefrom, including, without limitation, any
costs or expenses incurred by Sublandlord: (i) in retaking possession of the
Premises; (ii) in maintaining, repairing, preserving, restoring, replacing,
cleaning, altering or rehabilitating the Premises or any portion thereof,
including such acts for reletting to a new tenant or tenants; (iii) for leasing
commissions; or (iv) for any other costs necessary or appropriate to relet the
Premises; plus
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(5) At Sublandlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
the laws of the State of California.
The "worth at the time of award" of the amounts referred to in
Sections 14C(1) and 14C(2) is computed by allowing interest at the Interest Rate
on the unpaid rent and other sums due and payable from the termination date
through the date of award. The "worth at the time of award" of the amount
referred to in Section 14C(3) is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). Subtenant waives redemption or relief from forfeiture
under California Code of Civil Procedure Sections 1174 and 1179, or under any
other present or future law, in the event Subtenant is evicted or Landlord takes
possession of the Premises by reason of any default of Subtenant hereunder.
D. Sublandlord's Remedies Cumulative. All of Sublandlord's
remedies under this Sublease shall be in addition to all other remedies
Sublandlord may have at law or in equity. Waiver by Sublandlord of any breach of
any obligation by Subtenant shall be effective only if it is in writing, and
shall not be deemed a waiver of any other breach, or any subsequent breach of
the same obligation. Sublandlord's acceptance of payment by Subtenant shall not
constitute a waiver of any breach by Subtenant, and if the acceptance occurs
after Sublandlord's notice to Subtenant, or termination of the Sublease or of
Subtenant's right to possession, the acceptance shall not affect such notice or
termination. Acceptance of payment by Sublandlord after commencement of a legal
proceeding or final judgment shall not affect such proceeding or judgment.
Sublandlord may advance such monies and take such other actions for Subtenant's
account as reasonably may be required to cure or mitigate any default by
Subtenant. Subtenant shall immediately reimburse Sublandlord for any such
advance, and such sums shall bear interest at the default interest rate until
paid.
E. WAIVER OF TRIAL BY JURY. EACH PARTY WAIVES TRIAL BY JURY IN
THE EVENT OF ANY LEGAL PROCEEDING BROUGHT BY THE OTHER IN CONNECTION WITH THIS
SUBLEASE. EACH PARTY SHALL BRING ANY ACTION AGAINST THE OTHER IN CONNECTION WITH
THIS SUBLEASE IN A FEDERAL OR STATE COURT LOCATED IN CALIFORNIA, CONSENTS TO THE
JURISDICTION OF SUCH COURTS, AND WAIVES ANY RIGHT TO HAVE ANY PROCEEDING
TRANSFERRED FROM SUCH COURTS ON THE GROUND OF IMPROPER VENUE OR INCONVENIENT
FORUM.
F. Litigation Costs. If either party commences litigation to
enforce or interpret any provision of this Sublease, the prevailing party shall
recover from the non-prevailing party its reasonable attorneys' fees and court
costs.
15. SURRENDER. Upon the expiration or earlier termination of this
Sublease after the Commencement Date for any reason, Subtenant shall surrender
the Premises to Sublandlord in its condition existing as of the Commencement
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Date (if Subtenant constructs the Tenant Improvements, with Tenant Improvements
in a completed condition even if not completed as of the Commencement Date),
normal wear and tear and damage by fire or other casualty excepted, with all
interior walls repaired and repainted if marked or damaged, all carpets
shampooed and cleaned, all broken, marred or nonconforming acoustical ceiling
tiles replaced, all windows washed, the plumbing and electrical systems and
lighting in good order and repair, including replacement of any burned out or
broken light bulb or ballasts, and all floors cleaned and waxed, all to the
reasonable satisfaction of Sublandlord. Subtenant shall remove from the Premises
all Subtenant's personal property and all of Subtenant's alterations required to
be removed pursuant to Sections 5D and 5E, and restore the Premises to its
condition prior to their installation. If Subtenant fails to remove any
alterations and/or Subtenant's personal property, and such failure continues
after the termination of this Sublease, Landlord or Sublandlord may retain or
dispose of such property and all rights of Subtenant with respect to it shall
cease, or Sublandlord may place all or any portion of such property in public
storage for Subtenant's account. Subtenant shall be liable to Sublandlord for
costs of removal of any such alterations and Subtenant's personal property and
storage and transportation costs of same, and the cost of repairing and
restoring the Premises, together with interest at the Interest Rate from the
date of expenditure by Sublandlord. If the Premises are not so surrendered at
the termination of this Sublease, Subtenant shall indemnify Sublandlord against
all loss or liability, including attorneys' fees and costs, resulting from delay
by Subtenant in so surrendering the Premises.
16. HOLDOVER. Subtenant shall have no right to holdover possession of
the Premises after the expiration or termination of this Sublease without
Sublandlord's prior written consent which Sublandlord may withhold in its sole
and absolute discretion. If, however, Subtenant retains possession of any part
of the Premises after the Term, Subtenant shall become a month-to-month tenant
for the entire Premises upon all of the terms of this Sublease as might be
applicable to such month-to-month tenancy, except that Subtenant shall pay all
of Base Rent at one hundred fifty percent (150%) of the rate in effect
immediately prior to such holdover, plus Operating Costs Share Rent and Tax
Share Rent, computed on a monthly basis for each full or partial month Subtenant
remains in possession. Subtenant shall also pay Sublandlord all of Sublandlord's
direct and consequential damages resulting from Subtenant's holdover. No
acceptance of Rent or other payments by Sublandlord under these holdover
provisions shall operate as a waiver of Sublandlord's right to regain possession
or any other of Landlord's remedies.
17. SUBORDINATION TO GROUND LEASES AND MORTGAGES.
A. Subordination. Landlord and Sublandlord shall have the right
to cause this Sublease to be subordinate to any future ground lease or mortgage
respecting Landlord's interest in the Project, and any amendments to such ground
lease or mortgage, at the election of the ground lessor or mortgagee as the case
may be. Sublandlord shall obtain from any such ground lessor or lender a
nondisturbance agreement which shall permit this Sublease. Subtenant shall
execute and deliver, within thirty (30) days after receipt of written demand by
Sublandlord or Landlord and in the form requested by Landlord or Sublandlord,
provided that such form is reasonably acceptable to Subtenant, any additional
documents evidencing the priority or subordination of this Sublease with respect
to any such mortgage or deed of trust.
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B. Termination of Ground Lease or Foreclosure of Mortgage. If
any ground lease is terminated or mortgage foreclosed or deed in lieu of
foreclosure given and the ground lessor, mortgagee, or purchaser at a
foreclosure sale shall thereby become the owner of the Project, the ground
lessor or mortgagee or purchaser shall be liable as Landlord only during the
time such ground lessor or mortgagee or purchaser is the owner of the Project.
C. Notice and Right to Cure. The Project is subject to any
ground lease and mortgage identified with name and address of ground lessor or
mortgagee in EXHIBIT D to this Sublease (as the same may be amended from time to
time by written notice to Subtenant). Subtenant agrees to send by registered or
certified mail to any ground lessor or mortgagee identified either in such
Exhibit or in any later notice from Landlord to Subtenant a copy of any notice
of default sent by Subtenant to Landlord. If Landlord fails to cure such default
within the required time period under this Sublease, but ground lessor or
mortgagee begins to cure within ten (10) days after such period and proceeds
diligently to complete such cure, then ground lessor or mortgagee shall have
such additional time as is necessary to complete such cure, including any time
necessary to obtain possession if possession is necessary to cure, and Subtenant
shall not begin to enforce its remedies so long as the cure is being diligently
pursued.
D. Definitions. As used in this Section 17, "mortgage" shall
include "trust deed" and "deed of trust", and "mortgagee" shall include
"trustee", "beneficiary" and the mortgagee of any ground lessee, and "ground
lessor," "mortgagee," and "purchaser at a foreclosure sale" shall include, in
each case, all of its successors and assigns, however remote.
18. ASSIGNMENT AND SUBLEASE.
A. In General. Subtenant shall not, without the prior consent
of Landlord and Sublandlord in each case, (i) make or allow any assignment or
transfer, by operation of law or otherwise, of any part of Subtenant's interest
in this Sublease, (ii) grant or allow any lien or encumbrance, by operation of
law or otherwise, upon any part of Subtenant's interest in this Sublease, (iii)
sublet any part of the Premises, or (iv) permit anyone other than Subtenant and
its employees to occupy any part of the Premises. Subtenant shall remain
primarily liable for all of its obligations under this Sublease, notwithstanding
any assignment or transfer. No consent granted by Landlord and Sublandlord shall
be deemed to be a consent to any subsequent assignment or transfer, lien or
encumbrance, sublease or occupancy. Subtenant shall pay all of Landlord's and
Sublandlord's reasonable attorneys' fees and other expenses incurred in
connection with any consent requested by Subtenant or in reviewing any proposed
assignment or subletting. Any assignment or transfer, grant of lien or
encumbrance, or sublease or occupancy without Landlord's or Sublandlord's prior
written consent shall be void.
B. Sublandlord's Consent. Sublandlord will not unreasonably
withhold its consent to any proposed assignment or subletting. It shall be
reasonable for Landlord or Sublandlord to withhold its consent to any assignment
or sublease if (i) Subtenant is in default under this Sublease, (ii) as to
Landlord only, the proposed assignee or sublessee is a tenant in the Project or
an
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affiliate of such a tenant or a party that Landlord has identified as a
prospective tenant in the Project, (iii) the financial responsibility, nature of
business, and character of the proposed assignee or subtenant are not all
reasonably satisfactory to Landlord or Sublandlord, (iv) in the reasonable
judgment of Landlord or Sublandlord the purpose for which the assignee or
subtenant intends to use the Premises (or a portion thereof) is inconsistent
with the character of the Project as a first class business park or would
violate the terms of this Sublease or the Master Lease, or (v) the proposed
assignee or subtenant is a government entity. The foregoing shall not exclude
any other reasonable basis for Landlord or Sublandlord to withhold its consent.
C. Procedure. Subtenant shall notify Landlord and Sublandlord
of any proposed assignment or sub-sublease at least thirty (30) days prior to
its proposed effective date. The notice shall include the name and address of
the proposed assignee or sub-subtenant, its corporate affiliates in the case of
a corporation and its partners in a case of a partnership, and sufficient
information to permit Landlord and Sublandlord to determine the financial
responsibility and character of the proposed assignee or sub-subtenant. As a
condition to any effective assignment of this Sublease, the assignee shall
execute and deliver in form satisfactory to Sublandlord prior to the effective
date of the assignment, an assumption of all of the obligations of Subtenant
under this Sublease. As a condition to any effective sub-sublease, sub-subtenant
shall execute and deliver in form satisfactory to Sublandlord prior to the
effective date of the sublease, an agreement not to violate Subtenant's
applicable obligations under this Sublease, and at Sublandlord's option, an
agreement (except for the economic obligations which sub-subtenant will
undertake directly to Subtenant) to attorn to Sublandlord under the terms of the
sublease in the event this Sublease terminates before the sub- sublease expires.
Any proposed sublease shall be subject to the terms and conditions of Section
18D below.
D. Excess Payments If Subtenant shall assign this Sublease or
sub-sublet any part of the Premises for consideration in excess of the pro-rata
portion of Rent applicable to the space subject to the assignment or sub-sublet,
then Subtenant shall pay to Sublandlord as Additional Rent fifty percent (50%)
of any such excess immediately upon receipt; provided that Subtenant shall be
first entitled to recover the reasonable costs actually incurred by Subtenant in
connection with the sub-sublet for leasing commissions, interior improvements
and attorneys' fees. Subtenant shall not be required to pay any excess
consideration with respect to an assignment or sublease to a Corporate Affiliate
as described in Section 18F.
E. Recapture Rights.
1. If at any time during the Term of this Sublease,
Subtenant desires to sub-sublease all or a portion of the Premises consisting of
one floor or more in a Building (the "Proposed Sub-Sublease Space") to an entity
other than a Subtenant Affiliate as defined in Section 18F, Subtenant shall
notify Sublandlord of its intention ("Subtenant's Notice"), including proposed
terms and conditions for such sub-sublease if such Subtenant's Notice is given
pursuant to Section 18E.3 of this Sublease.
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2. If such proposed sub-sublease is for substantially the
balance of the term of this Sublease and Subtenant has not entered into a direct
lease with Landlord to take effect upon expiration of this Sublease, Sublandlord
shall have seven (7) days after receipt of Subtenant's Notice to notify
Subtenant in writing of Sublandlord's election to terminate this Sublease with
respect to the Proposed Sub-Sublease Space. If, however, Sublandlord fails to
notify Subtenant of Sublandlord's election to terminate this Sublease,
Sublandlord shall be deemed to have waived its right to recapture the Proposed
Sub-Sublease Space at such time and Subtenant shall have the right to lease the
Proposed Sub-Sublease Space to the third party without further notice to
Sublandlord. For purposes of this section, for "substantially the balance of the
term of this Sublease" shall mean that less than six (6) months remain of the
term of the Sublease after expiration of the sub-sublease. If Sublandlord
terminates the Sublease with respect to any portion of the Premises pursuant to
this section, Sublandlord and Subtenant shall enter into an amendment to this
Sublease to equitably allocate maintenance, parking, and other rights and
responsibilities based upon a lease of a "multi-tenant" building.
3. If Subtenant has not entered into a direct lease with
Landlord to take effect upon expiration of this Sublease and the proposed
sub-sublease is not for substantially the balance of the term of this Sublease,
Sublandlord shall have seven (7) days after receipt of Subtenant's Notice to
notify Subtenant in writing of Sublandlord's election to lease the Proposed
Sub-Sublease Space on the terms stated in Subtenant's Notice. If Sublandlord
notifies Subtenant within such seven-day period of Sublandlord's desire to lease
the Proposed Sub-Sublease Space, Subtenant and Sublandlord shall enter into a
lease on the proposed terms an conditions stated in Subtenant's Notice. If,
however, Sublandlord fails to notify Subtenant of Sublandlord's election to
lease the Proposed Sub-Sublease Space within such seven-day period or, if
Subtenant and Sublandlord, through no fault of Subtenant, fail to execute a
lease within thirty (30) days after the date of Sublandlord's notice to
Subtenant, Sublandlord shall be deemed to have waived its right to lease the
Proposed Sub-Sublease Space at such time and Subtenant shall have the right to
lease the Proposed Sub-Sublease Space to the third party on substantially the
terms stated in Subtenant's Notice without further notice to Sublandlord. If
Subtenant negotiates sub-sublease terms materially more favorable (e.g., the
effective rent is more than eight percent (8%) lower), Subtenant shall be
required to submit the more favorable terms to Sublandlord. Sublandlord shall
have three (3) business days to reject or submit the more favorable terms, and
the provisions of this section regarding acceptance or rejection then apply.
F. Assignment to Affiliates. If no default on the part of
Subtenant has occurred and is continuing, Subtenant may assign this Sublease or
sublet any portion of the Premises to a parent or subsidiary of Subtenant, or to
an entity into which Subtenant is merged or consolidated or to an entity to
which substantially all of Subtenant's assets are transferred ("Corporate
Affiliate") or to an entity with which Subtenant is undertaking or will
undertake a joint venture or similar joint project (collectively, "Subtenant
Affiliate"), without first obtaining Sublandlord's written consent, if Subtenant
notifies Sublandlord at least ten (10) business days prior to the proposed
transaction, providing information satisfactory to Sublandlord in order to
determine the net worth both of the successor entity and of Subtenant
immediately prior to such
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assignment, and showing the net worth of the successor to be at least equal to
the net worth of Subtenant.
19. CONVEYANCE BY SUBLANDLORD OR LANDLORD. If Landlord or
Sublandlord shall at any time transfer its interest in the Project or this
Sublease, Landlord or Sublandlord, as the case may be, shall be released of any
obligations occurring after such transfer, except the obligation to return to
Subtenant any security deposit not delivered to its transferee, and Subtenant
shall look solely to Landlord's or Sublandlord's successors, as the case may be,
for performance of such obligations. This Sublease shall not be affected by any
such transfer.
20. ESTOPPEL CERTIFICATE. Each party shall, within ten (10) days of
receiving a request from the other party, execute, acknowledge in recordable
form, and deliver to the other party or its designee a certificate stating,
subject to a specific statement of any applicable exceptions, that the Sublease
as amended to date is in full force and effect, that the Subtenant is paying
Rent and other charges on a current basis, and that to the best of the knowledge
of the certifying party, the other party has committed no uncured defaults and
has no offsets or claims. The certifying party may also be required to state the
date of commencement of payment of Rent, the Commencement Date, the Termination
Date, the Base Rent, the current Operating Costs Share Rent and Tax Share Rent
estimates, the status of any improvements required to be completed by
Sublandlord, and the amount of any security deposit. Failure to deliver such
statement within the time required shall be conclusive evidence against the
non-certifying party that this Sublease, with any amendments identified by the
requesting party, is in full force and effect, that there are no uncured
defaults by the requesting party, that not more than one month's Rent has been
paid in advance, that the non- certifying party has not paid any security
deposit except as expressly set forth in this Sublease, and that the
non-certifying party has no claims or offsets against the requesting party.
21. FINANCIAL STATEMENTS. Within ten (10) days after Sublandlord's
written request therefor, Subtenant shall deliver to Sublandlord copies of
Subtenant's most recent publicly reported financial statements.
22. LEASE DEPOSIT. Upon execution of this Sublease, Subtenant shall
deposit with Sublandlord a cash sum, or provide Sublandlord an irrevocable
letter of credit in the form of EXHIBIT F and otherwise approved by Sublandlord,
in the amount of Two Hundred Eighty-Four Thousand Six Hundred Ninety-One and
70/100ths Dollars ($284,691.70) plus one month's estimated Operating Costs Share
Rent of Thirty-Four Thousand Seven Hundred Eighteen and 50/100ths Dollars
($34,718.50). The letter of credit shall be issued by a bank approved by
Sublandlord, and with an expiry date of no earlier than September 30, 2000.
During the term of this Sublease, the letter of credit shall be replaced by a
letter of credit meeting the conditions of this section at least fifteen (15)
days prior to its expiry date and shall have an expiry date no earlier than the
first (1st) anniversary of the expiry date of the letter of credit being
replaced. The letter of credit shall provide for partial draws and shall require
only a written statement from Sublandlord that it is being drawn upon as
permitted under this Sublease. The cash or letter of credit or any proceeds
realized by draw thereon shall be security for Subtenant's faithful performance
of Subtenant's obligations hereunder.
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If Subtenant fails to pay Rent or other charges due hereunder after expiration
of the applicable cure periods, or otherwise defaults with respect to any
provision of this Sublease after expiration of applicable cure periods,
Sublandlord may draw upon the letter of credit, at Sublandlord's election, in
the amount of such default. If Subtenant fails to commence to pay Rent on the
Commencement Date or fails to replace an expiring letter of credit by the date
provided in this section, Sublandlord may immediately draw upon the letter of
credit to the full extent thereof. If Sublandlord draws on the entire letter of
credit for failure to replace an expiring letter of credit prior to expiry date,
Subtenant's failure to have replaced the expiring letter of credit shall not
constitute a default hereunder, and Subtenant shall have the right at any time
to deliver a replacement letter of credit in the form described above, at which
time Sublandlord shall promptly refund the proceeds of the drawn letter of
credit. Sublandlord shall hold any amount realized by draw upon the letter of
credit as a security deposit. Sublandlord may use, apply or retain all or any
portion of said deposit to the extent needed for the payment of any rent or
other charge in default or for the payment of any other sum to which Sublandlord
may become obligated by reason of Subtenant's default, or to compensate
Sublandlord for any loss or damage which Sublandlord may suffer thereby. If
Sublandlord so uses or applies all or any portion of said deposit, Subtenant
shall within ten (10) days after written demand therefor restore the letter of
credit to its full amount or deposit cash with Sublandlord in an amount
sufficient to restore said deposit to the full amount hereinabove stated and
Subtenant's failure to do so shall be a breach of this Sublease. Sublandlord
shall not be required to keep said deposit separate from its general accounts.
If Subtenant performs all of Subtenant's obligations hereunder, the cash deposit
or the letter of credit, or if it has been drawn upon, such deposit or so much
thereof as had not theretofore been applied by Sublandlord, shall be returned
without payment of interest for its use, to Subtenant (or, at Sublandlord's
option, to the last assignee, if any, of Subtenant's interest hereunder) within
ten (10) days after the expiration of the term hereof or ten (10) days after the
date Subtenant has vacated the Premises, whichever is later.
23. FORCE MAJEURE. Neither Sublandlord or Subtenant shall be in
default under this Sublease to the extent that party is unable to perform any of
its obligations on account of any strike or labor problem, equipment, material,
supplies or energy shortages (i.e., such items cannot be obtained at normal
costs within a reasonable time because of limited availability), governmental
pre-emption or prescription, national emergency, or any other cause of any kind
beyond the reasonable control of the party required to act (provided that the
foregoing shall not apply to any monetary obligation) ("Force Majeure").
24. NOTICES. All notices, consents, approvals and similar
communications to be given by one party to the other under this Sublease, shall
be given in writing, mailed or personally delivered as follows:
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A. Sublandlord. To Sublandlord as follows:
Applied Materials, Inc.
Global Real Estate and Facilities
3050 Bowers Avenue, M/S 2961
Santa Clara, California 95054
Attention: Real Estate Manager
or to such other person at such other address as Sublandlord may designate by
notice to Subtenant.
B. Subtenant. To Subtenant as follows:
Before Commencement Date: After Commencement Date:
Proxim, Inc. Proxim, Inc.
295 North Bernardo Avenue 935 Stewart Drive
Mountain View, CA 94043 Sunnyvale, CA 94086
Attn: Keith E. Glover, Attn: Chief Financial
Chief Financial Officer Officer
or to such other person at such other address as Subtenant may designate by
notice to Sublandlord.
Mailed notices shall be sent by United States certified or registered mail, or
by a reputable national overnight courier service, postage prepaid. Mailed
notices shall be deemed to have been given on the earlier of actual delivery or
three (3) business days after posting in the United States mail in the case of
registered or certified mail, and one business day in the case of overnight
courier.
25. QUIET POSSESSION. So long as Subtenant shall perform all of its
obligations under this Sublease, Subtenant shall enjoy peaceful and quiet
possession of the Premises, subject to all of the terms of this Sublease.
26. REAL ESTATE BROKERS. Subtenant and Sublandlord each represent
that it has not dealt with any real estate broker with respect to this Sublease
except for the brokers listed in the Schedule, and no other broker is in any way
entitled to any broker's fee or other payment in connection with this Sublease.
Subtenant and Sublandlord shall each indemnify and defend the other against any
claims by any other broker or third party for any payment of any kind in
connection with this Sublease whose claim is based upon the acts or agreements
of the indemnifying party. Sublandlord shall pay the brokers identified in the
Schedule a commission for this Sublease pursuant to a separate agreement to be
entered into between Sublandlord and such brokers or among such brokers.
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27. MISCELLANEOUS.
A. Successors and Assigns. Subject to the limits on Subtenant's
assignment contained in Section 18, the provisions of this Sublease shall be
binding upon and inure to the benefit of all successors and assigns of
Sublandlord and Subtenant.
B. Date Payments Are Due. Except for payments to be made by
Subtenant under this Sublease which are due upon demand, Subtenant shall pay to
Sublandlord any amount for which Sublandlord renders a statement of account
within thirty (30) days of Subtenant's receipt of Sublandlord's statement.
C. Meaning of "Sublandlord," "Landlord", "Re-Entry,"
"including" and "Affiliate". The term "Sublandlord" means only the owner of the
Sublandlord's interest in this Sublease from time to time. The term "Landlord"
means only the owner of the Project and the lessor's interest in the Master
Lease from time to time. The words "re-entry" and "re-enter" are not restricted
to their technical legal meaning. The words "including" and similar words shall
mean "without limitation." The word "affiliate" shall mean a person or entity
controlling, controlled by or under common control with the applicable entity.
"Control" shall mean the power directly or indirectly, by contract or otherwise,
to direct the management and policies of the applicable entity.
D. Time of the Essence. Time is of the essence of each
provision of this Sublease.
E. No Option. This document shall not be effective for any
purpose until it has been executed and delivered by both parties.
F. Severability. The unenforceability of any provision of this
Sublease shall not affect any other provision.
G. Governing Law. This Sublease shall be governed in all
respects by the laws of the state in which the Project is located, without
regard to the principles of conflicts of laws.
H. No Oral Modification. No modification of this Sublease shall
be effective unless it is a written modification signed by both parties.
I. Sublandlord's Right to Cure. If Sublandlord breaches any of
its obligations under this Sublease, Subtenant shall notify Sublandlord in
writing and shall take no action respecting such breach so long as Sublandlord
promptly begins to cure the breach and diligently pursues such cure to its
completion. Sublandlord may cure any default by Subtenant; any expenses incurred
shall become Additional Rent due from Subtenant on demand by Sublandlord.
J. Captions. The captions used in this Sublease shall have no
effect on the construction of this Sublease.
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K. Authority. Sublandlord and Subtenant each represents to the
other that it has full power and authority to execute and perform this Sublease.
L. Sublandlord's Enforcement of Remedies. Sublandlord may
enforce any of its remedies under this Sublease either in its own name or
through an agent.
M. Entire Agreement. This Sublease, together with all
Appendices, constitutes the entire agreement between the parties. No
representations or agreements of any kind have been made by either party which
are not contained in this Sublease.
N. Sublandlord's Title. Landlord's title and Sublandlord's
interest under the Master Lease shall always be paramount to the interest of
Subtenant, and nothing in this Sublease shall empower Subtenant to do anything
which might in any way impair Landlord's title or Sublandlord's interest under
the Master Lease.
O. Light and Air Rights. Neither Landlord nor Sublandlord has
granted by this Sublease any rights to light and air in connection with Project.
P. Singular and Plural. Wherever appropriate in this Sublease,
a singular term shall be construed to mean the plural where necessary, and a
plural term the singular. For example, if at any time two parties shall
constitute Sublandlord or Subtenant, then the relevant term shall refer to both
parties together.
Q. Exclusivity. Sublandlord does not grant to Subtenant in this
Sublease any exclusive right except the right to occupy its Premises.
R. No Construction Against Drafting Party. The rule of
construction that ambiguities are resolved against the drafting party shall not
apply to this Sublease.
S. Survival. All obligations of Sublandlord and Subtenant under
this Sublease shall survive the termination of this Sublease.
T. Rent Not Based on Income. No Rent or other payment in
respect of the Premises shall be based in any way upon net income or profits
from the Premises. Subtenant may not enter into or permit any sublease or
license or other agreement in connection with the Premises which provides for a
rental or other payment based on net income or profit.
U. Building Manager and Service Providers. Sublandlord may
perform any of its obligations under this Sublease through its employees or
third parties hired by the Sublandlord.
V. Late Charge and Interest on Late Payments. Without limiting
the provisions of Section 13A, if Subtenant fails to pay any installment of Rent
or other charge to be paid by Subtenant pursuant to this Sublease within five
(5) business days after the same became due and
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payable (collectively referred to herein as a "Late Payment"), then Subtenant
shall pay a late charge equal to the greater of five percent (5%) of the amount
of such Late Payment or $250 ("Late Charge"). In addition, interest shall be
paid by Subtenant to Sublandlord on any Late Payments of Rent from the date due
until paid at the rate provided in Section 2D(2) ("Late Interest"). Such Late
Charge and Late Interest shall constitute Additional Rent due and payable by
Subtenant to Sublandlord upon the date of payment of the Late Payment.
Notwithstanding the foregoing, Subtenant shall not be liable for any Late Charge
or Late Interest for the first two Late Payments during any calendar year so
long as Sublandlord receives such Late Payment within five (5) days of
Subtenant's receipt of Sublandlord's written notice for the same. If Sublandlord
does not receive Subtenant's Late Payment within such five (5) day period, then
Subtenant shall also be liable for the Late Charge and Late Interest as
described above.
28. UNRELATED BUSINESS INCOME. If Landlord is advised by its counsel
at any time that any part of the payments by Subtenant to Landlord under this
Sublease may be characterized as unrelated business income under the United
States Internal Revenue Code and its regulations, then Subtenant shall enter
into any amendment proposed by Landlord to avoid such income, so long as the
amendment does not require Subtenant to make more payments or accept fewer
services than this Sublease provides.
29. HAZARDOUS SUBSTANCES.
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A. Subtenant's Environmental Indemnity. Subtenant shall not
cause any Hazardous Substances to be brought upon, stored, or used in, on or
under the Project other than such quantities of Hazardous Substances as are
customary and reasonably necessary for the conduct of the Permitted Uses listed
in the Schedule to this Sublease, and which are listed in the Hazardous
Materials Inventory Sheets (collectively, the "HMIS") attached hereto as EXHIBIT
G, unless Landlord and Sublandlord have consented in writing to the storage or
use of such Hazardous Substances, which consent shall not be unreasonably
withheld by Sublandlord. Sublandlord hereby consents to Subtenant's
transportation, storage and use of the chemicals identified in EXHIBIT G
substantially in the quantities provided therein. Subtenant shall also provide
Landlord and Sublandlord with copies of all documents or information provided to
or documents, information or permits received from applicable governmental
agencies to the extent they relate to the use, transportation, disposal or
storage of Hazardous Substances at the Premises, including any HMIS's, Material
Safety Data Sheets, discharge permits, Hazardous Materials Management Plans and
transportation manifests. Subtenant shall not cause or permit any Hazardous
Substances to be produced, discharged or disposed of in, on or under the Project
by Subtenant, its agents, employees, contractors or invitees in violation of
applicable laws. Any handling, transportation, storage, treatment, disposal or
use of any Hazardous Substances in or about the Project by Subtenant, its
agents, employees, contractors or invitees shall strictly comply with all
applicable governmental requirements. Subtenant shall indemnify, defend and hold
Landlord and Sublandlord harmless from and against any liabilities, claims,
damages, penalties, fines, attorneys' fees and court costs, remediation costs,
investigation costs and any other expenses incurred by Sublandlord (a) pursuant
to governmental or court orders, or (b) acting as a reasonable and prudent
landowner which result from or arise out of the use, storage, treatment,
transportation, release, or disposal of any Hazardous Substances on or about the
Project by Subtenant, its agents, employees, contractors or invitees.
Sublandlord shall notify Subtenant in writing promptly upon receipt of notice of
any claim to which the indemnification set forth herein may apply. Sublandlord
shall reasonably cooperate with Subtenant in the course of Subtenant's defense
and indemnification as provided hereunder. Subtenant shall have the right to
settle any claim to which this paragraph may apply, subject to Sublandlord's
consent, which shall not be unreasonably withheld.
B. "Hazardous Substances" means any hazardous or toxic
substances, materials or waste which are or become regulated by any local
government authority, the state in which the Project is located or the United
States government, including those substances described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Section 6901 et seq., any other applicable federal, state or
local law, and the regulations adopted under these laws.
C. Pre-existing Contamination. Subtenant hereby acknowledges
that Sublandlord has informed Subtenant that certain chlorinated volatile
organic compounds are present in the groundwater under the Land as of the date
of this Sublease ("Pre-Existing Contamination"). Subtenant hereby covenants for
the benefit of Landlord and Sublandlord that it will not use or store any
chlorinated volatile organic compounds on the Premises or within the Project.
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<PAGE> 41
Subtenant agrees and acknowledges that: (i) except as expressly set
forth in this section, neither Sublandlord nor any of Sublandlord's
representatives have made any representations or warranties about the
environmental condition of the Land or the accuracy or completeness of any
environmental reports made available to Subtenant regarding the Land; (ii) it
has had ample time and access to the Land, to review the environmental condition
of the Land and to conduct any tests which Subtenant may deem desirable in
connection with this Sublease; (iii) it is sophisticated, knowledgeable and
experienced in the analysis of environmental matters and that Subtenant has
entered into this Sublease with the intention of making and relying upon its own
(or its experts') investigation of the environmental condition of the Land; and
(iv) Subtenant is not relying upon any representations or warranties, except as
expressly set forth in this section, purportedly made by Sublandlord or anyone
acting or claiming to act on Landlord's behalf concerning the Land. Sublandlord
has delivered to Subtenant a copy of the Phase I Environmental Site Assessment
dated November 14, 1997 prepared by Earth Science Associates. Sublandlord
represents that it has no knowledge of any Pre-existing Contamination except as
disclosed in such report. Sublandlord shall permit Subtenant to review and copy
any documents in its files regarding the environmental condition of the Land and
its soil, subsoil, or groundwater.
D. Sublandlord's Environmental Indemnity. Subject to the terms,
conditions and limitations set forth below and except to the extent such
contamination was caused, exacerbated, or contributed to by Subtenant, or
Subtenant's employees, agents, contractors or invitees, Sublandlord shall
indemnify Subtenant from and against any liability, claims, damages, penalties,
fines, attorneys' fees and costs, remediation costs, investigation costs and
other expenses arising from any use, storage, treatment, transportation, release
or disposal of Hazardous Substances on or about the Project by Sublandlord, its
agents, contractors, employees or invitees or due to breach of Sublandlord's
representation in Section 29C. Sublandlord agrees that Subtenant shall have no
liability to Sublandlord for, and hereby releases Subtenant, its agents,
employees, contractors, subtenants, and assigns from, all costs, claims,
liabilities, and damages due to any Hazardous Substances not produced,
discharged, or disposed of in, on, or under the Project by Subtenant, its
agents, employees, contractors, or invitees. If Subtenant's use of the Premises
is interrupted or materially impaired by the presence in violation of law of
Hazardous Substances on or about the Premises not produced, discharged, or
disposed of in, on, or under the Project by Subtenant, its agents, employees,
contractors or invitees or due to any Compliance Order for Pre-existing
Contamination, Rent shall be abated to the extent of such interruption or
impairment. For purposes of this section, the term "Sublandlord's contractors"
excludes Landlord under the Master Lease. Sublandlord's liability under the
foregoing indemnity (i) is personal to Subtenant and may not be assigned to or
relied upon by any third party, other than a Subtenant Affiliate (excluding
entities with which Subtenant is undertaking or will undertake a joint venture
or similar joint project) without Sublandlord's prior written consent, which may
be withheld in Sublandlord's sole and absolute discretion, (ii) is limited to
Subtenant's actual, out of pocket costs incurred in complying with any
applicable state or federal agencies relating to the remediation, removal,
disposal or monitoring ("Compliance Order"), and to reasonable consultants fees
and costs and reasonable attorneys' fees and costs incurred in defending against
a proposed Compliance Order, so long as Sublandlord may
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select the attorney to defend Subtenant and have sole authority to make all
settlement and other decisions in regard to the proceedings, including the
decision whether to challenge the Compliance Order (and any related order or
action) by appeal or court challenge, and (iii) specifically excludes any
claims, costs, damages or losses for personal injury, property damage, punitive
damages, damage to business, lost profits or consequential damages incurred by
Subtenant or any third party.
30. EXCULPATION. Landlord shall have no liability under this
Sublease, except as may be expressly set forth in any consent by Landlord to
this Sublease. Sublandlord's liability under this Sublease shall be limited to
the greater of (i) its interest in the Master Lease and subleases pursuant
thereto, and (ii) Ten Million Dollars ($10,000,000.00). In no event shall any
officer, director, employee, agent, shareholder, partner, member or beneficiary
of Landlord or Sublandlord be personally liable for any of Landlord's or
Sublandlord's obligations hereunder. The foregoing limitation shall not limit
Sublandlord's liability pursuant to the indemnity obligation under Sections 9B
and 29D (collectively the "Indemnity Obligations").
31. RIGHT OF FIRST REFUSAL.
A. If, after execution of this Sublease, Sublandlord makes or
receives an executed letter of intent or other proposal for the proposed
Sublease of Building C, 945 Stewart Drive, which Sublandlord is willing to
accept, Sublandlord shall notify Subtenant in writing of the proposed terms and
conditions for such sublease ("Sublandlord's Notice"). Subtenant shall have one
business day after receipt of Sublandlord's Notice to notify Sublandlord in
writing of Sublandlord's election to lease Building C on the terms stated in
Sublandlord's Notice. If Subtenant notifies Sublandlord within such one business
day period of Subtenant's desire to lease Building C, Subtenant and Sublandlord
shall enter into a lease on the proposed economic terms and conditions stated in
Sublandlord's Notice and in the same form otherwise as this Sublease. If,
however, Subtenant fails to notify Sublandlord of Subtenant's election to lease
Building C within such one business day period or, if Sublandlord and Subtenant,
through no fault of Sublandlord, fail to amend this Sublease to incorporate
Building C into this Sublease within thirty (30) days after the date of
Subtenant's notice to Sublandlord, Subtenant shall be deemed to have waived its
right to sublease Building C with respect to such Sublandlord Notice and
Sublandlord shall have the right to sublease Building C to any third party on
substantially the terms stated in Sublandlord's Notice without further notice to
Subtenant. Notwithstanding the foregoing, if Sublandlord negotiates with the
proposed subtenant sublease terms materially more favorable (e.g., the effective
rent is more than 8% lower) than those offered to Subtenant but rejected,
Sublandlord shall be required to submit the more favorable terms to Subtenant
for its review. Subtenant shall have three (3) business days after receipt of
the more favorable terms to accept or reject the offer. If Subtenant rejects the
more favorable terms, Sublandlord shall be free to enter a sublease with the
proposed subtenant on such terms. Subtenant's rejection of any particular offer
shall not relieve Sublandlord of its obligation to offer any proposed sublease
of all or any part of Building C to Subtenant at any time that such premises
subsequently become available. Building C is unoccupied and subject to no
sublease at
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the date of this Sublease. The rights granted Subtenant herein shall apply only
to the first sublease of Building C and shall expire upon the first sublease of
Building C.
B. If upon expiration or earlier termination of any sublease
for Building C during the term of this Sublease, Sublandlord desires to sublease
any space in Building C to third parties (the "Proposed Sublease Space"),
Sublandlord shall notify Subtenant in writing of the proposed terms and
conditions for such sub-sublease ("Sublandlord's Notice"). Subtenant shall have
five (5) business days after receipt of Sublandlord's Notice to notify
Sublandlord in writing of Sublandlord's election to lease the Proposed Sublease
Space on the terms stated in Sublandlord's Notice. If Subtenant notifies
Sublandlord within such five (5) business day period of Subtenant's desire to
lease the Proposed Sublease Space, Subtenant and Sublandlord shall enter into a
sublease on the proposed economic terms and conditions stated in Sublandlord's
Notice and in the same form otherwise as this Sublease. If, however, Subtenant
fails to notify Sublandlord of Subtenant's election to lease the Proposed
Sublease Space within such five business day period or, if Sublandlord and
Subtenant, through no fault of Sublandlord, fail to amend this Sublease to
incorporate Building C into this Sublease within thirty (30) days after the date
of Subtenant's notice to Sublandlord, Subtenant shall be deemed to have waived
its right to sublease the Proposed Sublease Space at such time and Sublandlord
shall have the right to lease the Proposed Sublease Space to any third party on
substantially the terms stated in Sublandlord's Notice without further notice to
Subtenant. Notwithstanding the foregoing, if Sublandlord negotiates with the
proposed subtenant sublease terms materially more favorable (e.g., the effective
rent is more than 8% lower) than those offered to Subtenant but rejected,
Sublandlord shall be required to submit the more favorable terms to Subtenant
for its review. Subtenant shall have three (3) business days after receipt of
the more favorable terms to accept or reject the offer. If Subtenant rejects the
more favorable terms, Sublandlord shall be free to enter a sublease with the
proposed subtenant on such terms. Subtenant's rejection of any particular offer
shall not relieve Sublandlord of its obligation to offer any proposed sublease
of all or any part of Building C to Subtenant at any time that such premises
subsequently become available. If Sublandlord does not enter into a sublease
within one hundred eighty (180) days from the date of Sublandlord's Notice, any
offering shall be deemed a new determination to sublease subject to this
section.
32. SUBLANDLORD OBLIGATIONS. Sublandlord shall use commercially
reasonably efforts to cause Landlord under the Master Lease to perform all of
the obligations of Landlord thereunder to the extent said obligations apply to
the Premises and Subtenant's use of the Project Common Areas. Sublandlord will
not, without Subtenant's prior written consent, which shall not be unreasonably
withheld, amend, modify, revise or terminate the Master Lease in any way that
would either materially negatively affect Subtenant's rights or position under
the Sublease or materially increase Subtenant's duties or obligations under the
Sublease.
In addition, Sublandlord shall not waive any provisions under the Master Lease
or make any elections, exercise any right or remedy or give any consent or
approval under the Master Lease which would either materially and negatively
affect Subtenant's rights or position under this
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Sublease or materially increase Subtenant's duties or obligations under this
Sublease without, in each instance, Subtenant's prior written consent, which
shall not be unreasonably withheld.
33. SUBLANDLORD'S REPRESENTATIONS AND WARRANTIES. Sublandlord
represents and warrants with respect to the Premises that: (a) the Master Lease
is in full force and effect, and there exists under the Master Lease no default
or event of default by either Landlord or Sublandlord, 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; (b) the copy of the Master Lease
attached hereto as EXHIBIT H is a true and complete copy of the Master Lease,
and the Master Lease has not been amended except as set forth therein; (c)
Sublandlord has not received any notice of pending or threatened actions, suits
or proceedings before any court or administrative agency against Sublandlord or
against Landlord or third parties which could, in the aggregate, adversely
affect the Premises or any part thereof; and (d) Sublandlord has not received
any notice of pending condemnation or similar proceeding affecting the Project
or any portion thereof, and Sublandlord has no knowledge that any such action is
contemplated.
34. SUBTENANT CURE RIGHT. In the event that Sublandlord fails to
perform or observe any of Sublandlord's obligations under the Master Lease or
fails to perform Sublandlord's stated obligations under this Sublease, then
Subtenant may give Sublandlord notice specifying in what manner Sublandlord has
defaulted, and if such default shall not be cured by Sublandlord within thirty
(30) days thereafter (except that if such default cannot be cured within such
thirty (30) day period, this period shall be extended for an additional
reasonable time, provided that Sublandlord commences to cure such default within
such thirty (30) day period and proceeds diligently thereafter to effect such
cure as quickly as practicable), then Subtenant shall be entitled to cure such
default and Subtenant's reasonable expenses in so doing shall be due upon
demand. Subtenant shall not be required, however, to wait the entire cure period
described herein if earlier action is required to comply with the Master Lease
or with any governmental regulations.
35. AUTHORIZATION TO DIRECT SUBLEASE PAYMENTS. Subtenant shall have
the right to pay all Rent for those items which also are owed by Sublandlord to
Landlord under the Master Lease directly to Landlord if Sublandlord has failed
to make any payment required to be made by Sublandlord to Landlord under the
Master Lease. Any sums paid directly by Subtenant to Landlord as provided
hereunder shall be credited toward such amounts payable by Subtenant to
Sublandlord under this Sublease. In the event Subtenant tenders payment directly
to Landlord as provided herein and Landlord refuses to accept such payment,
Subtenant shall have the right to deposit such funds in an account with a
national bank for the benefit of Landlord and Sublandlord, and the deposit of
said funds in such account shall discharge Subtenant's obligation under this
Sublease to make the payment in question.
36. APPROVALS; EXPENDITURES. Whenever this Sublease requires an
approval, consent, designation, determination, selection or judgment by either
Sublandlord or Subtenant, unless another standard is expressly set forth, such
approval, consent, designation, determination, selection or judgment and any
conditions imposed thereby shall be reasonable and shall not be
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<PAGE> 45
unreasonably withheld or delayed. Any costs or expenses for which a party is
entitled to request reimbursement hereunder shall be reasonably incurred and
limited to its fair market value.
37. CONDITIONS PRECEDENT. This Sublease and Sublandlord's and
Subtenant's obligations hereunder are conditioned upon the written consent of
Landlord, which consent, at Subtenant's election, shall contain the provisions
described in EXHIBIT I hereto (the "Consent"). Sublandlord shall use diligent
efforts to obtain the Consent from Landlord as soon as practicable. If
Sublandlord fails to obtain the Consent within thirty (30) days after execution
of this Sublease by Subtenant, then either party may terminate this Sublease by
giving the other party written notice thereof at any time prior to Subtenant's
receipt of the Consent, and Sublandlord shall return to Subtenant promptly its
payment of the Lease Deposit.
38. DIRECT LEASE WITH LANDLORD. Sublandlord and Subtenant acknowledge
that Subtenant is currently negotiating with Landlord for a direct lease of the
Premises with Landlord commencing upon the termination of the Master Lease as to
the Premises (the "Direct Lease"). In the event Subtenant and Landlord enter
into the Direct Lease and Landlord agrees to waive such obligations as to the
Master Lease, (a) Subtenant shall not be required, upon the termination of this
Sublease, to remove any Work, signage or roof installations from the Premises as
described in Sections 5(D), 5(E), 6(B) and 6(D) or to clean and put the Premises
into the surrender condition described in Section 15, (b) Subtenant shall not be
deemed to be holding over (as described in Section 16) upon the termination of
the Sublease and (c) Sublandlord shall not exercise any options to extend under
the Master Lease with respect to the Premises.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease.
SUBLANDLORD: SUBTENANT:
APPLIED MATERIALS, INC., PROXIM, INC.,
a Delaware corporation a Delaware corporation
By: By:
-------------------------------- -------------------------------
Print Name: Print Name:
------------------------ -----------------------
Print Title: Print Title:
----------------------- ----------------------
By:
--------------------------------
Print Name:
------------------------
Print Title:
-----------------------
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EXHIBIT A
DESCRIPTION OF PROJECT AND PREMISES/BUILDINGS
(attach diagram of Project and approximate footprint of Buildings)
<PAGE> 47
EXHIBIT B
RULES AND REGULATIONS
ESTABLISHED IN MASTER LEASE
1. Tenant shall not place anything, or allow anything to be placed
near the glass of any window, door, partition or wall which may, in Landlord's
judgment, appear unsightly from outside of the Project.
2. The Project directory, if any, shall be used by Landlord to
display names and locations of tenants in the Project. No tenant shall use or
make any changes to such directories without Landlord's prior written consent.
3. The sidewalks, halls, passages, exits, entrances, elevator and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises, unless Tenant is the
sole occupant of the Building. Tenant shall lend its full cooperation to keep
such areas free from all obstruction and in a clean and sightly condition and
shall move all supplies, furniture and equipment as soon as received directly to
the Premises and move all such items and waste being taken from the Premises
(other than waste customarily removed by employees of the Building) directly to
the shipping platform at or about the time arranged for removal therefrom.
Neither Tenant nor any employee or invitee of Tenant shall go upon the roof of
the Project.
4. The toilet rooms, urinals, wash bowls and other apparatuses shall
not be used for any purposes other than that for which they were constructed,
and no foreign substance of any kind whatsoever shall be thrown therein, and to
the extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
5. Tenant shall not install or operate any refrigerating, heating or
air conditioning apparatus, or carry on any mechanical business without the
prior written consent of Landlord; use the Premises for housing, lodging or
sleeping purposes. Tenant shall not occupy or use the Premises or permit the
Premises to be occupied or used for any purpose, act or thing which is in
violation of any Governmental Requirement or which may be dangerous to persons
or property.
6. Tenant shall not use any method of heating or air conditioning
other than that supplied or approved by Landlord.
7. Without the prior written consent of Landlord, Tenant shall not
use the name of the Project or any exterior picture of the Project in connection
with, or in promoting or advertising the business of, Tenant, except Tenant may
use the address of the Project as the address of its business.
8. Tenant assumes full responsibility for protecting the Premises
from theft, robbery and pilferage, which may arise from a cause other than
Landlord's negligence, which includes keeping doors locked and other means of
entry to the Premises closed and secured.
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9. No bicycle (except in those areas which may be designated for
bicycles by Landlord) or other vehicle and no animals or pets shall be allowed
in the Premises, halls, freight docks, or any other parts of the Building except
that blind persons may be accompanied by "seeing eye" dogs. Unless Tenant is the
sole occupant of the Building, Tenant shall not make or permit any noise,
vibration or odor to emanate from the Premises, or do anything therein tending
to create, or maintain, a nuisance, or do any act tending to injure the
reputation of the Building.
10. Tenant shall not do or permit the manufacture or sale of any
fermented, intoxicating or alcoholic beverages without obtaining written consent
of Landlord.
11. Tenant shall not disturb the quiet enjoyment of any other tenant,
if any, in the Building and/or Project.
12. No equipment, mechanical ventilators, awnings, special shades or
other forms of window covering shall be permitted outside the windows of the
Premises without the prior written consent of Landlord, and then only at the
expense and risk of Tenant, and they shall be of such shape, color, material,
quality, design and make as may be approved by Landlord.
13. Tenant shall not during the term of this Sublease canvas or
solicit other tenants of the Building for any purpose.
14. Tenant shall not install or operate any phonograph, musical or
sound- producing instrument or device, radio receiver or transmitter, TV
receiver or transmitter, or similar device, without in each instance the prior
written approval of Landlord. The use thereof, if permitted, shall be subject to
control by Landlord to the end that others shall not be disturbed.
15. Tenant shall promptly remove all rubbish and waste from the
Premises.
16. Tenant shall not exhibit, sell or offer for sale, rent or
exchange in the Premises or at the Project any article, thing or service, except
those ordinarily embraced within the Permitted Uses of the Premises specified in
the Schedule of this Sublease, without the prior written consent of Landlord.
17. Tenant shall not overload any floors in the Premises or any
public corridors or elevator in the Building.
18. Whenever Landlord's consent, approval or satisfaction is required
under these Rules, then unless otherwise stated, any such consent, approval or
satisfaction must be obtained in advance, such consent or approval may be
granted or withheld in Landlord's reasonable discretion, and Landlord's
satisfaction shall be determined in its reasonable judgment.
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EXHIBIT C
WORK LETTER AGREEMENT
This EXHIBIT C Work Letter Agreement ("Work Letter") is attached to and
made a part of that certain Sublease (the "Sublease") between Applied Materials,
Inc. a Delaware corporation ("Sublandlord") and Proxim, Inc., a Delaware
corporation ("Subtenant"). Terms used in this Work Letter that are defined in
the Sublease shall have the same meaning as provided in the Sublease.
The purpose of this Work Letter is to set forth the agreement between
Sublandlord and Subtenant with respect to the construction and installation of
the Tenant Improvements to be installed on the Premises.
1. Improvement. Subtenant shall improve the Premises in accordance
with plans and specifications approved by Landlord, Sublandlord, and Subtenant
(such improvements are referred to herein as the "Tenant Improvements") and in
accordance with this Work Letter and subject to the requirements of the Lease
between Landlord and Sublandlord and its EXHIBIT C Tenant Improvement Agreement
("Master Lease").
2. Tenant Improvements. For purposes of this Work Letter and the
Sublease, Tenant Improvements shall not include the Building Shell and
Sublandlord Upgrades as defined in the Sublease. The Tenant Improvements shall
include, but not be limited to, the following:
a. sprinkler drops and heads below drop ceiling;
b. roof mounted HVAC, including main trunk lines, secondary
distribution lines and controls, and one-half of the cost
of the roof screen for each Building;
c. ceilings;
d. lighting;
e. building insulation;
f. interior walls and partitions;
g. plumbing;
h. painting;
i. floor covering;
j. interior doors;
k. all venting, including exhaust lines and hoods;
l. electrical secondary system from transformer (including
underground pull section and conductors), panels, main
switchboard, switches, and distributions;
m. gas distribution;
n. telephone switch room, panel, distribution system;
o. electrical rooms, phone, rooms, and mechanical rooms;
p. Building common area improvements (including lobbies,
corridors, bathrooms, janitorial closet, base HVAC system
and secondary concrete and steel exit stairs;
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<PAGE> 50
q. emergency generators;
r. window coverings;
s. interior and exterior signage; and
t. special data and communications systems.
Sublandlord shall be responsible for installation of handrails for exit stairs.
3. Construction Drawings. Sublandlord and Subtenant have approved
detailed drawings sufficient for construction of the Tenant Improvements
("Construction Drawings") prepared by CAS Architects.
4. Construction. Subtenant shall enter into a contract with a
contractor reasonably acceptable to Sublandlord and Landlord. Sublandlord hereby
approves Ranger Construction Company ("Contractor") for construction of the
Tenant Improvements ("Construction Contract"). The Construction Contract shall
require that Contractor provide a minimum warranty of one year with respect to
the Tenant Improvements and require that the Contractor provide a replacement
warranty with the same coverage for any existing warranty covering the Building
Shell or other improvements invalidated by work performed by the Contractor.
Except as specified in the Construction Drawings, the Tenant Improvements will
be constructed using materials of at least Building-standard materials and
procedures ("Building Standards") as more particularly described in Schedule "1"
attached hereto and incorporated herein by reference.
All Tenant Improvements shall be completed in a good and
workmanlike manner and in compliance with the Master Lease. All materials and
equipment incorporated into the Tenant Improvements (i) shall be new and free of
defects, (ii) shall conform to all applicable codes, (iii) shall conform to the
final Construction Drawings approved by Sublandlord and Subtenant, including all
changes or modifications thereto approved by Sublandlord and Subtenant, and (iv)
shall comply with requirements of the Master Lease.
Subtenant shall be responsible for obtaining all necessary
permits and approvals (including the building and occupancy permits) and other
authorizations from governmental agencies needed in connection with the Tenant
Improvements. The costs of all such permits and approvals required in connection
with the Tenant Improvements, including inspection and other building fees
required to obtain the permits for the Tenant Improvements, shall be included as
part of the costs of the Tenant Improvements.
5. Project Management. Sublandlord shall enter into a contract with
South Bay Construction ("Project Manager") for project management for the design
preparation and construction process on a time and materials basis, not to
exceed $1,500 per week. Sublandlord shall be entitled to deduct this fee from
the Improvements Allowance described in Paragraph 7 below.
6. Change Orders. Any changes to the Construction Drawings
subsequent to Sublandlord's and Subtenant's approval thereof which are requested
by Subtenant, required by any governmental agency, or proposed for any other
reason whatsoever shall be incorporated into the work by means of a change order
("Change Order"). All Change Orders shall be forwarded to
2
<PAGE> 51
Sublandlord for approval. Sublandlord shall have two (2) business days for
approval or disapproval. No revisions to the approved Construction Drawings
shall be made by either Sublandlord or Subtenant unless approved in writing by
both parties. Subtenant agrees to make all changes required by any public agency
to conform with governmental regulations.
7. Improvements Allowance. Sublandlord shall provide an allowance
for the planning and construction of the Tenant Improvements in the amount of
Three Million Four Hundred Seventy-One Thousand Eight Hundred Fifty Dollars
($3,471,850.00) ("Improvements Allowance"). The Improvements Allowance shall be
the maximum contribution by Sublandlord for the Tenant Improvements Cost, as
defined in Paragraph 12. In addition, Sublandlord shall pay for one-half the
cost of the roof screen for each Building. If the Tenant Improvements Cost as
specified in the Construction Contract exceeds the Improvements Allowance,
Subtenant shall pay the amount by which the Tenant Improvements Cost exceeds the
Improvements Allowance. Upon written request of Subtenant (not more frequently
than twice each month), Sublandlord shall pay all or, if the Tenant Improvements
Cost exceeds the Improvement Allowance, a portion of each request equal to the
amount of the request times a fraction, the numerator of which is the
Improvements Allowance and the denominator of which is the Tenant Improvements
Cost, from the Improvements Allowance to Subtenant, within thirty (30) days
after receipt of (a) invoices, (b) evidence satisfactory to Landlord and
Sublandlord that the work covered by such invoices has been completed in a
satisfactory manner, (c) all necessary lien waivers and sworn affidavits, (d)
marked reproducible copies of the originally approved Plans showing all
substantial changes made in constructing the Tenant Improvements during such
period from the Construction Drawings as originally approved, (e) all close-out
documentation set forth in any "Policies, Rules and Procedures for Construction
Projects" delivered by Landlord to Subtenant prior to the commencement of the
Work, and (f) such other documentation as Landlord and Sublandlord may
reasonably require under the circumstances. Subtenant shall deliver reproducible
as-built Plans to Landlord and Sublandlord at the conclusion of Tenant
Improvements. The Improvements Allowance shall not be used for payment of any
costs of procuring, constructing or installing in the Premises any of
Subtenant's personal property, including furnishings, fixtures, and equipment.
Sublandlord and Subtenant shall reconcile the Tenant Improvements Cost with the
disbursements from the Improvements Allowance from time to time such that
Sublandlord funds to Subtenant the full Improvements Allowance, but no more.
8. Improvements Cost. The improvement cost ("Tenant Improvements
Cost") to be paid by Subtenant from the Improvements Allowance shall include,
but not be limited to:
(a) All costs, including all Architect and Space Planner fees, of
the Space Plan, Schematic Plan, Construction Drawings and specifications for the
Tenant Improvements, including as-built drawings, and engineering costs for
mechanical, electrical and plumbing design and for State of California energy
utilization calculations under title 24 legislation, including any fees
resulting from redesign of any portion of the Tenant Improvements following
approval of the Working Drawings;
(b) All costs of obtaining building permits and other necessary
authorizations from the City of Sunnyvale and other governmental agencies;
(c) All direct and indirect costs of constructing and installing
the Tenant Improvements, including, but not limited to, the construction fee for
overhead and profit and the cost of all on-site project management,
3
<PAGE> 52
supervisory and administrative staff, office, equipment and temporary services
rendered by the Contractor in connection with construction of the Tenant
Improvements; and
(d) Sewer, water, or other utility or municipal connection fees.
9. Risk of Loss. The risk of loss of the Tenant Improvements before
the Commencement Date (as defined in the Sublease) shall be borne by Subtenant.
At all times prior to the Commencement Date, Subtenant, at its sole cost and
expense, shall maintain or cause its Contractor to maintain contingent liability
and broad form "builder's risk" insurance with coverage in an amount equal to
the replacement cost of the Tenant Improvements. If the Premises are damaged or
destroyed prior to the Commencement Date, and if the Premises, in the reasonable
opinion of Sublandlord's Architect, cannot be substantially completed prior to
January 1, 2000, Subtenant shall have the right to terminate the Sublease. If
the Premises are damaged or destroyed and the Sublease is not terminated
pursuant to the terms of the Sublease, then Sublandlord shall promptly and
diligently complete construction of the Tenant Improvements in accordance with
the Lease and this Work Letter.
10. Commencement Date Determination. "Substantial Completion" shall
mean the state of completion existing when (1) Subtenant's architect or
Contractor certifies to Subtenant that the Tenant Improvements have been
completed in accordance with the plans and specifications therefor and (2) the
Premises may be lawfully occupied by Subtenant and shall be deemed to have
occurred notwithstanding a requirement on the part of Subtenant to complete
"punch list" or similar corrective work. If Subtenant shall be delayed in
Substantial Completion of the Tenant Improvements as a result of:
a. Sublandlord's's failure to deliver the Premises on the
Delivery Date;
b. Sublandlord's failure to approve Change Orders within the
times prescribed;
c. Sublandlord's failure to timely deliver payments of the
Improvements Allowance as provided herein; and
d. any other delays requested or caused by the acts or
omissions of Sublandlord, its agents, employees, or
consultants;
(all of the foregoing being referred to herein collectively as "Sublandlord's
Delay"), then the Commencement Date shall be the anticipated Commencement Date
plus a number of days equal to the total number of days of Sublandlord's Delay.
11. Additional Provisions:
a. All Tenant Improvements work shall be performed in
compliance with Landlord's "Policies, Rules and
Regulations for Construction Projects" delivered to
Subtenant prior to execution of the Sublease. Subtenant
shall permit Landlord and Sublandlord to observe and
monitor all Tenant Improvements.
b. Sublandlord shall permit Subtenant and its agents, and
Subtenant's Contractor, to enter the Premises prior to the
Commencement Date without any obligation to pay
Sublandlord Rent, to perform the Tenant Improvements and
prepare the Premises for Subtenant's use and occupancy,
including testing and installation of Subtenant's
equipment. Any such permission shall be conditioned upon
Subtenant's:
4
<PAGE> 53
(a) using a contractor from the list of contractors
approved by Landlord and Sublandlord and depositing with
Landlord and Sublandlord in advance of any work the
Contractor's affidavit for the proposed work and as
reasonably necessary, from time to time, waivers of liens
from the Contractor and all subcontractors and suppliers
of material; and
(b) furnishing Landlord and Sublandlord with the
insurance required of Subtenant and its contractors
pursuant to Section 9 of the Sublease, and causing all
other parties entering the Project to perform the Tenant
Improvements to provide Landlord and Sublandlord with the
types, and amounts, of coverages required in Section 9 of
the Sublease.
c. Neither Landlord nor Sublandlord shall be liable in any
way for any injury, loss or damage which may occur to any
of Subtenant's property or installations in the Premises
prior to the Commencement Date. Any entry and occupation
permitted under this EXHIBIT C shall be governed by
Section 6 and all other terms of the Sublease.
SUBTENANT SUBLANDLORD
Proxim, Inc., a Applied Materials, Inc., a
Delaware corporation Delaware corporation
By________________________________ By________________________________
Name______________________________ Name______________________________
Title: ___________________________ Title: ___________________________
By________________________________ By________________________________
Name______________________________ Name______________________________
Title: ___________________________ Title: ___________________________
5
<PAGE> 54
SCHEDULE "1" TO EXHIBIT C
BUILDING STANDARD IMPROVEMENTS
Unless otherwise agreed by both Subtenant and Sublandlord, the following
materials, or comparable substitute materials, shall be used by Sublandlord in
completing the Improvements for the Premises.
<TABLE>
<S> <C>
Drywall Partitions: Building-standard interior partitions to consist
of 3 5/8" metal studs, with one layer 5/8" gypsum
board each side. All partitions to be taped and
prepared for light texture paint finish.
Door: Interior door assembly to be paint grade
wood-veneer, solid-core doors, 3 feet wide by 7'
height.
Door Frame Hollow metal knock-down, painted building-
standard color.
Door Hardware: Chrome lever handle latchset, three pair butt
hinges.
Entry Door Assembly: Door assembly to be determined, frame and lockset
included.
Ceiling Grid System: Mechanically suspended, 2' x 4' Armstrong
"Prelude" building-standard grid throughout the
Premises.
Ceiling Tiles: Armstrong 2' x 4' mineral-fiber acoustical lay-in
"Cortega" tiles.
Light Fixtures: Recessed, ceiling-mounted, 2' x 4' fluorescent
fixture with three lamps and prismatic lens,
installed in building- standard acoustic ceiling.
Wall Switches: Switching to be dual rocker switch to meet Title
24 requirements, controlling building standard
fixtures.
</TABLE>
6
<PAGE> 55
<TABLE>
<S> <C>
Wall Duplex Outlet: Duplex power receptacle mounted at standard height
(18" A.F.F. mounted vertically) in drywall
partition with normal circuiting from core low
voltage panel.
Wall Telephone Data Outlet: Telephone/data outlet to be dry-wall ring mounted
at standard height (18"A.F.F. mounted vertically)
in drywall partition with pull string to above
ceiling.
Paint: Building-standard paint to consist of one coat of
stipple acrylic latex selected from building color
samples.
Base: Building-standard base 4" high, resilient rubber
selected from building sample colors.
Resilient Tile: Building-standard resilient tile will be provided
in lieu of carpeting where required, selected from
building sample colors.
Carpet: Building-standard carpet, 26 ounces per square
yard, selected from building sample colors.
Window Treatment: Building-standard horizontal mini-blinds typical
at all exterior windows.
HVAC: Individual, custom-designed, roof mounted package
or heat-pump unit with one thermostatic control
per zone.
Sprinkler System: Semi-recessed sprinkler heads in white escutcheon,
installed in building-standard ceiling tiles.
</TABLE>
7
<PAGE> 56
EXHIBIT D
MORTGAGES CURRENTLY AFFECTING THE PROJECT
[None]
<PAGE> 57
EXHIBIT E
SHELL UPGRADES
[to be inserted prior to execution]
<PAGE> 58
EXHIBIT F
LETTER OF CREDIT
{To Be Inserted Prior to Execution]
<PAGE> 59
EXHIBIT G
LIST OF HAZARDOUS SUBSTANCES AND QUANTITIES USED BY TENANT
NONE
<PAGE> 60
EXHIBIT H
MASTER LEASE
[To be Attached]
<PAGE> 61
EXHIBIT I
CONSENT
Landlord further agrees that, notwithstanding anything to the contrary in the
Master Lease:
(a) Landlord shall deliver to Subtenant at the address set forth in the
Sublease notices of any defaults under the Master Lease at the same time such
notices are sent to Sublandlord and shall accept Subtenant's performance of any
such obligations.
(b) In the event that the Sublease terminates prior to the expiration of
the term thereof for any reason other than as a result of an event of default by
Subtenant under the Sublease, the Sublease shall continue in full force and
effect, at Subtenant's option, as a direct lease between Landlord and Subtenant
upon all of the terms, covenants and conditions of the Sublease.
(c) Landlord hereby releases Subtenant and its agents, employees,
successors, assignees and subtenants from all liability for damage to any
property that is caused by or results from a risk which is actually insured
against or which would normally be covered by "all risk" property insurance,
without regard to the negligence or willful misconduct of the entity so
released.
(d) Subtenant shall have the right to use the Premises for the purposes
set forth in Section 6 of the Schedule to the Sublease.
(e) Subtenant shall have the audit rights described in Section 2(D)(4)
of the Master Lease.
(f) Notwithstanding the provisions of Section 5 of the Master Lease,
Subtenant's anechoic chamber shall at all times remain Subtenant's property, and
Subtenant may remove its anechoic chamber from the Premises at any time.
(g) Sublandlord hereby consents to Subtenant's (i) construction of the
Tenant Improvements described in EXHIBIT C to the Sublease, (ii) construction of
an exterior equipment pad and roof antennae/satellite dishes as provided in
Section 5(A) and 6(D) of the Master Lease, (iii) installation of the signage
described in EXHIBIT J to the Sublease and (iv) use of the Hazardous Substances
described in the Hazardous Materials Inventory Sheets attached as EXHIBIT G to
the Sublease.
<PAGE> 62
(h) Notwithstanding the provisions of Section 8(B) of the Master Lease,
Landlord shall have no right to maintain the systems of the Premises unless
Subtenant fails to perform such maintenance as required under the Master Lease.
(i) Subtenant may, without Landlord's prior consent, sublet the Premises
or assign the Sublease to an entity described in Section 18(F) of the Sublease.
No excess rent shall be payable with respect to an assignment or sublease to an
entity as described in Section 18(F) of the Sublease, regardless of its net
worth.
(j) Landlord acknowledges that Subtenant is currently negotiating with
Landlord for a direct lease of the Premises commencing upon the termination of
the Master Lease as to the Premises (the "Direct Lease"). In the event Subtenant
and Landlord enter into the Direct Lease, Landlord agrees to waive the following
obligations as to the Master Lease: (a) Subtenant shall not be required, upon
the termination of the Sublease, to remove any Work, signage or roof
installations from the Premises as described in Sections 5(D), 5(E), 6(B) and
6(D) or to put the Premises into the surrender condition described in Section
15, (b) Subtenant shall not be deemed to be holding over (as described in
Section 16) upon the termination of the Sublease and (c) Landlord shall not show
the Premises to prospective tenants as permitted under Section 12(H).
<PAGE> 63
EXHIBIT J
SIGNAGE
[To Be Attached]
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 29,939
<SECURITIES> 40,597
<RECEIVABLES> 8,371
<ALLOWANCES> 0
<INVENTORY> 12,682
<CURRENT-ASSETS> 92,824
<PP&E> 10,467
<DEPRECIATION> 6,947
<TOTAL-ASSETS> 97,617
<CURRENT-LIABILITIES> 9,284
<BONDS> 0
0
0
<COMMON> 85,302
<OTHER-SE> 3,031
<TOTAL-LIABILITY-AND-EQUITY> 97,617
<SALES> 14,750
<TOTAL-REVENUES> 14,750
<CGS> 7,076
<TOTAL-COSTS> 7,076
<OTHER-EXPENSES> 6,204
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 852
<INCOME-PRETAX> 1,724
<INCOME-TAX> 988
<INCOME-CONTINUING> 736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 736
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
