<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from Commission File Number
______ to ______ 0-24934
PRI AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2495703
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
805 MIDDLESEX TURNPIKE 01821-3986
BILLERICA, MA (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number: (978) 670-4270
-----------------
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 .
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock as of February 2, 2000:
<TABLE>
<S> <C>
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, $.01 par value 22,870,761
</TABLE>
<PAGE>
PRI AUTOMATION, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of January 2, 2000
and September 30, 1999 3
Consolidated Statements of Operations for
the Three Months Ended January 2, 2000 and
December 27, 1998 4
Consolidated Statements of Cash Flows for
the Three Months Ended January 2, 2000 and
December 27, 1998 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE 18
Exhibit Index 19
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRI AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
JANUARY 2, SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 45,164 $ 51,865
Trade accounts receivable, less allowances for doubtful accounts of
$2,227 and $2,646, respectively................................ 37,476 31,436
Contracts in progress.............................................. 17,805 6,018
Inventories........................................................ 28,924 28,351
Other current assets............................................... 2,416 7,063
--------- ---------
Total current assets........................................... 131,785 124,733
Property and equipment, net........................................... 19,503 19,128
Other assets, net..................................................... 2,280 2,691
--------- ---------
Total assets................................................... $ 153,568 $ 146,552
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 17,456 $ 16,900
Accrued expenses and other liabilities............................. 15,134 16,396
Current portion of obligations under capital lease................. 501 570
Billings in excess of revenues and customer advances............... 11,393 11,931
--------- ---------
Total current liabilities...................................... 44,484 45,797
Obligations under capital lease....................................... 301 411
Other non-current liabilities......................................... 762 788
Commitments and contingencies (Notes J and K)
Minority interest..................................................... 162 56
Stockholders' equity:
Series A participating cumulative preferred stock, $0.01 par
value; 250,000 shares authorized; none outstanding............... -- --
Special voting preferred stock, $0.01 par value; one share
authorized and outstanding....................................... -- --
Preferred stock (undesignated), $0.01 par value; 149,999
shares authorized; none outstanding.............................. -- --
Common stock, $.01 par value: 50,000,000 shares authorized;
22,788,909 and 22,265,276 shares issued and outstanding at
January 2, 2000 and September 30, 1999, respectively............. 228 223
Additional paid-in capital......................................... 149,529 141,469
Accumulated deficit................................................ (41,898) (42,192)
--------- ---------
Total stockholders' equity..................................... 107,859 99,500
--------- ---------
Total liabilities and stockholders' equity..................... $ 153,568 $ 146,552
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE>
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JANUARY 2, DECEMBER 27,
2000 1998
---- ----
<S> <C> <C>
Net revenue:
Product and equipment............................................. $49,163 $ 20,717
Services and maintenance.......................................... 9,530 8,918
------- --------
Total net revenue.............................................. 58,693 29,635
Cost of revenue:
Product and equipment............................................. 31,259 15,766
Services and maintenance.......................................... 6,056 4,379
------- --------
Total cost of revenue.......................................... 37,315 20,145
------ --------
Gross profit......................................................... 21,378 9,490
Operating expenses:
Research and development.......................................... 12,159 10,414
Selling, general and administrative............................... 9,015 9,686
Special charges................................................... -- 650
------- --------
Operating profit (loss).............................................. 204 (11,260)
Other income, net.................................................... 200 656
------- --------
Income (loss) before income taxes.................................... 404 (10,604)
Provision for (benefit from) income taxes............................ 110 (2,949)
------- ---------
Net income (loss).................................................... $ 294 $ (7,655)
======= =========
Net income (loss) per common share:
Basic............................................................. $ 0.01 $ (0.36)
Diluted........................................................... $ 0.01 $ (0.36)
Weighted average shares outstanding:
Basic............................................................. 22,514 21,269
Diluted........................................................... 24,483 21,269
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE>
PRI AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JANUARY 2, DECEMBER 27,
2000 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $ 294 $ (7,655)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization expense....................... 2,249 2,248
Provision for write-downs of inventories.................... -- 200
Provision for bad debts..................................... -- 54
Net loss on disposal of assets.............................. -- 54
Translation losses (gains), net............................. 241 (198)
Minority interests in income of subsidiaries................ 106 --
Changes in operating assets and liabilities:
Trade accounts receivable.............................. (5,999) (104)
Contracts in progress.................................. (11,787) (856)
Inventories............................................ (573) 4,673
Other assets........................................... 4,692 (416)
Accounts payable....................................... 773 (5,105)
Accrued expenses and other liabilities................. (1,285) 1,854
Billings in excess of revenues and customer
advances........................................... (539) (1,441)
--------- --------
Net cash used in operating activities................................ (11,828) (6,692)
--------- --------
Cash flows from investing activities:
Purchases of intangible assets.................................. -- (260)
Proceeds from sale of property and equipment.................... -- 6
Purchases of property and equipment............................. (2,296) (1,114)
Cash paid for contingent consideration.......................... (59) (76)
--------- --------
Net cash used in investing activities................................ (2,355) (1,444)
-------- --------
Cash flows from financing activities:
Repayment of capital lease obligations.......................... (179) (102)
Proceeds from minority shareholders............................. -- 93
Proceeds under line of credit................................... -- 48
Proceeds from exercise of stock options and Employee
Stock Purchase Plan......................................... 8,124 786
-------- -------
Net cash provided by financing activities............................ 7,945 825
-------- -------
Effect of exchange rate changes on cash.............................. (463) --
-------- -------
Net decrease in cash and cash equivalents............................ (6,701) (7,311)
Cash and cash equivalents at beginning of period..................... 51,865 57,047
-------- --------
Cash and cash equivalents at end of period........................... $ 45,164 $ 49,736
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
<PAGE>
PRI AUTOMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of PRI
Automation, Inc., its wholly-owned domestic subsidiaries and its wholly-owned
and majority-owned foreign subsidiaries (collectively, the "Company"). All
significant intercompany transactions and balances have been eliminated.
In March 1999, the Company acquired Promis Systems Corporation Ltd.
("Promis"). The acquisition of Promis was accounted for using the
pooling-of-interests method of accounting. All prior period historical condensed
consolidated financial statements presented herein have been restated to include
the financial position, results of operations, and cash flows of Promis.
PREPARATION OF FINANCIAL STATEMENTS
The interim financial data as of January 2, 2000 and for the three months
ended January 2, 2000 and December 27, 1998 is unaudited; however, in the
opinion of the Company, the interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results for the interim periods. The results for interim periods are not
necessarily indicative of the results for the entire year. The condensed
consolidated financial statements should be read in connection with the audited
consolidated financial statements of PRI Automation, Inc. for the year ended
September 30, 1999 included in its Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
For interim reporting purposes, the Company closes its first three fiscal
quarters on the Sunday nearest the last day of December, March and June in each
year. The Company's fiscal year ends on the last day of September.
B. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 2, SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Raw materials.................... $19,694 $16,492
Work-in-process.................. 6,100 5,804
Finished goods................... 3,130 6,055
-------- --------
$28,924 $28,351
======= =======
</TABLE>
6
<PAGE>
C. ACCRUED EXPENSES AND OTHER LIABILITIES
The significant components of accrued expenses and other liabilities
consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 2, SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Accrued expenses................. $ 6,842 $ 7,295
Accrued compensation............. 3,853 4,718
Warranty reserves................ 4,439 4,383
------- -------
$15,134 $16,396
======= =======
</TABLE>
D. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is computed based on the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per common share gives effect to all dilutive potential common
shares outstanding during the period. A reconciliation between basic and diluted
net income (loss) per share is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JANUARY 2, DECEMBER 27,
2000 1998
---- ----
<S> <C> <C>
Net income (loss) ........................................... $ 294 $ (7,655)
Shares used in computation:
Weighted average common shares outstanding
used in computation of basic net income (loss)
per common share....................................... 22,514 21,269
Dilutive effect of stock options and warrants............ 1,969 --
------- ---------
Shares used in computation of diluted net income
(loss) per common share................................ 24,483 21,269
======= ========
Basic net income (loss) per share........................ $ 0.01 $ (0.36)
Diluted net income (loss) per share...................... $ 0.01 $ (0.36)
</TABLE>
Options to purchase 768,150 shares of common stock were outstanding as of
January 2, 2000 but were not included in the computation of diluted net income
per common share because the options' exercise prices were greater than the
average market price of the common shares, and therefore, would be anti-dilutive
under the treasury stock method. Options to purchase 3,391,906 shares of common
stock were outstanding as of December 27, 1998, but were not included in the
computation of diluted net loss per common share because the Company was in a
loss position, and the inclusion of such shares would be anti-dilutive.
E. OTHER COMPREHENSIVE INCOME
The Company previously adopted SFAS No. 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. Comprehensive income (loss) is
equal to net income (loss) for the three months ended January 2, 2000 and
December 27, 1998.
7
<PAGE>
F. ACQUISITION OF PROMIS
On March 2, 1999, the Company acquired Promis, a Canadian corporation, in a
transaction accounted for as a pooling of interests. Promis was a developer of
manufacturing execution systems ("MES") software solutions for semiconductor and
precision electronics manufacturers. In connection with the acquisition, the
Company issued 0.1353 exchangeable shares for each outstanding Promis share, or
an aggregate of 1,389,974 exchangeable shares. Each exchangeable share may be
exchanged at any time for one share of common stock of the Company. The Company
assumed options to purchase 270,336 shares of the Company's common stock and a
warrant to purchase 13,530 shares of common stock, converted at the common stock
exchange ratio, under this acquisition agreement. The consolidated financial
statements of the Company for periods prior to the acquisition have been
restated to include the financial position, results of operations and cash flows
of Promis.
G. SPECIAL CHARGES
During the quarter ended March 28, 1999, the Company recorded special
charges of $1,850,000. The special charges consisted of $1,406,000 for
compensation-related costs for five management employees in the selling, general
and administrative functions to satisfy existing contractual obligations related
to the acquired companies; $196,000 of costs associated with the reductions of
leased facilities; and $248,000 for other legal issues. At January 2, 2000,
$272,000 of these charges remained in accrued expenses and are expected to be
paid by the end of calendar year 2000.
During the quarter ended December 27, 1998, the Company recorded special
charges of $650,000. These charges represent provisions for employee severance
compensation relating to the termination of 62 employees and consultants. These
headcount reductions were approximately 40 in manufacturing and customer
support, 8 in engineering, and 14 in selling, general and administrative
functions. The reduction in force occurred in response to the continued downturn
in the semiconductor equipment industry. All of these special charges have been
paid.
H. INCOME TAXES
The income tax provision for the three months ended January 2, 2000 was
$110,000, or 27.2% of income before income taxes, compared to a benefit of
$2,949,000, or 27.8% of loss before income taxes, for the three months ended
December 27, 1998. The tax provision of $110,000 is primarily related to foreign
and state taxes. During the third quarter of fiscal year 1999, management
concluded that a full valuation allowance against the Company's net deferred tax
assets was required, under applicable accounting standards, due to uncertainties
surrounding their realization. Accordingly a valuation allowance in an amount
equal to the net deferred tax assets was established to reflect these
uncertainties. The effective tax rate for the three months ended December 27,
1998 differed from the statutory rate primarily because income of certain
foreign subsidiaries was not subject to income tax due to available tax credits
and net operating losses.
I. SEGMENT REPORTING
The Company operates in three primary segments, all within the
semiconductor manufacturing and OEM equipment supply industry, which serve both
domestic and international markets. These reportable operating segments consist
of Factory Automation Systems, Tool Automation Systems and MES and Other
Systems. The MES and Other Systems segment
8
<PAGE>
includes factory management software and advanced planning and scheduling
software product lines. The Company's operating segments have no significant
intersegment revenues and expenses, as all segments' revenues are generated
from sales to unaffiliated customers.
Operating segment information for the three months ended January 2, 2000
and December 27, 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JANUARY 2, DECEMBER 27,
2000 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
TOTAL NET REVENUE FROM UNAFFILIATED CUSTOMERS:
Factory Automation Systems........................................ $ 32,524 $ 18,704
Tool Automation Systems........................................... 20,260 6,608
MES and Other Systems............................................. 5,909 4,323
-------- ---------
TOTAL NET REVENUE............................................... $ 58,693 $ 29,635
======== =========
SEGMENT OPERATING PROFIT (LOSS) BEFORE CORPORATE ALLOCATIONS:
Factory Automation Systems........................................ $(1,632) $ (4,543)
Tool Automation Systems........................................... 4,549 (1,502)
MES and Other Systems............................................. (188) (2,882)
OTHER RECONCILING ITEMS:
Corporate and other expenses...................................... (2,525) (2,333)
-------- ---------
CONSOLIDATED OPERATING PROFIT (LOSS)............................ 204 (11,260)
Other income, net................................................. 200 656
-------- ---------
CONSOLIDATED INCOME (LOSS) BEFORE INCOME TAXES.................. $ 404 $(10,604)
========== =========
</TABLE>
J. CONTINGENT LIABILITY
At January 2, 2000, the Company had a contingent liability of approximately
$142,000. In 1993, Promis purchased the business assets and assumed selected
liabilities of Palette Systems, Inc., a Canadian company (the "sellers"). The
purchase price of approximately $9.9 million consisted of $5.5 million in cash
and 59,889 exchangeable common shares, as converted at the common stock exchange
ratio, of the Company, valued at $73.91 per common share. At the time of the
acquisition, Promis agreed that on April 7, 1998 it would pay additional cash
consideration to the sellers of an amount equal to the amount by which
approximately $4.0 million exceeded the market value of the common shares owned
by the sellers on April 7, 1998.
On March 29, 1996, Promis made a formal claim against the sellers pursuant
to the dispute resolution provisions of the original purchase and sale
agreements. The sellers filed certain counterclaims against Promis. In 1997,
Promis and the sellers reached a settlement of the dispute. The settlement
provided that commencing on April 7, 1998 Promis would pay additional cash to
the sellers in an amount equal to the amount by which the market value of 59,889
exchangeable common shares, on each of the agreed-upon payment dates, is less
than $73.91 per common share. As part of the settlement, half the additional
cash consideration was payable on April 7, 1998, with the remaining half due in
20 quarterly installments commencing on July 7, 1998
9
<PAGE>
through April 7, 2003. Under the terms of the settlement agreement, the sellers
are restricted as to the number of shares of the Company's common stock which
can be sold in any quarter prior to April 7, 2003.
Since the payment of additional consideration is determined based on the
Company's share price at various future dates, any consideration in addition to
that paid to date will be recorded as a reduction in additional paid-in capital
of the Company as the amounts become determinable. The Company's contingent
liability as of January 2, 2000, calculated based on the market value of the
Company's common stock at January 2, 2000, is approximately $142,000.
K. JOINT VENTURE
The Company has entered into a joint venture with Shinsung Engineering Co.
Ltd. ("SEC") to distribute the Company's products and services in Korea. SEC is
in the business of developing and marketing products and services for the
semiconductor industry. The Company and SEC intend to invest on a pro rata basis
2.6 billion Korean won, or approximately $2.3 million, in the joint venture over
a two-year period through June 2000. As of January 2, 2000, the Company had
outstanding commitments under this agreement of 1.2 billion Korean won, or
approximately $1.0 million.
L. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses, depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 by fiscal
2001, in accordance with SFAS No. 137, which deferred the effective date of SFAS
No. 133. The Company is evaluating SFAS No. 133 to determine the impact on its
consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes the staff's view in applying
generally accepted accounting principles to selected revenue recognition
issues. The application of the guidance in SAB 101 will be required in the
Company's first quarter of fiscal 2001. The effects of applying this guidance
will be reported as a cumulative effect adjustment resulting from a change in
accounting principle. The Company does not expect the application to have a
material effect on its financial statements; however, the final evaluation of
SAB 101 is not yet complete.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission may contain statements which are not historical facts but
which are "forward-looking statements" involving risks and uncertainties. In
particular, statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" relating to the Company's shipment level
and profitability and the sufficiency of capital to meet working capital and
capital expenditure requirements may be forward-looking statements. The words
"expect," "anticipate," "internal," "plan," "believe," "seek," "estimate" and
similar expressions are intended to identify such forward-looking statements.
This Report also contains other forward-looking statements. Such statements are
not guarantees of future performance and involve certain risks, uncertainties
and assumptions that could cause the Company's future results to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. Many of these factors are beyond the Company's ability to
control or predict. Readers are accordingly cautioned not to place undue
reliance on forward-looking statements. The Company disclaims any intent or
obligation to update publicly any forward-looking statements, whether in
response to new information or future events or otherwise. Important factors
that may cause the Company's actual results to differ from such forward-looking
statements include, but are not limited to, the factors discussed below.
The Company's future results are subject to substantial risks and
uncertainties. The Company's business and results of operations depend in
significant part upon capital expenditures of manufacturers of semiconductors,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. Historically, the
semiconductor industry has been highly cyclical with recurring periods of
over-supply. This recurring over-supply often has had a severe effect on the
semiconductor industry's demand for capital equipment, including systems
manufactured and marketed by the Company. Oversupply in the semiconductor market
may in the future reduce demand for capital equipment, including demand for the
Company's systems. The semiconductor industry recently experienced a downturn
that adversely affected the Company's operating results, and reduced demand for
semiconductors in the future could jeopardize the Company's plans. The Company
believes that the markets for newer generations of semiconductors will be
subject to similar fluctuations. Also, the recent high rate of technical
innovation and resulting improvements in the performance and price of
semiconductor devices, which have driven much of the demand for the Company's
products, could slow, or encounter limits, in the future. In addition, any other
factor adversely affecting the semiconductor industry or particular segments
within the semiconductor industry may adversely effect the Company's business,
financial condition and operating results.
In addition to the risks and uncertainties posed generally by the
cyclicality of the semiconductor industry, the Company faces the following
risks and uncertainties: the Company's lengthy sales cycle makes it difficult
to anticipate sales; the Company's operating results fluctuate significantly
and the Company's stock price could fall if its operating results are below
expectations of analysts or investors; delay in shipment of a single system
could substantially decrease the Company's sales for the period in which the
delay occurs; the Company typically charges a fixed price for a system which
allows for vulnerability to cost overruns; the Company has significant fixed
costs which are not easily reduced during a downturn; the Company depends on
a limited number of customers and the loss, cancellation or delay of any
order by these customers could adversely affect the Company's results; the
Company's customers do not have long-term purchase agreements with the
Company, and as a result, customers could stop purchasing the Company's
11
<PAGE>
products and services at any time; industry consolidation and outsourcing of
the manufacture of semiconductors to foundries could reduce the number of
available customers; the Company's ongoing efforts to compete in the
Asia-Pacific market may not be successful; the Company has invested heavily
in 300mm wafer technology, which is being adopted more slowly than the
Company expected; the Company needs managerial and technical employees who
because of their skills and experience may be difficult to hire and retain;
the Company may have difficulty managing growth in light of fluctuating
demand; the Company's substantial international operations create special
risks; the Company faces significant competition from other automation
companies which may limit the prices it can charge for its products and may
result in lost sales; in order to continually improve its technology to
remain competitive, the Company must expend substantial resources on research
and development, even in periods during industry downturns; the Company may
experience delays in product development and technical difficulties that
could delay new product introductions; future acquisitions may disrupt the
Company's operations; the Company depends on subcontractors and one or a few
suppliers for some components and manufacturing processes; the Company
depends on Mitchell G. Tyson, its President and Chief Executive Officer, and
other senior staff; the Company's Chief Financial Officer has resigned and it
may not be able to replace him in a timely manner; the Company's software
products may contain errors or defects that could result in lost revenue,
delayed or limited market acceptance or product liability claims with
substantial litigation costs; the Company may be unable to protect its
proprietary technology; claims by others that the Company infringes their
proprietary technology could harm the Company's business; Year 2000 problems
may disrupt the Company's operations; the market price of the Company's
common stock is volatile; the Company may need additional financing which
could be difficult to obtain; and certain provisions of the Company's charter
and by-laws and Massachusetts law make a takeover of the Company more
difficult. As a result of the foregoing and other factors, the Company may
experience material fluctuations in its future operating results on a
quarterly or annual basis which could materially adversely affect its
business, financial condition, operating results and stock price.
RESULTS OF OPERATIONS
On March 2, 1999, the Company acquired Promis Systems Corporation Ltd., a
Canadian corporation ("Promis"). Promis was a leading developer of manufacturing
execution systems ("MES") software solutions for semiconductor and precision
electronics manufacturers. The business combination was accounted for as a
pooling of interests; accordingly, the financial results of the Company for
fiscal 1999 have been restated to include Promis.
TOTAL NET REVENUE: Total net revenue for the fiscal quarter ended
January 2, 2000 increased 98.1% to $58.7 million, compared to $29.6 million
for the corresponding period in fiscal 1999. This represents the fourth
consecutive quarter of revenue growth. The growth was experienced across all
of the Company's operating segments. Most of the increase was related to
product and equipment revenue, which increased 137.3%, while services and
maintenance revenue increased 6.9% from the corresponding period in fiscal
1999. The increase in net revenue is due to the growth in requirements for
capital equipment within the semiconductor industry arising from the increase
in demand for semiconductor-related products. Net export sales to European
and Asian customers for the fiscal quarter ended January 2, 2000 were $24.8
million, or 42.3% of total net revenue, compared to $5.9 million, or 20.0% of
total net revenue for the corresponding period in fiscal 1999. Sales to
foreign customers are denominated in U.S. dollars with the exception of
certain sales of tool automation and spare parts products which are
denominated in local currencies.
12
<PAGE>
GROSS PROFIT: The gross profit margin was 36.4% for the fiscal quarter
ended January 2, 2000, compared to 32.0% for the corresponding period in
fiscal 1999. The increase in gross profit margin was primarily experienced by
the Factory Systems and Tool Automation Systems segments. The increase in the
gross profit margin is due to a number of factors including a change in
product mix with a more significant increase in product and equipment revenue
as compared to service and maintenance revenue. Additionally, the upturn in
industry demand has improved product pricing and the growth in
production volume has increased manufacturing efficiencies and improved
related costs. At the same time, the gross profit margin was adversely
impacted by costs related to the introduction of new products.
RESEARCH AND DEVELOPMENT: Research and development expenses increased to
$12.2 million, or 20.7% of total net revenue, for the fiscal quarter ended
January 2, 2000, compared to $10.4 million, or 35.1% of total net revenue, for
the corresponding quarter in fiscal 1999. The increase in spending reflects the
Company's continued investment in new product development and enhancements of
existing product lines. The Company continued to invest in the development of
200mm and 300mm products throughout its factory automation and tool automation
product lines, as well as the manufacturing execution and advanced planning and
scheduling software product lines. Research and development expenses decreased
as a percentage of total net revenue for the fiscal quarter ended January 2,
2000, compared with the corresponding period in fiscal 1999, due to the increase
in revenues.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses decreased to $9.0 million, or 15.4% of total net revenue, for the
fiscal quarter ended January 2, 2000, compared to $9.7 million, or 32.7% of
total net revenue, for the corresponding period in fiscal 1999. The decrease in
the dollar amount of selling, general and administrative expenses for the first
quarter of fiscal 2000 is primarily attributable to the consolidation of
duplicate functions and activities of acquired companies.
SPECIAL CHARGES: The Company did not incur special charges for the
fiscal quarter ended January 2, 2000. However, at January 2, 2000, $272,000 of
previously incurred special charges remained in accrued expenses. During the
quarter ended March 28, 1999, the Company recorded special charges of $1.9
million. The special charges consisted of $1.4 million for
compensation-related costs for five management employees in the selling,
general and administrative functions to satisfy existing contractual
obligations related to the acquired companies; $196,000 of costs associated
with the reductions of leased facilities; and $248,000 for other legal
issues. The remaining $272,000 of these special charges are expected to be
paid by the end of calendar year 2000.
During the first fiscal quarter of 1999, the Company recorded special
charges of $650,000 representing provisions for employee severance compensation
relating to the termination of 62 employees and consultants. The headcount
reductions included 40 in manufacturing and customer support, 8 in engineering,
and 14 in selling, general and administrative functions. The reduction in force
occurred in response to the downturn in the semiconductor equipment industry.
All of these special charges have been paid.
OPERATING PROFIT (LOSS): As a result of the increase in total net revenue
and the other foregoing factors, the operating profit for the fiscal quarter
ended January 2, 2000 was $204,000, or 0.3% of total net revenue, compared to an
operating loss of $11.3 million, or 38.0% of total net revenue, for the
corresponding quarter in fiscal 1999. Excluding the special charges of $650,000,
the operating loss in the first fiscal quarter of 1999 would have been $10.6
million, or 35.8% of net revenue.
13
<PAGE>
OTHER INCOME, NET: Other income, net for the fiscal quarter ended January
2, 2000 was $200,000, compared to $656,000 for the corresponding quarter in
fiscal year 1999. Interest income for the fiscal quarter ended January 2, 2000
was $537,000, compared to $548,000 for the corresponding quarter in fiscal 1999.
Interest expense for the current quarter was $20,000, compared to $32,000 for
the prior quarter in fiscal 1999. Net translation and foreign exchange losses
for the current fiscal quarter was $241,000, compared to net translation and
foreign exchange gains of $198,000 in the corresponding quarter in fiscal 1999.
PROVISION FOR (BENEFIT FROM) INCOME TAXES: The income tax provision for the
three months ended January 2, 2000 was $110,000, or 27.2% of income before
income taxes, compared to a benefit of $2.9 million, or 27.8% of loss before
income taxes, for the three months ended December 27, 1998. The tax provision of
$110,000 is primarily related to foreign and state taxes. During the third
quarter of fiscal year 1999, management concluded that a full valuation
allowance against the Company's net deferred tax assets was required, under
applicable accounting standards, due to uncertainties surrounding their
realization. Accordingly a valuation allowance in an amount equal to the net
deferred tax assets was established to reflect these uncertainties. The
effective tax rate for the three months ended December 27, 1998 differed from
the statutory rate primarily because income of certain foreign subsidiaries was
not subject to income tax due to available tax credits and net operating losses.
NET INCOME (LOSS): Net income for the fiscal quarter ended January 2, 2000
was $294,000, compared to the net loss of $7.7 million for the corresponding
quarter in fiscal 1999. Excluding the special charges net of their tax effect,
the net loss for the first quarter of fiscal 1999 would have been $7.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through public stock
offerings in October 1994 and July 1995, cash generated from operations and bank
lines of credit. As of January 2, 2000, the Company had working capital of $87.3
million, including cash and cash equivalents of $45.2 million, compared to
working capital of $78.9 million and cash and cash equivalents of $51.9 million
as of September 30, 1999.
Net cash used in operating activities was $11.8 million for the three
months ended January 2, 2000, compared to $6.7 million for the corresponding
period in fiscal 1999. The net cash used in operations in the first quarter of
fiscal 2000 was primarily attributable to increases in contracts in progress of
$11.8 million and increases in accounts receivable of $6.0 million. These
increases are related to the significant growth in total net revenue in the
first quarter of fiscal 2000. These cash outflows were slightly offset by
proceeds associated with the decrease in other assets, which is primarily the
result of a $5.0 million income tax refund received in the first quarter of
fiscal 2000. Net cash used in operations for the three months ended December 27,
1998 was primarily attributable to the $7.7 million net loss. Additionally, a
decrease in accounts payable used $5.1 million of net cash. This outflow was
partially offset by proceeds related to decreases in inventories of $4.7 million
and increases in accrued expenses of $1.9 million.
Net cash used in investing activities was $2.4 million for the three months
ended January 2, 2000, compared to $1.4 million for the corresponding period in
fiscal 1999. The increase in investing activities is primarily due to an
additional $1.2 million of property and equipment purchases made in the first
quarter of fiscal 2000 as compared with the corresponding period in fiscal 1999.
Net cash provided by financing activities was $7.9 million for the three
months ended January 2, 2000, compared to $825,000 for the corresponding period
in fiscal 1999. The net cash
14
<PAGE>
provided by financing activities for each of these fiscal periods was primarily
attributable to proceeds from the exercise of stock options and the Company's
Employee Stock Purchase Plan.
At January 2, 2000, the Company had a revolving credit facility
agreement with Chase Manhattan Bank (the "Bank"). The revolving credit
facility enables the Company to borrow up to $20,000,000 on an unsecured
basis. Outstanding revolving credit loans bear interest, at the Company's
option, at the 30-, 60-or 90-day LIBOR rate plus a credit spread or at the
effective prime rate. At January 2, 2000, the Company's borrowing rate would
have been 7.0%. The ability of the Company to borrow under the revolving
credit facility is conditioned upon meeting certain financial criteria. The
revolving credit agreement expires on June 16, 2000. The Company had
outstanding letters of credit with the Bank in the aggregate amount of
$1,420,000 at January 2, 2000, and therefore, the available balance under
this credit agreement was $18,580,000 at January 2, 2000. At January 2, 2000,
the Company was not in compliance with certain of the required covenants but
has subsequently obtained a waiver from the Bank, through January 2, 2000, on
January 25, 2000. The Company was in default of the minimum consolidated net
worth requirement, the minimum fixed charge coverage ratio and the minimum
consolidated net income requirements of the revolving credit agreement for
the fiscal quarter ended January 2, 2000. The Company expects to seek future
waivers as necessary from the Bank. However, there can be no assurance that
such waivers will be obtained.
The Company believes its existing cash balances and funds available
under its existing revolving credit facility will be sufficient to meet the
Company's cash requirements to fund operations and expected capital
expenditures during the next twelve months. However, there can be no
assurance that additional financing, if needed, will be available or at terms
acceptable to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses, depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 by fiscal
2001, in accordance with SFAS No. 137, which deferred the effective date of SFAS
No. 133. The Company is evaluating SFAS No. 133 to determine the impact on its
consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes the staff's view in applying
generally accepted accounting principles to selected revenue recognition
issues. The application of the guidance in SAB 101 will be required in the
Company's first quarter of fiscal 2001. The effects of applying this guidance
will be reported as a cumulative effect adjustment resulting from a change in
accounting principle. The Company does not expect the application to have a
material effect on its financial statements; however, the final evaluation of
SAB 101 is not yet complete.
YEAR 2000
Before January 1, 2000, it was generally expected that many computer
systems and software products would experience problems handling dates beyond
the year 1999 because the systems were coded to accept only two-digit entries in
the date code fields. Before December 31, 1999, the Company completed a
company-wide Year 2000 Project (the "Project") to minimize the impact of Year
2000 issues on the Company's business, including its products, services,
infrastructure, and internal business support applications. As of February 11,
2000, the Company
15
<PAGE>
is not aware that any of its products or any of the products or systems on which
it relies have been unable to process dates accurately. It may be too early to
conclude that Year 2000 issues will not affect the Company's business, and the
inability of its products, or of products and systems on which it relies, to
process these dates accurately could have a material adverse effect on its
business.
The risk posed by Year 2000 issues depends substantially on the number and
type of any instances of non-compliance that the Company has not yet discovered.
To the extent that the Company's internal systems, or products and services
obtained from third parties, are not Year 2000 compliant, the Company could face
disruptions in its business which could, in turn, cause delays in meeting
production and shipping goals and could divert significant management resources.
To minimize potential disruptions, the Company has implemented a
contingency plan to address any unresolved issues affecting Year 2000
compliance, if needed. The Company's contingency plan identifies actions such as
disaster recovery, emergency notification systems, employee staffing,
suitability of alternate suppliers, and critical data backups in the key areas
of manufacturing and services, supply chain management, marketing, sales and
customer support, facilities, finance, legal and human resources.
Based on its investigation to date, the Company does not expect the total
cost of its Year 2000 Project to have a material adverse effect on the Company's
business or financial results. The estimated total cost of the Year 2000 Project
is approximately $400,000. Substantially all of these costs have been expended
as of January 2, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in the Company's market risks since
the year ended September 30, 1999. For more information please read the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
*3.4 Amended and Restated By-Laws of the Company
*3.5 Restated Articles of Organization of the Company
**3.6 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on April
22, 1997
***3.7 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on January
16, 1998
10.25 Lease Agreement dated as of October 22, 1999 by and between the
Company and Spieker Properties, L.P.
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to the similarly numbered Exhibit to the
Company's Registration Statement on Form S-1, File No. 33-81836.
** Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended March 30, 1997.
*** Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended June 28, 1998.
b) Reports on Form 8-K
On November 19, 1999, the Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission. The Company attached as an exhibit to
that report a press release announcing its financial results for the fiscal
quarter and the fiscal year ended September 30, 1999.
17
<PAGE>
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.
PRI AUTOMATION, INC.
/s/ MITCHELL G. TYSON
Date: February 11, 2000 By: --------------------------------------
Mitchell G. Tyson
President and Chief Executive Officer
/s/ WILLIAM W. BOECKE
Date: February 11, 2000 By: --------------------------------------
William W. Boecke
Vice President Finance,
Corporate Controller
(Principal Financial and
Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
*3.4 Amended and Restated By-Laws of the Company
*3.5 Restated Articles of Organization of the Company
**3.6 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on April
22, 1997
***3.7 Articles of Amendment to the Restated Articles of Organization of
the Company, as approved by stockholders of the Company on January
16, 1998
10.25 Lease Agreement dated as of October 22, 1999 by and between the
Company and Spieker Properties, L.P.
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to the similarly numbered Exhibit to the
Company's Registration Statement on Form S-1, File No. 33-81836.
** Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended March 30, 1997.
*** Incorporated by reference to the similarly numbered Exhibit to the
Company's Quarterly Report Form 10-Q, for the period ended June 28, 1998.
19
<PAGE>
BASIC LEASE INFORMATION
INDUSTRIAL NET
<TABLE>
<S> <C>
LEASE DATE: October 22, 1999
(same as date in first paragraph of Lease)
TENANT: PRI Automation, Inc., a Massachusetts corporation
TENANT'S NOTICE ADDRESS: PRI Automation, Inc.
805 Middlesex Turnpike
Billerica, MA 01821-3986
TENANT CONTACT: Terry Massood PHONE NUMBER: (978) 670-4270
FAX NUMBER: (978) 663-5785
LANDLORD: Spieker Properties, L.P., a California Limited
partnership
LANDLORD'S NOTICE ADDRESS: 2180 Sand Hill Road
Menlo Park, CA 94025
LANDLORD'S REMITTANCE ADDRESS: Spieker Properties
P.O. Box 45587
Dept. # 10793
San Francisco, CA 94145-0587
PROJECT DESCRIPTION: 420 North Bernardo Avenue, Mountain View, CA
BUILDING DESCRIPTION: 420 North Bernardo Avenue, Mountain View, CA
PREMISES: 31,000 square feet
PERMITTED USE: Research and development, general office use, and storage that is
compliant with all applicable laws and ordinances of the city of
Mountain View, California.
PARKING DENSITY: Tenant shall have the non-exclusive use of all parking on
Premises. Parking is at 4.1 spaces per 1,000 rentable square feet
of the Premises.
SCHEDULED TERM COMMENCEMENT DATE: February 1, 2000
SCHEDULED LENGTH OF TERM: 60 months
SCHEDULED TERM EXPIRATION DATE: January 31, 2005
RENT:
BASE RENT: $72,850.00 per month
(subject to adjustment as provided in Paragraph 38.A. hereof)
ESTIMATED FIRST YEAR OPERATING EXPENSES: $8,678.00 per month (amount is approximate, will have final amount
as of Nov. 1, 1999)
SECURITY DEPOSIT: $82,224.00
TENANT'S PROPORTIONATE SHARE:
OF BUILDING: 100%
OF PROJECT: 100%
</TABLE>
<PAGE>
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
<PAGE>
TABLE OF CONTENTS
PAGE
Table of Contents will generate here
<PAGE>
LEASE
THIS LEASE is made as of the 22nd day, of October, 1999, by and between Spieker
Properties, L.P., a California limited partnership (hereinafter called
"Landlord"), and PRI Automation, Inc, a Massachusetts corporation (hereinafter
called "Tenant").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the
terms and conditions hereinafter set forth, those premises (the "Premises")
outlined in red on Exhibit B and described in the Basic Lease Information. The
Premises shall be all or part of a building (the "Building") and of a project
(the "Project"), which may consist of more than one building and additional
facilities, as described in the Basic Lease Information. The Building and
Project are outlined in blue and green respectively on Exhibit B. Landlord and
Tenant acknowledge that physical changes may occur from time to time in the
Premises, Building or Project, and that the number of buildings and additional
facilities which constitute the Project may change from time to time, which may
result in an adjustment in Tenant's Proportionate Share, as defined in the Basic
Lease Information, as provided in Paragraph 7.A.
2. POSSESSION AND LEASE COMMENCEMENT
A. EXISTING IMPROVEMENTS. If this Lease pertains to a Premises in which the
interior improvements have already been constructed ("Existing Improvements"),
the provisions! of this Paragraph 2.A. shall apply and the term commencement
date ("Term Commencement Date") shall be the earlier of the date on which: (1)
Tenant takes possession of some or all of the Premises; or (2) Landlord notifies
Tenant that Tenant may occupy the Premises. If for any reason Landlord cannot
deliver possession of the Premises to Tenant on the scheduled Term Commencement
Date, Landlord shall not be subject to any liability therefor, nor shall
Landlord be in default hereunder nor shall such failure affect the validity of
this Lease ' and Tenant agrees to accept possession of the Premises at such time
as Landlord is able to deliver the same, which date shall then be deemed the
Term Commencement Date. Tenant shall not be liable for any Rent (defined below)
for any period prior to the Term Commencement Date. Tenant acknowledges that
Tenant has inspected and accepts the Premises in their present condition, broom
clean, "as is," and: as suitable for, the Permitted Use (as defined below), and
for Tenant's intended operations in, the Premises, Tenant agrees that the
Premises and other improvements are in good and satisfactory condition as of
when possession was taken. Tenant further acknowledges that no representations
as to the condition or repair of the Premises nor promises to alter, remodel or
improve the Premises have been made by Landlord or any agents of Landlord unless
such are expressly set forth in this Lease. Upon Landlord's request, Tenant
shall
<PAGE>
promptly execute and return to Landlord a "Start-Up Letter" in which Tenant
shall agree, among other things, to acceptance of the Premises and to the
determination of the Term Commencement Date, in accordance with the terms of
this Lease, but Tenant's failure or refusal to do so shall not negate Tenant's
acceptance of the Premises or affect determination of the Term Commencement
Date.
B. CONSTRUCTION OF IMPROVEMENTS. If this Lease pertains to a Building to be
constructed or improvements to be constructed within a Building, the provisions
of this Paragraph 2.B. shall apply in lieu of the provisions of Paragraph 2.A.
above and the term commencement date ("Term Commencement Date") shall be the
earlier of the date on which: (1) Tenant takes possession of some or all of the
Premises excluding the fifteen (15) day period prior to the Term Commencement
Date that Tenant enters the Premises solely for the purpose of preparing space
for business; or (2) the improvements to be constructed or performed in the
Premises by Landlord (if any) shall have been substantially completed in
accordance with the plans and specifications, if any, described on Exhibit C and
Tenant's taking of possession of the Premises or any part thereof shall
constitute Tenant's confirmation of substantial completion for all purposes
hereof, whether or not substantial completion of the Building or Project shall
have occurred. If for any reason Landlord cannot deliver possession of the
Premises to Tenant on the scheduled Term Commencement Date, Landlord shall not
be subject to any liability therefor, nor shall Landlord be in default hereunder
nor shall such failure affect the validity of this Lease, and Tenant agrees to
accept possession of the Premises at such time as such improvements have been
substantially completed, which date shall then be deemed the Term Commencement
Date. Tenant shall not be liable for any Rent for any period prior to the Term
Commencement Date (but without affecting any obligations of Tenant under any
improvement agreement appended to this Lease). In the event of any dispute as to
substantial completion of work performed or required to be performed by
Landlord, the certificate of Landlord's architect or general contractor shall be
conclusive. Substantial completion shall have occurred notwithstanding Tenant's
submission of a punchlist to Landlord, which Tenant shall submit, if at all,
within three (3) business days after the Term Commencement Date or otherwise in
accordance with any improvement agreement appended to this Lease. Upon
Landlord's request, Tenant shall promptly execute and return to Landlord a
"Start-Up Letter" in which Tenant shall agree, among other things, to acceptance
of the Premises and to the determination of the Term Commencement Date, in
accordance with the terms of this Lease, but Tenant's failure or refusal to do
so shall not negate Tenant's acceptance of the Premises or affect determination
of the Term Commencement Date. If Landlord is unable to deliver the Premises on
April 1. 2000. Tenant shall have the right to terminate the Lease by notice the
Landlord in writing.
<PAGE>
3. TERM
The term of this Lease (the "Term") shall commence on the Term
Commencement Date and continue in full force and effect for the number of months
specified as the Length of Term in the Basic Lease Information or until this
Lease is terminated as otherwise provided herein. If the Term Commencement Date
is a date other than the first day of the calendar month, the Term shall be the
number of months of the Length of Term in addition to the remainder of the
calendar month following the Term Commencement Date.
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use specified in the
Basic Lease Information ("Permitted Use") and for no other use or purpose.
Tenant shall control Tenant's employees, agents, customers, visitors, invitees,
licensees, contractors, assignees and subtenants (collectively, "Tenant's
Parties") in such a manner that Tenant and Tenant's Parties cumulatively do not
exceed the parking density specified in the Basic Lease Information (the
"Parking Density") at any time. So long as Tenant is occupying tile Premises,
Tenant and Tenant's Parties shall have the nonexclusive right to use, in common
with other parties occupying the Building or Project, the parking areas,
driveways and other common areas of the Building and Project, subject to the
terms of this Lease and such rules and regulations as Landlord may from time to
time prescribe. Landlord reserves the right, without notice or liability to
Tenant, and without the same constituting an actual or constructive eviction, to
alter or modify the common areas from time to time, including the location and
configuration thereof, and the amenities and facilities which Landlord may
determine to provide from time to time. Tenant shall not be required to pay for
parking,
B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas, substances,
noise or vibrations to emanate from the Premises or from any portion of the
common areas as a result of Tenant's or any Tenant's Party's use thereof, nor
take any action which would constitute a nuisance or would disturb, obstruct or
endanger any other tenants or occupants of the Building or Project or elsewhere,
or interfere with their use of their respective premises or common areas.
Storage outside the Premises of materials, vehicles or any other items is
prohibited. Tenant shall not use or allow the Premises to be used for any
immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or
permit any nuisance in, on or about the Premises, Tenant shall not commit or
suffer the commission of any waste in, on or about the Premises. Tenant shall
not allow any sale by auction upon the Premises, or place any loads upon the
floors, walls or ceilings which could endanger the structure, or place any
harmful substances in the drainage system of the Building or Project. No waste,
materials or refuse shall be dumped upon or permitted to
<PAGE>
remain outside the Premises except in trash containers placed inside exterior
enclosures designated for that purpose by Landlord. Landlord shall not be
responsible to Tenant for the non-compliance by any other tenant or occupant of
the Building or Project with any of the above-referenced rules or any other
terms or provisions of such tenant's or occupant's lease or other contract.
C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant accepts the
Premises in the condition existing as of the date of such entry. Tenant shall at
its sole cost and expense strictly comply with all existing or future applicable
municipal, state and federal and other governmental statutes, rules,
requirements, regulations, laws and ordinances, including zoning ordinances and
regulations, and covenants, easements and restrictions of record governing and
relating to the use, occupancy or possession of the Premises, to Tenant's use of
the common areas, or to the use, storage, generation or disposal of Hazardous
Materials (hereinafter defined) (collectively "Regulations"). Tenant shall at
its sole cost and expense obtain, any and all licenses or permits necessary for
Tenant's use of the Premises. Tenant shall at its sole cost and expense promptly
comply with the requirements of any board of fire underwriters or other similar
body now or hereafter constituted. Tenant shall not do or permit anything to be
done in, on, under or about the Project or bring or keep anything which will in
any way increase;:the rate of any insurance upon the Premises, Building or
Project or upon any contents therein or cause a cancellation of said insurance
or otherwise affect said insurance in any manner. Tenant shall indemnify, defend
(by counsel reasonably acceptable to Landlord), protect and hold Landlord
harmless from and against any loss, cost, expense, damage, attorneys' fees or
liability arising out of the failure of Tenant to comply with any Regulation.
Tenant's obligations pursuant to the foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
<PAGE>
D. HAZARDOUS MATERIALS. As used in this Lease, "Hazardous Materials" shall
include, but not be limited to, hazardous, toxic and radioactive materials and
those substances defined as "hazardous substances, "hazardous materials,"
"hazardous wastes," "toxic substances," or other similar designations in any
Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause,
any Hazardous Materials to be handled, used, generated, stored, released or
disposed of in, on, under or about the Premises, the Building or the Project or
surrounding land or environment in violation of any Regulations. Tenant must
obtain Landlord's written consent prior to the introduction of any Hazardous
Materials onto the Project. Notwithstanding the foregoing, Tenant may handle,
store, use and dispose of products containing small quantities of: Hazardous
Materials for "general office purposes" (such as toner for copiers) to the
extent customary and necessary for the Permitted Use of the Premises; provided
that Tenant shall always handle, store, use, and dispose of any such Hazardous
Materials in a safe and lawful manner and never allow such Hazardous Materials
to contaminate the Premises, Building, or Project or surrounding land or
environment. Tenant shall immediately notify Landlord in writing of any
Hazardous Materials' contamination of any portion of the Project of which Tenant
becomes aware, whether or riot caused by Tenant. Landlord shall have the right
at all reasonable times to inspect the Premises and to conduct tests and.
investigations to determine whether Tenant is in compliance with the foregoing
provisions, the costs of all such inspections, tests and investigations to be
borne by Tenant. Tenant shall indemnify, defend (by counsel reasonably
acceptable to Landlord), protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses (including attorneys' and consultants' fees and court
costs), demands, causes of action, or judgments directly or indirectly arising
out of or related to the use, generation, storage, release, or disposal of
Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or about
the Premises, the Building or the Project or surrounding land or environment,
which indemnity shall include, without limitation, damages for personal or
bodily injury, property damage, damage to the environment or natural resources
occurring on or off the Premises, losses attributable to diminution in value or
adverse effects on marketability, the cost of any investigation, monitoring,
government oversight, repair, removal, remediation, restoration, abatement, and
disposal, and the preparation of any closure or other required plans, whether
such action is required or necessary prior to or following the expiration or
earlier termination of this Lease. Neither the consent by Landlord to the use,
generation, storage, release or disposal of Hazardous Materials nor the strict
compliance by Tenant with all laws pertaining to Hazardous Materials shall
excuse Tenant from Tenant's obligation of indemnification pursuant to this
Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity shall
survive the expiration or earlier termination of this
<PAGE>
Lease. Landlord shall disclose to Tenant any and all reports that may be
completed on the Premises relating to hazardous materials.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and
regulations attached hereto as Exhibit A and any other rules and regulations and
any modifications or, additions thereto which Landlord may from time to time
prescribe in writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the Premises or the
Building or Project. Tenant shall cause Tenant's Parties to comply with such
rules and regulations. Landlord shall not be responsible to Tenant for the
non-compliance by any other tenant or occupant of the Building or Project with
any of such rules and regulations, any other tenant's or occupant's lease or any
Regulations.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive, without
notice or demand throughout the Term, Base Rent as specified in the Basic Lease
Information, payable in monthly installments in advance on or before the first
day of each calendar month, in lawful money of the United States, without
deduction or offset whatsoever, at the Remittance Address specified in the Basic
Lease Information or to such other Place as Landlord may from time to time
designate in writing. Base Rent for the first full month of the Term shall be
paid by Tenant upon Tenant's execution of this Lease. If the obligation for
payment of Base Rent commences on a day other than the first day of a month,
then Base Rent shall be prorated and the prorated installment shall be paid on
the first day of the calendar month next succeeding the Term Commencement Date.
The Base Rent payable by Tenant hereunder is subject to adjustment as provided
elsewhere in this Lease, as applicable. As used herein, the term "Base Rent"
shall mean the Base Rent specified in the Basic Lease Information as it may be
so adjusted from, time to time.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid by
Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of
Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be
paid by Tenant under Paragraph 15, the interest and late charge described in
Paragraphs 26.C. and D., and any monies spent by Landlord pursuant to Paragraph
30, shall be considered additional rent ("Additional Rent"). "Rent" shall mean
Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be paid
hereunder, Tenant shall pay as Additional Rent, Tenant's
<PAGE>
Proportionate Share of the Building and/or Project (as applicable), as defined
in the Basic Lease Information, of Operating Expenses (defined below) in the
manner set forth below. Tenant shall pay the applicable Tenant's Proportionate
Share of each such Operating Expenses. Landlord and Tenant acknowledge that if
the number of buildings which constitute the Project increases or decreases, or
if physical changes are made to the Premises, Building or Project or the
configuration of any thereof, Landlord may at its discretion reasonably adjust
Tenant's Proportionate Share of the Building or Project to reflect the change.
Landlord's determination of Tenant's Proportionate Share of the Building and of
the Project shall be conclusive so long as it is reasonably and consistently
applied. "Operating Expenses" shall mean all expenses and costs of every kind
and nature which Landlord shall pay or become obligated to pay, because of or in
connection with the ownership, management, maintenance, repair, preservation,
replacement and operation of the Building or Project and its supporting
facilities and such additional facilities now and in subsequent years as may be
determined by Landlord to be necessary or desirable to the Building and/or
Project (as determined in a reasonable manner) other than those expenses and
costs which are specifically attributable to Tenant or which are expressly made
the financial responsibility of Landlord or specific tenants of the Building or
Project pursuant to this Lease. Operating Expenses shall include, but are not
limited to, the following:
(1) TAXES. All real property taxes and assessments, possessory interest
taxes, sales taxes, personal property taxes, business or license taxes
or fees, gross receipts taxes, service payments in lieu of such taxes
or fees, annual or periodic license or use fees, excises, transit
charges, and other impositions, general and special, ordinary and
extraordinary, unforeseen as well as foreseen, of any kind (including
fees "in-lieu" of any such tax or assessment) which are now or
hereafter assessed, levied, charged, confirmed, or imposed by any
public authority upon the Building or Project, its operations or the
Rent (or any portion or component thereof), or any tax,: assessment or
fee imposed in substitution, partially or totally, of any of the above.
Operating Expenses shall also include any taxes, assessments,
reassessments, or other fees or impositions with respect to the
development, leasing, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises, Building or Project or any
portion thereof, including, without limitation, by or for Tenant, and
all increases therein or reassessments thereof whether the increases or
reassessments result from increased rate and/or valuation (whether upon
a transfer of the Building or Project or any portion thereof or any
interest therein or for any other reason). Operating Expenses shall not
include inheritance or estate taxes imposed upon or assessed against
the interest of any person in the Project or taxes computed
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upon the basis of the net income of any owners of any interest in the
Project. If it shall not be lawful for Tenant to reimburse Landlord for
all or any part of such taxes, the monthly rental payable to Landlord
under this Lease shall be revised to net Landlord the same net rental
after imposition of any such taxes by Landlord as would have been
payable to Landlord prior to the payment of any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but not
limited to, any deductible amounts, premiums and other costs of
insurance incurred by Landlord, including for the insurance coverage
set forth in Paragraph 8.A. herein.
(3) COMMON AREA MAINTENANCE.
(a) Repairs, replacements, and general maintenance of and for the
Building and Project and public and common areas and facilities of and
comprising the Building and Project, including, but not limited to, the
roof And roof membrane, elevators, mechanical rooms, alarm systems,
pest extermination, landscaped areas, parking and service areas,
driveways, sidewalks, truck staging areas, rail spur areas, fire
sprinkler systems, sanitary and storm sewer lines, utility services,
heating/ventilation/air conditioning systems, electrical, mechanical or
other systems, telephone equipment and wiring servicing, plumbing,
lighting, and any other items or areas which affect the operation or
appearance of the Building or Project, which determination shall be at
Landlord's discretion, except for: those items expressly made the
financial responsibility of Landlord pursuant to Paragraph 10 hereof,
those items to the extent paid for by the proceeds of insurance; and
those items attributable solely or jointly to specific tenants of the
Building or Project.
(b) Repairs, replacements, and general maintenance shall include the
cost of any capital improvements made to or capital assets acquired for
the Project or Building that in Landlord's discretion may reduce any
other Operating Expenses, including present or future repair work, are
reasonably necessary for the health and safety of the occupants of the
Building or Project, or are required to comply with any Regulation,
such costs or allocable portions thereof to be amortized over the
useful lives based on industry norms and Tenant shall be responsible
for their pro rata share for the remaining Term of the Lease, together
with interest on the unamortized balance at the publicly announced
"prime rate" charged by Wells Fargo Bank, N.A. (San Francisco) or its
successor at the time such improvements or capital assets are
constructed or acquired, plus two (2) percentage points, or in the
absence of such
<PAGE>
prime rate, then at the U.S. Treasury six-month market note (or bond,
if so designated) rate as published by any national financial
publication selected by Landlord, plus four (4) percentage points, but
in no event more than the maximum rate permitted by law, plus
reasonable financing charges.
(c) Payment under or for any casement, license, permit, operating
agreement, declaration, restrictive covenant or instrument relating to
the Building or Project.
(d) All expenses and rental related to services and costs of supplies,
materials and equipment used in operating, managing and maintaining the
Premises, Building and Project, the equipment therein and the adjacent
sidewalks, driveways, parking and service areas, including, without
limitation, expenses related to service agreements regarding security,
fire and other alarm systems, janitorial services to the extent not
addressed in Paragraph II hereof, window cleaning, elevator
maintenance, Building exterior maintenance, landscaping and expenses
related to the administration, management and operation of the Project,
including without limitation salaries, wages and benefits and
management office rent.
(e) The cost of supplying any services and utilities which benefit all
or a portion of the Premises, Building or Project to the extent not
addressed in Paragraph 15 hereof.
(f) Legal expenses and the cost of audits by certified public
accountants; provided, however, that legal expenses chargeable as
Operating Expenses shall not include the cost of negotiating leases,
collecting rents, evicting tenants nor shall it include costs incurred
in legal proceedings with or against any tenant or to enforce the
provisions of any lease.
(g) A management and accounting cost recovery fee equal to Five percent
(5%) of the sum of the Project's base rents and Operating Expenses
(other than such management and accounting fee).
If the rentable area of the Building and/or Project is not fully occupied during
any fiscal year of the Term as determined by Landlord, an adjustment may be made
in Landlord's discretion in computing the Operating Expenses for such year so
that Tenant pays an equitable portion of all variable items (e.g., utilities,
janitorial services and other component expenses that are affected by variations
in occupancy levels) of Operating Expenses, as reasonably determined by
Landlord, provided, however, that in no event shall Landlord be entitled to
collect in excess of one hundred percent (100%) of the total Operating Expenses
from all of the tenants in the Building or Project, as the case may be.
<PAGE>
Operating Expenses shall not include the cost of providing tenant improvements
or other specific costs incurred for the account of, separately billed to and
paid by specific tenants of the Building or Project, the initial construction
cost of the Building, or debt service on any mortgage or deed of trust recorded
with respect to the Project other than pursuant to Paragraph TA.(3)(b) above.
Operating Expense also not include costs for any defects found in the HVAC,
roof, plumbing, electrical, or sprinkler systems not created by Tenant within
the first Ninety (90) days of the Lease term which Tenant notifies Landlord of
in writing and that Landlord should have reasonably known. Notwithstanding
anything herein to the contrary, in any instance wherein Landlord, in Landlord's
sole discretion, deems Tenant to be responsible for any amounts greater than
Tenant's Proportionate Share, Landlord shall have the right to allocate costs in
any manner Landlord deems appropriate.
The above enumeration of services and facilities shall not be deemed to impose
an obligation on Landlord to make available or provide such services or
facilities except to the extent if any that Landlord has specifically agreed
elsewhere in this Lease to make the same available or provide the same. Without
limiting the generality of the foregoing, Tenant acknowledges and agrees that it
shall be responsible for providing adequate security for its use of the
Premises, the Building and the Project and that Landlord shall have no
obligation or liability with respect thereto, except to the extent if any that
Landlord has specifically agreed elsewhere in this Lease to provide the same.
B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "Estimated Operating Expenses" for
any particular year shall mean Landlord's estimate of the Operating Expenses for
such fiscal year made with respect to such fiscal year as hereinafter provided.
Landlord shall have the right from time to time to revise its fiscal year and
interim accounting periods so long as the periods as so revised are reconciled
with prior periods in a reasonable manner. During the last month of each fiscal
year during the Term, or as soon thereafter as practicable, Landlord shall give
Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal
year. Tenant shall pay Tenant's Proportionate Share of the Estimated Operating
Expenses with installments of Base Rent for the fiscal year to which the
Estimated Operating Expenses applies in monthly installments on the first day of
each calendar month during such year, in advance. Such payment shall be
construed to be Additional Rent for all purposes hereunder. If at any time
during the course of the fiscal year, Landlord determines that Operating
Expenses are projected to vary from the then Estimated Operating Expenses by
more than five percent (5%), Landlord may, by written notice to Tenant, revise
the Estimated Operating Expenses for the balance of such fiscal year, and
Tenant's monthly installments for the remainder of such year shall be adjusted
so that by the end of such fiscal year Tenant
<PAGE>
has paid to Landlord Tenant's Proportionate Share of the revised Estimated
Operating Expenses for such year, such revised installment amounts to be
Additional Rent for all purposes hereunder.
C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "OPERATING EXPENSE ADJUSTMENT"
shall mean the difference between Estimated Operating Expenses and actual
Operating Expenses for any fiscal year determined as hereinafter provided.
Within one hundred twenty (120) days after the end of each fiscal year, or as
soon thereafter as practicable, Landlord shall deliver to Tenant a statement of
actual Operating Expenses for the fiscal year just ended, accompanied by a
computation of Operating Expense Adjustment. If Such statement shows that
Tenant's payment based upon Estimated Operating Expenses is less than Tenant's
Proportionate Share of operating Expenses, then Tenant shall pay to Landlord the
difference within thirty 30 days after receipt of such statement, such payment
to constitute Additional Rent for all purposes hereunder. If such statement
shows that Tenant's payments of Estimated Operating Expenses exceed Tenant's
Proportionate Share of Operating Expenses, then (provided that Tenant is not in
default under this Lease) Landlord shall pay to Tenant the difference within
twenty (20) days after delivery of such statement to Tenant. If this Lease has
been terminated or the Term hereof has expired prior to the date of such
statement, then the Operating Expense Adjustment shall be paid by the
appropriate party within twenty (20) days after the date of delivery of the
statement. Should this Lease commence or terminate at any time other than the
first day of the fiscal year, Tenant's Proportionate Share of the Operating
Expense Adjustment shall be prorated based on a month of 30 days and the number
of calendar months during such fiscal year that this Lease is in effect.
Notwithstanding anything to the contrary contained in Paragraph 7.A or 7.13,
Landlord's failure to provide any notices or statements within the time periods
specified in those paragraphs shall in no way excuse Tenant from its obligation
to pay Tenant's Proportionate Share of Operating Expenses.
D. NET LEASE. This shall be a triple net Lease and Base Rent shall be paid to
Landlord absolutely net of all costs and expenses, except as specifically
provided to the contrary in this Lease. The provisions for payment of Operating
Expenses and the Operating Expense Adjustment are intended to pass on to Tenant
and reimburse Landlord for all costs and expenses of the nature described in
Paragraph 7.A. incurred in connection with the ownership, management,
maintenance, repair, preservation, replacement and operation of the Building
and/or Project and its supporting facilities and such additional facilities now
and in subsequent years as may be determined by Landlord to be necessary or
desirable to the Building and/or Project.
E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any Statement
provided by Landlord under Paragraph 7.13. or
<PAGE>
7.C. above, Tenant shall have the right, not later than thirty (30) days
following receipt of such statement and upon the condition that Tenant shall
first deposit with Landlord the full amount in dispute, to cause Landlord's
books and records with respect to Operating Expenses for such fiscal year to be
audited by certified public accountants selected by Tenant and subject to
Landlord's reasonable right of approval. The Operating Expense Adjustment shall
be appropriately adjusted on the basis of such audit. If such audit discloses a
liability for a refund in excess of ten percent (10%) of Tenant's Proportionate
Share of the Operating Expenses previously reported, the cost of such audit
shall be borne by Landlord; otherwise the cost of such audit shall be paid by
Tenant. If Tenant shall not request an audit in accordance with the provisions
of this Paragraph 7.E. within twenty (20) days after receipt of Landlord's
statement provided pursuant to Paragraph 7.B. or 7.C., such statement shall be
final and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be for the
sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance
insuring the Building against damage or destruction due to risk
including fire, vandalism, and malicious mischief in an amount not less
than the replacement cost thereof, in the form and with deductibles and
endorsements as selected by Landlord. At its election, Landlord may
instead (but shall have no obligation to) obtain"All Risk" coverage,
and may also obtain earthquake, pollution, and/or flood insurance in
amounts selected by Landlord.
(2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also (but
shall have no obligation to) carry insurance against loss of rent, in
an amount equal to the amount of Base Rent and Additional Rent that
Landlord could be required to abate to all Building tenants in the
event of condemnation or casualty damage for a period of twelve (12)
months. Landlord may also (but shall have no obligation to) carry such
other insurance as Landlord may deem prudent or advisable, including,
without limitation, liability insurance in such amounts and on such
terms as Landlord shall determine. Landlord shall not be obligated to
insure, and shall have no responsibility whatsoever for any damage to,
any furniture, machinery, goods, inventory or supplies, or other
personal property or fixtures which Tenant may keep or maintain in the
Premises, or any leasehold improvements, additions or alterations
within the Premises.
<PAGE>
B. TENANT'S INSURANCE.
(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term, insurance on all personal property and
fixtures of Tenant and all improvements, additions or alterations made
by or for Tenant to the Premises on an "All Risk" basis, insuring such
property for the full replacement value of such property.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term Commercial General Liability insurance
covering bodily injury and property damage liability occurring in or
about the Premises or arising out of the use and occupancy of the
Premises and the Project, and any part of either, and any areas
adjacent thereto, and the business operated by Tenant or by any other
occupant of the Premises. Such insurance shall include contractual
liability coverage insuring all of Tenant's indemnity obligations under
this Lease. Such coverage shall have a minimum combined single limit of
liability of at least Two Million Dollars ($2,000,000.00), and a
minimum general aggregate limit of Three Million Dollars
($3,000,000.00), with an "Additional Insured - Managers or Lessors of
Premises Endorsement" and the "Amendment of the Pollution Exclusion
Endorsement." All such policies shall be written to apply to all bodily
injury (including death), property damage or loss, personal and
advertising injury and other covered loss, however occasioned,
occurring during the policy term, shall be endorsed to add Landlord and
any party holding an interest to which this Lease may be subordinated
as an additional insured, and shall provide that such coverage shall be
"primary" and non-contributing with any insurance maintained by
Landlord, which shall be excess insurance only. Such coverage shall
also contain endorsements including employees as additional insureds if
not covered by Tenant's Commercial General Liability Insurance. All
such insurance shall provide for the severability of interests of
insureds; and shall be written on an "occurrence" basis, which shall
afford coverage for all claims based on acts, omissions, injury and
damage, which occurred or arose (or the onset of which occurred or
arose) in whole or in part during the policy period.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant
shall carry Workers' Compensation Insurance as required by any
Regulation, throughout the Term at Tenant's sole cost and expense.
Tenant shall also carry Employers' Liability Insurance in amounts not
less than One Million Dollars ($1,000,000) each accident for bodily
injury by accident; One Million Dollars ($1,000,000) policy limit
<PAGE>
for bodily injury by disease; and One Million Dollars ($1,000,000) each
employee for bodily injury by disease, throughout the Term at Tenant's
sole cost and expense.
(4) COMMERCIAL AUTO LIABILITY INSURANCE. Tenant shall procure at
Tenant's sole cost and expense and keep in effect from the date of this
Lease and at all times until the end of the Term commercial auto
liability insurance with a combined limit of not less than One Million
Dollars ($1,000,000) for bodily injury and property damage for each
accident. Such insurance shall cover liability relating to any auto
(including owned, hired and non-owned autos).
(5) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B. shall be endorsed to (ij provide Landlord with thirty
(30) days' notice of cancellation or change in terms; and (ii) waive
all rights of subrogation by the insurance carrier against Landlord. If
at any time during the Term the amount or coverage of insurance which
Tenant is required to carry under this Paragraph S.B. is, in Landlord's
reasonable judgment, materially less than the amount or type of
insurance coverage typically carried by owners or tenants of properties
located in the general area in which the Premises are located which are
similar to and operated for similar purposes as the Premises or if
Tenant's use of the Premises should change with or without Landlord's
consent, Landlord shall have the right to require Tenant to increase
the amount or change the types of insurance coverage required under
this Paragraph 8.B. All insurance policies required to be carried by
Tenant under this Lease shall be written by companies rated A X or
better in "Best's Insurance Guide" and authorized to do business in the
State of California. In any event deductible amounts under all
insurance policies required to be carried by Tenant under this Lease
shall not exceed Five Thousand Dollars ($5,000.00) per occurrence.
Tenant shall deliver to Landlord on or before the Term Commencement
Date, and thereafter at least thirty (30) days before the expiration
dates of the expired policies, certified copies of Tenant's insurance
policies, or a certificate evidencing the same issued by the insurer
thereunder; and, if Tenant shall fail to procure such insurance, or to
deliver such policies or certificates, Landlord may, at Landlord's
option and in addition to Landlord's other remedies in the event of a
default by Tenant hereunder, procure the same for the account of
Tenant, and the cost thereof shall be paid to Landlord as Additional
Rent.
C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel reasonably
acceptable to Landlord, protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or
<PAGE>
expenses, including reasonable attorneys' and consultants' fees and court costs,
demands, causes of action, or judgments, directly or indirectly arising out of
or related to: (1) claims of injury to or death of persons or damage to property
occurring or resulting directly or indirectly from the use or occupancy of the
Premises, Building or Project by Tenant or Tenant's Parties, or from activities
or failures to act of Tenant or Tenant's Parties; (2) claims arising from work
or labor performed, or for materials or supplies furnished to or at the request
of Tenant in connection with performance of any work done for the account of
Tenant within the Premises or Project; (3) claims arising from any breach or
default on the part of Tenant in the performance of any covenant contained in
this Lease, and (4) claims arising from the negligence or intentional acts or
omissions of Tenant or Tenant's Parties. The foregoing indemnity by Tenant shall
not be applicable to claims to the extent arising from the gross negligence or
willful misconduct of Landlord. Landlord shall not be liable to Tenant and
Tenant hereby waives all claims against Landlord for any injury or damage to any
person or property in or about the Premises, Building or Project by or from any
cause whatsoever (other than Landlord's gross negligence or willful misconduct)
and, without limiting the generality of the foregoing, whether caused by water
leakage of any character from the roof, walls, basement or other portion of the
Premises, Building or Project, or caused by gas, fire, oil or electricity in, on
or about the Premises, Building or Project. The provisions of this Paragraph
shall survive the expiration or earlier termination of this Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage
provided by insurance to be maintained hereunder or any other rights or
remedies, Landlord and Tenant each waive any right to recover against the other
for: (a) damages for injury to or death of persons; (b) damages to property,
including personal property; (c) damages to the Premises or any part thereof,
and (d) claims arising by reason of the foregoing due to hazards covered by
insurance maintained or required to be maintained pursuant to this Lease to the
extent of proceeds recovered therefrom, or proceeds which would have been
recoverable therefrom in the case of the failure or any party to maintain any
insurance coverage required to be maintained by such party pursuant to this
Lease. This provision is intended to waive fully, any rights and/or claims
arising by reason of the foregoing, but only to the extent that any of the
foregoing damages and/or claims referred to above are covered or would be
covered, and only to the extent of such coverage, by insurance actually carried
or required to be maintained pursuant to this Lease by either Landlord or
Tenant. This provision is also intended to waive fully, and for the benefit of
each party, any rights and/or claims which might give rise to a right of
subrogation on any insurance carrier. Subject to all
<PAGE>
qualifications of this Paragraph 9, Landlord waives its rights as specified in
this Paragraph 9 with respect to any subtenant that it has approved pursuant to
Paragraph 21 but only in exchange for the written waiver of such rights to be
given by such subtenant to Landlord upon such subtenant taking possession of the
Premises or a portion thereof. Each party shall cause each insurance policy
obtained by it to provide that the insurance company waives all right of
recovery by way of subrogation against either party in connection with any
damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair,
reasonable wear and tear excepted, the structural soundness of the roof,
foundations, and exterior walls of the Building. The term "exterior walls" as
used herein shall not include windows, glass or plate glass, doors, dock bumpers
or dock plates, special store fronts or office entries. Any damage caused by or
repairs necessitated by any negligence or act of Tenant or Tenant's Parties may
be repaired by Landlord. at Landlord's option and Tenant's expense. Tenant shall
immediately give Landlord written notice of any defect or need of repairs in
such components of the Building for which Landlord is responsible, after which
Landlord shall have a reasonable opportunity and the right to enter the Premises
at all reasonable times to repair same. Landlord's liability with respect to any
defects, repairs, or maintenance for which Landlord is responsible under any of
the provisions of this Lease shall be limited to the cost of such repairs or
maintenance, and there shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business,
except in the instance of Landlord's gross negligence or wilful misconduct,
arising from the making of repairs, alterations or improvements in or to any
portion of the Premises, the Building or the Project or to fixtures,
appurtenances or equipment in the Building, except as provided in Paragraph 24.
By taking possession of the Premises, Tenant accepts them "as is," as being in
good order, condition and repair and the condition in which Landlord is
obligated to deliver them and suitable for the Permitted Use and Tenant's
intended operations in the Premises, whether or not any notice of acceptance is
given. Tenant shall have period of Ninety (90) days from the Term Commencement
with which to report to Landlord, in writing, any defects with the FIVAQ. roof,
plumbing, electrical or sprinkler systems notice ated by 'Tenant that Landlord
should reasonably have known and Landlord shall repair such defects at
Landlord's sole cost,
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain
all parts of the Premises and such portions of the Building as are within the
exclusive control of Tenant in a
<PAGE>
good, clean and secure condition and promptly make all necessary repairs and
replacements, as determined by Landlord, including but not limited to, all
windows, glass, doors, walls, including demising walls, and wall finishes,
floors and floor covering, heating, ventilating and air conditioning systems,
ceiling insulation, truck doors, hardware, dock bumpers, dock plates and
levelers, plumbing work and fixtures, downspouts, entries, skylights, smoke
hatches, roof vents, electrical and lighting systems, and fire sprinklers, with
materials and workmanship of the same character, kind and quality as the
original. Tenant shall at Tenant's expense also perform regular removal of trash
and debris. If Tenant uses rail and if required by the railroad company, Tenant
agrees to sign a joint maintenance agreement governing the use of the rail spur,
if any. Tenant shall, at Tenant's own expense, enter into a regularly scheduled
preventative maintenance/service contract with a maintenance contractor for
servicing all hot water, heating and air conditioning systems and equipment
within or serving the Premises. The maintenance contractor and the contract must
be approved-by Landlord. The service contract must include all services
suggested by the equipment manufacturer within the operation/maintenance manual
and must become effective and a copy thereof delivered to Landlord within thirty
(30) days after the Term Commencement Date. Landlord may, upon notice to Tenant,
enter into such a service contract on behalf of Tenant or perform the work and
in either case charge Tenant the cost thereof along with a reasonable amount for
Landlord's overhead if Tenant fails to enter into such a service contract.
Notwithstanding anything to the contrary contained herein, Tenant shall, at its
expense, promptly repair any damage to the Premises or the Building or Project
resulting from or caused by any negligence or act of Tenant or Tenant's Parties.
Nothing herein shall expressly or by implication render Tenant Landlord's agent
or contractor to effect any repairs or maintenance required of Tenant under this
Paragraph 11, as to all of which Tenant shall be solely responsible.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical
additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("Alterations") without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld with respect to proposed Alterations
which: (a) comply with all applicable Regulations; (b) are, in Landlord's
opinion, compatible with the Building or the Project and its mechanical,
plumbing, electrical, heating/ventilation/air conditioning systems, and will not
cause the Building or Project or such systems to be required to be modified to
comply with any Regulations (including, without limitation, the Americans With
Disabilities Act); and (c) will not interfere with the use and occupancy of any
other portion of the Building or Project by any
<PAGE>
other tenant or its invitees. Notwithstanding the above, Tenant shall have the
right to make minor non-structural alterations up to $5,000 per item or $15.000
per year without Landlord's prior consent. Specifically, but without limiting
the generality of the foregoing, Landlord shall have the right of written
consent for all plans and specifications for the proposed Alterations,
construction means and methods, all appropriate permits and licenses, any
contractor or subcontractor to be employed on the work of Alterations, and the
time for performance of such work, and may impose rules and regulations for
contractors and subcontractors performing such work. Tenant shall also supply to
Landlord any documents and information reasonably requested by Landlord in
connection with Landlord's consideration of a request for approval hereunder.
Tenant shall cause all Alterations to be accomplished in a first-class, good and
workmanlike manner, and to comply with all applicable Regulations and Paragraph
27 hereof. Tenant shall at Tenant's sole expense, perform any additional work
required under applicable Regulations due to the Alterations hereunder. No
review or consent by Landlord of or to any proposed Alteration or additional
work shall constitute a waiver of Tenant's obligations under this Paragraph 12.
Tenant shall reimburse Landlord for all costs which Landlord may incur in
connection with granting approval to Tenant for any such Alterations, including
any costs or expenses which Landlord may incur in electing to have outside
architects and engineers review said plans and specifications, and shall pay
Landlord an administration fee of fifteen percent (15%) of the cost of the
Alterations as Additional Rent hereunder. All such Alterations shall remain the
property of Tenant until the expiration or earlier termination of this Lease, at
which time they shall be and become the property of Landlord; provided, however,
that Landlord may, at Landlord's option, require that Tenant, at Tenant's
expense, remove any or all Alterations made by Tenant and restore the Premises
by the expiration or earlier termination of this Lease, to their condition
existing prior to the construction of any such Alterations. All such removals
and restoration shall be accomplished in a first-class and good and workmanlike
manner so as not to cause any damage to the Premises or Project whatsoever. If
Tenant fails to remove such Alterations or Tenant's trade fixtures or furniture
or other personal property, Landlord may keep and use them or remove any of them
and cause them to be stored or sold in accordance with applicable law, at
Tenant's sole expense. In addition to and wholly apart from Tenant's obligation
to pay Tenant's Proportionate Share of Operating Expenses, Tenant shall be
responsible for and shall pay prior to delinquency any taxes or governmental
service fees, possessory interest taxes, fees or charges in lieu of any such
taxes, capital levies, or other charges imposed upon, levied with respect to or
assessed against its fixtures or personal property, on the value of Alterations
within the Premises, and on Tenant's interest pursuant to this Lease, or any
increase in any of the foregoing based on such Alterations. To the extent that
any such taxes are not separately assessed or billed to Tenant, Tenant shall pay
the amount thereof as invoiced to Tenant by Landlord.
<PAGE>
Notwithstanding the foregoing, at Landlord's option (but without obligation),
all or any portion of the Alterations shall be performed by Landlord for
Tenant's account and Tenant shall. pay Landlord's estimate of the cost thereof
(including a reasonable charge for Landlord's overhead and profit) prior to
commencement of the work. In addition, at Landlord's election and
notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of
removing any such Alterations and restoring the Premises to their original
condition such cost to include a reasonable charge for Landlord's overhead and
profit as provided above, and such amount may be deducted from the Security
Deposit or any other sums or amounts held by Landlord under this Lease. Landlord
will require, at the outset, the removal of the following per Weske & Associates
Space Plan 1; OEM offices 1-6, P storage and office, ILQ offices 4-17 and
attached P office 5 and storage room upon the end of said lease term. All
located at the rear of the building.
B. In compliance with Paragraph 27 hereof, at least ten (10) business days
before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to permit
Landlord to post and record a notice of non-responsibility. Upon substantial
completion of construction, if the law so provides, Tenant shall cause a timely
notice of completion to be recorded in the office of the recorder of the county
in which the Building is located.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs, notices,
graphics or banners whatsoever or any window decor which is visible in or from
public view or corridors, the common areas or the exterior of the Premises or
the Building, in or on any exterior window or window fronting upon any common
areas or service area or upon any truck doors or man doors without Landlord's
prior written approval which Landlord shall have the right to withhold in its
absolute and sole discretion; provided that Tenant's name shall be included in
any Building-standard door and directory signage, if any, in accordance with
Landlord's Building signage program, including without limitation, payment by
Tenant of any fee charged by Landlord for maintaining such signage, which fee
shall constitute Additional Rent hereunder. Any installation of signs, notices,
graphics or banners on or about the Premises or Project approved by Landlord
shall be subject to any Regulations and to any other requirements imposed by
Landlord. Tenant shall remove, all such signs or graphics by the expiration or
any earlier termination of this Lease. Such installations and removals shall be
made in such manner as to avoid injury to or defacement of the Premises,
Building or Project and any other improvements contained therein, and Tenant
shall repair any injury or defacement including without limitation discoloration
caused by such installation or
<PAGE>
removal. Landlord shall erect a new monument sign in front of the Premises on
North Bernardo Avenue at Landlord's sole cost that meets the approval or
Landlord, Tenant and the City of Mountain View.
14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice shall be
required, Landlord and Landlord's agents and representatives, shall have the
right to enter the Premises to inspect the same, to clean, to perform such work
as may be permitted or required hereunder, to make repairs, improvements or
alterations to the Premises, Building or Project or to other tenant spaces
therein, to deal with emergencies, to post such notices as may be permitted or
required by law to prevent the perfection of liens against Landlord's interest
in the Project or to exhibit the Promises to prospective tenants, purchasers,
encumbrancers or to others, or for any other purpose as Landlord may deem
necessary or desirable, provided, however, that Landlord shall use reasonable
efforts not to unreasonably interfere with Tenant's business operations and that
Tenant in the event of an emergency shall have the right to request that
visitors identify themselves by name. company and purpose of visit and may be
subject to a Tenant escort. Tenant shall not be entitled to any abatement of
Rent by reason of the exercise of any such right of entry. Tenant waives any
claim for damages for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned thereby. Landlord shall at all times have and retain a
key with which to unlock all of the doors in, upon and about the Premises,
excluding Tenant's vaults and safes or special security areas (designated in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem necessary or proper to open said doors in an emergency, in
order to obtain entry to any portion of the Premises, and any entry to the
Premises or portions thereof obtained by Landlord by any of said means, or
otherwise, shall not be construed to be a forcible or unlawful entry into, or a
detainer of, the Premises, or an eviction, actual or constructive, of Tenant
from the Premises or any portions thereof. At anytime within six (6) months
prior to the expiration of the Term or following any earlier termination of this
Lease or agreement to terminate this Lease, Landlord shall have the right to
erect on the Premises, Building and/or Project a suitable sign indicating that
the Premises are available for lease.
15. SERVICES AND UTILITIES
A. Tenant shall pay directly for all water, gas, heat, air conditioning, light,
power, telephone, sewer, sprinkler charges and other utilities and services used
on or from the Premises, together with any taxes, penalties, surcharges or the
like pertaining thereto, and maintenance charges for utilities and
<PAGE>
shall furnish all electric light bulbs, ballasts and tubes. If any such services
are not separately billed or metered to Tenant, Tenant shall pay a proportion,
as determined by Landlord, of all charges jointly serving other premises. All
sums payable under this Paragraph 15 shall constitute Additional Rent hereunder.
B. Tenant acknowledges that Tenant has inspected and accepts the water,
electricity, heat and air conditioning and other utilities and services being
supplied or furnished to the Premises as of the date Tenant takes possession of
the Premises, if any, as being sufficient in their present condition, "as is,"
for the Permitted Use, and for Tenant's intended operations in the Premises.
Landlord shall have no obligation to provide additional or after-hours
electricity, heating or air conditioning, but if Landlord elects to provide such
services at Tenant's request, Tenant shall pay to Landlord a reasonable charge
for such services as determined by Landlord. Tenant agrees to keep and cause to
be kept closed all window covering when necessary because of the sun's position,
and Tenant also agrees at all times to cooperate fully with Landlord and to
abide by all of the regulations and requirements which Landlord may prescribe
for the proper functioning and protection of electrical, heating, ventilating
and air conditioning systems. Wherever heat-generating machines, excess lighting
or equipment are used in the Premises which affect the temperature otherwise
maintained by the air conditioning system, Landlord reserves the right to
install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation and the cost of operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord.
C. Tenant shall not without written consent of Landlord use any apparatus,
equipment or device in the Premises, including without limitation, computers,
electronic data processing machines, copying machines, and other machines, using
excess lighting or using electric current, water, or any other resource in
excess of or which will in any way increase the amount of electricity, water, or
any other resource being furnished or supplied for the use of the Premises for
reasonable and normal office use, in each case as of the date Tenant takes
possession of the Premises as determined by Landlord, or which will require
additions or alterations to or interfere with the Building power distribution
systems; nor connect with electric current, except through existing electrical
outlets in the Premises or water pipes, any apparatus, equipment or device for
the purpose of using electrical current, water, or any other resource. If Tenant
shall require water or electric current or any other resource in excess of that
being furnished or supplied for the use of the Premises as of the date Tenant
takes possession of the Premises, if any, as determined by Landlord, Tenant
shall first procure the written consent of Landlord which Landlord may refuse,
to the use thereof, and Landlord may cause a special meter to be installed in
the Premises so as to measure the amount of water, electric
<PAGE>
current or other resource consumed for any such other use. Tenant shall pay
directly to Landlord as an addition to and separate from payment of Operating
Expenses the cost of all such additional resources, energy, utility service and
meters (and of installation, maintenance and repair thereof and of any
additional circuits or other equipment necessary to furnish such additional
resources, energy, utility or service). Landlord may add to the separate or
metered charge a recovery of additional expense incurred in keeping account of
the excess water, electric current or other resource so consumed. Landlord shall
not be liable for any damages directly or indirectly resulting from nor shall
the Rent or any monies owed Landlord under this Lease herein reserved be abated
by reason of: (a) the installation, use or interruption of use of any equipment
used in connection with the furnishing of any such utilities or services, or any
change in the character or means of supplying or providing any such utilities or
services or any supplier thereof; (b) the failure to furnish or delay in
furnishing any such utilities or services when such failure or delay is caused
by acts of God or the elements, labor disturbances of any character, or any
other accidents or other conditions beyond the reasonable control of Landlord or
because of an interruption of service due to Tenant's use of water, electric
current or other resource in excess of that being supplied or furnished for the
use of the Premises as of the date Tenant takes possession of the Premises; or
(c) the inadequacy, limitation, curtailment, rationing or restriction on use of
water, electricity, gas or any other form of energy or any other service or
utility whatsoever serving the Premises or Project otherwise; or (d) the partial
or total unavailability of any such utilities or services to the Premises or the
Building, whether by Regulation or otherwise; nor shall any such occurrence
constitute an actual or constructive eviction of Tenant. Landlord shall further
have no obligation to protect or preserve any apparatus, equipment or device
installed by Tenant in the Premises, including without limitation by providing
additional or after-hours heating or air conditioning. Landlord shall be
entitled to cooperate voluntarily and in a reasonable manner with the efforts of
national, state or local governmental agencies or utility suppliers in reducing
energy or other resource consumption. The obligation to make services available
hereunder shall be subject to the limitations of any such voluntary, reasonable
program. In addition, Landlord reserves the right to change the supplier or
provider of any such utility or service from time to time. Landlord may, but
shall not be obligated to, upon notice to Tenant, contract with or otherwise
obtain any electrical or other such service for or with respect to the Premises
or Tenant's operations therein from any supplier or provider of any such
service. Tenant shall cooperate with Landlord and any supplier or provider of
such services designated by Landlord from time to time to facilitate the
delivery of such services to Tenant at the Premises and to the Building and
Project, including without limitation allowing Landlord and Landlord's suppliers
or providers, and their respective agents
<PAGE>
and contractors, reasonable access to the Premises for the purpose of
installing, maintaining, repairing, replacing or upgrading such service or any
equipment or machinery associated therewith.
16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, this Lease shall be and is hereby
declared to be subject and subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises and Project are situated, or
both; and (b) any mortgage or deed of trust which may now exist or be placed
upon the Building, the Project and/or the land upon which the Premises or the
Project are situated, or said ground leases or underlying leases, or Landlord's
interest or estate in any of said items which is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. If any ground lease or underlying lease terminates for any
reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in interest to
Landlord provided that Tenant shall not be disturbed in its possession under
this Lease by such successor in interest so long as Tenant is not in default
under this Lease. Within twenty (20) days after request by Landlord, Tenant
shall execute and deliver any additional documents evidencing Tenant's
attornment or the subordination of this Lease with respect to any such ground
leases or underlying leases or any such mortgage or deed of trust, in the form
requested by Landlord or by any ground landlord, mortgagee, or beneficiary under
a deed of trust, subject to such nondisturbance requirement. If requested in
writing by Tenant, Landlord shall use commercially reasonable efforts to obtain
a subordination, nondisturbance and attornment agreement for the benefit of
Tenant reflecting the foregoing from any ground landlord, mortgagee or
beneficiary, at Tenant's expense, subject to such other terms and conditions as
the ground landlord, mortgagee or beneficiary may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to Landlord,
any information allowable under applicable laws. Tenant's and any guarantor's
current financial statements or other information discussing financial worth of
Tenant and any guarantor, which Landlord shall use solely for purposes of this
Lease and in connection with the ownership, management, financing and
disposition of the Project.
<PAGE>
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within twenty (20) days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, that this Lease
has not been modified (or stating all modifications, written or oral, to this
Lease), the date to which Rent has been paid, the unexpired portion of this
Lease, that there are no current defaults by Landlord or Tenant under this Lease
(or specifying any such defaults), that the leasehold estate granted by this
Lease is the sole interest of Tenant in the Premises and/or the land at which
the Premises are situated, and such other matters pertaining to this Lease as
may be reasonably requested by Landlord or any mortgagee, beneficiary, purchaser
or prospective purchaser of the Building or Project or any interest therein.
Failure by Tenant to execute and deliver such certificate shall constitute an
acceptance of the Premises and acknowledgment by Tenant that the statements
included are true and correct without exception. Tenant agrees that if Tenant
fails to execute and deliver such certificate within such twenty (20) day
period, Landlord may execute and deliver such certificate on Tenant's behalf and
that such certificate shall be binding on Tenant. Landlord and Tenant intend
that any statement delivered pursuant to this Paragraph may be relied upon by
any mortgagee, beneficiary, purchaser or prospective purchaser of the Building
or Project or any interest therein. The parties agree that Tenant's obligation
to furnish such estoppel certificates in a timely fashion is a material
inducement for Landlord's execution of this Lease, and shall be an event of
default (without any cure period that might be provided under Paragraph 26.A(3)
of this Lease) if Tenant fails to fully comply or makes any material
misstatement in any such certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a security
deposit as stated in the Basic Lease Information (the "Security Deposit"), which
sum shall be held and owned by Landlord, without obligation to pay interest, as
security for the performance of Tenant's covenants and obligations under this
Lease. The Security Deposit is riot an advance rental deposit or a measure of
damages incurred by Landlord in case of Tenant's default. Upon the occurrence of
any event of default by Tenant, Landlord may from time to time, without
prejudice to any other remedy provided herein or by law, use such fund as a
credit to the extent necessary to credit against any arrears of Rent or other
payments due to Landlord hereunder, and any other damage, injury, expense or
liability caused by such event of default, and Tenant shall pay to Landlord, on
demand, the amount so applied in order to restore the Security Deposit to its
original amount. Although the Security Deposit shall be deemed the property of
Landlord, any remaining balance of such deposit shall be returned by Landlord
<PAGE>
to Tenant at such time after termination of this Lease that, all of Tenant's
obligations under this Lease have been fulfilled, reduced by such amounts as may
be required by Landlord to remedy defaults on the part of Tenant in the payment
of Rent or other obligations of Tenant under this Lease, to repair damage to the
Premises, Building or Project caused by Tenant or any Tenant's Parties and to
clean the Premises. Landlord may use and commingle the Security Deposit with
other funds of Landlord.
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease are not personal obligations of Landlord or of the
individual or other partners of Landlord or its or their partners, directors,
officers, or shareholders, and Tenant agrees to look solely to Landlord's
interest in the Project for the recovery of any amount from Landlord, and shall
not look to other assets of Landlord nor seek recourse against the assets of the
individual or other partners of Landlord or its or their partners, directors,
officers or shareholders. Any lien obtained to enforce any such judgment and any
levy of execution thereon shall be subject and subordinate to any lien, mortgage
or deed of trust on the Project. Under no circumstances shall Tenant have the
right to offset against or recoup Rent or other payments due and to become due
to Landlord hereunder except as expressly provided in Paragraph 23.13. below,
which Rent and other payments shall be absolutely due and payable hereunder in
accordance with the terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. This Lease has been negotiated to be and is granted as an
accommodation to Tenant. Accordingly, this Lease is personal. to Tenant, and
Tenant's rights granted hereunder do not include the right to assign this Lease
or sublease tile Premises, or to receive any excess, either in installments or
lump sum, over the Rent which is expressly reserved by Landlord as hereinafter
provided, except as otherwise expressly hereinafter provided. Tenant shall not
assign or pledge this Lease or sublet the Premises or any part thereof, whether
voluntarily or by operation of law, or permit the use or occupancy of the
Premises or any part thereof by anyone other than Tenant, or suffer or permit
any such assignment, pledge, subleasing or occupancy, without Landlord's prior
written consent except as provided herein. If Tenant desires to assign this
Lease or sublet any or all of the Premises, Tenant shall give Landlord written
notice (the "Transfer Notice") at least sixty (60) days prior to the anticipated
effective date of the proposed assignment or sublease, which shall contain all
of the information reasonably requested by Landlord to address Landlord's
decision criteria specified hereinafter. Landlord shall then have a period of
thirty (30) days following receipt of the Transfer Notice to
<PAGE>
notify Tenant in writing that Landlord elects either; (i) to terminate this
Lease as to the space so affected as of the date so requested by Tenant; or (ii)
to consent to the proposed assignment or sublease, subject, however, to
Landlord's prior written consent of the proposed assignee or subtenant and of
any related documents or agreements associated with the assignment or sublease.
If Landlord should fail to notify Tenant in writing of such election within said
period, Landlord shall be deemed to have waived option (i) above, but written
consent by Landlord of the proposed assignee or subtenant shall still be
required. If Landlord does not exercise option (i) above, Landlord's consent to
a proposed assignment or sublease shall not be unreasonably withheld. Consent to
any assignment or subletting shall not constitute consent to any subsequent
transaction to which this Paragraph 21 applies.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other instances in
which it may be reasonable for Landlord to withhold Landlord's consent to an
assignment or subletting, Landlord and Tenant acknowledge that it shall be
reasonable for Landlord to withhold Landlord's consent in the following
instances: if the proposed assignee does not agree to be bound by and assume the
obligations of Tenant under this Lease in form and substance satisfactory to
Landlord; the use of the Premises by such proposed assignee or subtenant would
not be a Permitted Use or would violate any exclusivity or other arrangement
which Landlord has with any other tenant or occupant or any Regulation or would
increase the Occupancy Density or Parking Density of the Building or Project, or
would otherwise result in an undesirable tenant mix for the Project as
determined by Landlord; the proposed assignee or subtenant is not of sound
financial condition as determined by Landlord in Landlord's sole discretion; the
proposed assignee or subtenant is a governmental agency; the proposed assignee
or subtenant does not have a good reputation as a tenant OF property or a good
business reputation; the proposed assignee or subtenant is a person with whom
Landlord is negotiating to lease space in the Project or is a present tenant of
the Project; the assignment or subletting would entail any Alterations which
would lessen the value of the leasehold improvements in the Premises or use of
any Hazardous Materials or other noxious use or use which may disturb other
tenants of the Project; or Tenant is in default of any obligation of Tenant
under this Lease, or Tenant has defaulted under this Lease on three (3) or more
occasions during any twelve (12) months preceding the date that Tenant shall
request consent. Failure by or refusal of Landlord to consent to a proposed
assignee or subtenant shall not cause a termination of this Lease. Upon a
termination under Paragraph 2 I.A.(I)(i), Landlord may lease the Premises to any
party, including parties with whom Tenant has negotiated an assignment or
sublease, without incurring any liability to Tenant, At the option of Landlord,
a surrender and termination of this Lease shall operate as an assignment to
Landlord of some or all subleases or subtenancies. Landlord shall
<PAGE>
exercise this option by giving notice of that assignment to such subtenants on
or before the effective date of the surrender and termination. In connection
with each request for assignment or subletting, Tenant shall pay to Landlord
Landlord's standard fee for approving such requests, as well as all costs
incurred by Landlord or any mortgagee or ground lessor in approving each such
request and effecting any such transfer, including, without limitation,
reasonable attorneys' fees.
(3) PERMITTED TRANSFERS. An "Affiliate" means any entity that (i) controls. is
controlled by. or is tinder common control with Tenant. (ii) results from the
transfer of all or substantially of Tenant's assets or stock, or (iii) results
from the merger or consolidation of Tenant with another entity. "Control" means
the direct or indirect ownership of more than fifty percent (50%) of the voting
securities of an entity or possession of the right to vote more than Fifty
percent (50%) of the voting interest in the ordinary direction of that entity's
affairs. Notwithstanding anything to the contrary contained in this Lease,
Landlord's consent is not required for tiny assignment of this Lease or sublease
of all or a portion of the Premises to an Affiliate so long as the following
conditions are met: (a) at least ten (10) business days before any such
assignment or sublease. Landlord receives written notice or such assignment of
sublease (as well as any documents or information reasonably requested by
Landlord regarding the proposed intended transfer and the transferee) (b) Tenant
is not then and has not been in default under this Lease; (c) if the transfer is
an assignment or any other transfer to an Affiliate other than a sublease, the
intended assignee assumes in writing all of Tenant's obligations under this
Lease relating to the Premises in form satisfactory to Landlord or, if the
transfer is a sublease, the intended sublessee accepts the sublease in form
satisfactory to Landlord; (d) the intended transferee has tangible net worth, as
evidenced by financial statements delivered to Landlord and certified by an
independent certified public accountant in accordance with generally accented
accounting principles that are consistently applied, at least equal to
$10,000,000.00; (e) the Premises shall continue to be operated solely for the
use specified in the Basic Lease Information; and (f) Tenant shall pay to
Landlord all costs reasonably incurred by Landlord or any mortgagee or ground
lessor for such assignment or subletting, including, without limitation,
reasonable attorneys' fees. No transfer to an Affiliate in accordance with this
subparagraph shall relieve Tenant named herein of any obligation under the Lease
or alter the primary liability of Tenant named herein for the payment of Rent or
for the performance of any other obligation to be performed by Tenant, including
the obligations contained in Paragraph 25 with respect to any Affiliate.
Notwithstanding anything to the contrary in this Lease, the transfer of
outstanding capital stock or other listed equity interests, or the purchase of
outstanding capital stock or other listed equity interests, or the purchase of
equity interests issued in an initial public offering of stock
<PAGE>
by persons or parties other than "insiders" within the meaning of the Securities
Exchange Act or 1934, as amended, through the "over-the-counter" market or any
recognized national or international securities exchange shall not be included
in determining whether control has been transferred.
B. BONUS RENT. Any Rent or other consideration realized by Tenant under an),
such sublease or assignment in excess of the Rent payable hereunder, after
amortization of a reasonable brokerage commission incurred by Tenant, shall be
divided and paid, ten percent (50%) to Tenant, ninety percent (50%) to Landlord.
In any subletting or assignment undertaken by Tenant, Tenant shall diligently
seek to obtain the maximum rental amount available in the marketplace for
comparable space available for primary leasing.
C. CORPORATION. If Tenant is a corporation, a transfer of corporate shares by
sale, assignment, bequest, inheritance, operation of law or other disposition
(including such a transfer to or by a receiver or trustee in federal or state
bankruptcy, insolvency or other proceedings) resulting in a change in the
present control of such corporation or any of its parent corporations by the
person or persons owning a majority of said corporate shares, shall constitute
an assignment for purposes of this Lease.
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business form,
a transfer of the interest of persons, firms or entities responsible for
managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or of the underlying beneficial interests of
said entity and/or a change in the identity of the persons responsible for the
general credit obligations of said entity shall constitute an assignment for all
purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant, permitted or otherwise,
shall relieve Tenant of any obligation under this Lease or alter the primary
liability of the Tenant named herein for the payment of Rent or for the
performance of any other obligations to be performed by Tenant, including
obligations contained in Paragraph 25 with respect to any assignee or subtenant.
Landlord may collect rent or other amounts or any portion thereof from any
assignee, subtenant, or other occupant of the Premises, permitted or otherwise,
and apply the net rent collected to the Rent payable hereunder, but no such
collection shall be deemed to be a waiver of this Paragraph 21, or the
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of the obligations of Tenant under
this Lease. Any assignment or subletting which conflicts with the provisions
hereof shall be void.
<PAGE>
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to enter
into this Lease and to perform all of Landlord's obligations hereunder and that
all persons signing this Lease on its behalf are authorized to do. Tenant and
the person or persons, if any, signing on behalf of Tenant, jointly and
severally represent and warrant that Tenant has full right and authority to
enter into this Lease, and to perform all of Tenant's obligations hereunder, and
that all persons signing this Lease on its behalf are authorized to do so.
23. CONDEMNATION
A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any substantial part
of the Premises should be taken or condemned for any public use under any
Regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the Permitted
Use of the Premises, either party shall have the right to terminate this Lease
at its option. If any material portion of the Building or Project is taken or
condemned for any public use under any Regulation, or by right of eminent
domain, or by private purchase in lieu thereof, Landlord may terminate this
Lease at its option. In either of such events, the Rent shall be abated during
the unexpired portion of this Lease, effective when the physical taking of said
Premises shall have occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the Project of
which the Premises are a part should be taken or condemned for any public use
under any Regulation, or by right of eminent domain, or by private purchase in
lieu thereof, and the taking prevents or materially interferes with the
Permitted Use of the Premises, and this Lease is not terminated as provided in
Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion
of this Lease shall be reduced, beginning on the date when the physical taking
shall have occurred, to such amount as may be fair and reasonable under all of
the circumstances, but only after giving Landlord credit for all sums received
or to be received by Tenant by the condemning authority. Notwithstanding
anything to the contrary contained in this Paragraph, if the temporary use or
occupancy of any part of the Premises shall be taken or appropriated under power
of eminent domain during the Term, this Lease shall be and remain unaffected by
such taking or appropriation and Tenant shall continue to pay in full all Rent
payable hereunder by Tenant during the Term; in the event of any such temporary
appropriation or taking, Tenant shall be entitled to receive that portion of any
award which represents compensation for the use of or occupancy of the Premises
during the Term, and Landlord shall be entitled to receive that portion of any
award which represents the cost of
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restoration of the Premises and the use and occupancy of the Premises.
C. AWARD. Landlord shall be entitled to (and Tenant shall assign to Landlord)
any and all payment, income, rent, award or any interest therein whatsoever
which may be paid or made in connection with such taking or conveyance and
Tenant shall have no claim against Landlord or otherwise for any sums paid by
virtue of such proceedings, whether or not attributable to the value of any
unexpired portion of this Lease, except as expressly provided in this Lease.
Notwithstanding the foregoing, any compensation specifically and separately
awarded Tenant for Tenant's personal property and moving costs, shall be and
remain the property of Tenant.
D. WAIVER OF CCP Section 1265.130. Each party waives the provisions of
California Civil Code Procedure Section 1265.130 allowing either party to
petition the superior court to terminate this Lease as a result of a partial
taking.
24. CASUALTY DAMAGE
A. GENERAL. If the Premises or Building should be damaged or destroyed by fire,
tornado, or other casualty (collectively, "Casualty"), Tenant shall give
immediate written notice thereof to Landlord. Within thirty (30) days after
Landlord's receipt of such notice, Landlord shall notify Tenant whether in
Landlord's estimation material restoration of the Premises can reasonably be
made within one hundred eighty (180) days from the date of such notice and
receipt of required permits for such restoration. Landlord's determination shall
be binding on Tenant.
B. WITHIN 180 DAYS. If the Premises or Building should be damaged by Casualty to
such extent that material restoration can in Landlord's estimation be reasonably
completed within one hundred eighty ( 180) days after the date of such notice
and receipt of required permits for such restoration, this Lease shall not
terminate. Provided that insurance proceeds are received by Landlord to fully
repair the damage, Landlord shall proceed to rebuild and repair the Premises in
the manner determined by Landlord, except that Landlord shall not be required to
rebuild, repair or replace any part of the Alterations which may have been
placed on or about the Premises by Tenant. If the Premises are untenantable in
whole or in part following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be abated proportionately, but only
to the extent of rental abatement insurance proceeds received by Landlord during
the time and to the extent the Premises are unfit for occupancy.
C. GREATER THAN 180 DAYS. If the Premises or Building should be damaged by
Casualty to such extent that rebuilding or repairs
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cannot in Landlord's estimation be reasonably completed within one hundred
eighty (180) days after the date of such notice and receipt of required permits
for such rebuilding or repair, then Landlord shall have the option of either:
(1) terminating this Lease effective upon the date of the occurrence of such
damage, in which event the Rent shall be abated during the unexpired portion of
this Lease; or (2) electing to rebuild or repair the Premises diligently and in
the manner determined by Landlord. Landlord shall notify Tenant OF its election
within thirty (30) days after Landlord's receipt of notice OF the damage or
destruction. Notwithstanding the above, Landlord shall not be required to
rebuild, repair or replace any part of any Alterations which may have been
placed, on or about the Premises by Tenant. If the Premises are untenantable in
whole or in part following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be abated proportionately, but only
to the extent of rental abatement insurance proceeds received by Landlord during
the time and to the extent the Premises are unfit for occupancy.
D. GREATER THAN 270 DAYS. If the Premises or Building should be damaged by
Casualty to such extent that rebuilding or repairs in Landlord's estimation be
reasonably completed within two hundred seventy (170) days after receipt of
require permits for rebuilding or repair, and such damage materially and
adversely interferes with the conduct of Tenant's business in the Premises, then
either party shall have the right to cancel this Lease by giving the other party
written notice within ten (10) days from the date of Landlord's notice that
material restoration of the Premises cannot be made within such two hundred
severity (270) day period or notice that Landlord has elected not to rebuild or
repair the Premises. Said cancellation shall be effective thirty (30) days from
the first day that either party gives its notice to cancel. If neither party
elects to so cancel this Lease, Landlord shall proceed to rebuild and repair the
Premises diligently and in the manner determined by Landlord, except that
Landlord shall not be required to rebuild, repair or replace any part of any
Alterations which may have been placed on or about the Premises by the Tenant.
If the Premises are untenantable in whole or in part following such damage, the
Rent payable hereunder during the period in which they are untenantable shall be
abated proportionately, but only to the extent of rental abatement proceeds
received by Landlord during the time and to the extent the Premises are unfit
for occupancy.
E. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the
Premises or any other portion of the Building are damaged by Casualty resulting
from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's
Parties, Base Rent and Additional Rent shall not be diminished during the repair
of such damage and Tenant shall be liable to Landlord for the cost and expense
of the repair and restoration of the Building caused thereby to the extent such
cost and expense is not covered by insurance proceeds.
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F. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, if the
Premises or Building are damaged or destroyed and are not fully covered by the
insurance proceeds received by Landlord or if the holder of any indebtedness
secured by a mortgage or deed of trust covering the Premises requires that the
insurance proceeds be applied to such indebtedness, then in either case Landlord
shall have the right to terminate this Lease by delivering written notice of
termination to Tenant within thirty (30) days after the date of notice to
Landlord that said damage or destruction is not fully covered by insurance or
such requirement is made by any such holder, as the case may be, whereupon this
Lease shall terminate.
G. WAIVER. This Paragraph 24 shall be: Tenant's sole and exclusive remedy in the
event of damage or destruction to the Premises or the Building. As a material
inducement to Landlord entering into this Lease, Tenant hereby waives any rights
it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil Code of
California with respect to any destruction of the Premises, Landlord's
obligation for tenantability of the Premises and Tenant's right to make repairs
and deduct the expenses of such repairs, or under any similar law, statute or
ordinance now or hereafter in effect.
H. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of the
Premises or the Building, under no circumstances shall Landlord be required to
repair any injury or damage to, or make any repairs to or replacements of,
Tenant's personal property.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over, Tenant
shall be unlawfully and illegally in possession of the Premises, whether or not
Landlord accepts any rent from Tenant or any other person while Tenant remains
in possession of the Premises without Landlord's written consent. If Tenant
shall retain possession of the Premises or any portion thereof without
Landlord's consent following the expiration of this Lease or sooner termination
for any reason, then Tenant shall pay to Landlord for each day of such retention
150% of the amount of daily rental as of the last month prior to the date of
expiration or earlier termination. Tenant shall also indemnify, defend, protect
and hold Landlord harmless from any loss, liability or cost, including
consequential and incidental damages and reasonable attorneys' fees, incurred by
Landlord resulting from delay by Tenant in surrendering the Premises, including,
without limitation, any claims made by the succeeding tenant founded on such
delay. Acceptance of Rent by Landlord following expiration or earlier
termination of this Lease, or following demand by Landlord for possession of the
Premises, shall not constitute a
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renewal of this Lease, and nothing contained in this Paragraph 25 shall waive
Landlord's right of reentry or any other right. Additionally, if upon expiration
or earlier termination of this Lease, or following demand by Landlord for
possession of the Premises, Tenant has not fulfilled its obligation with respect
to repairs and cleanup of the Premises or any other Tenant obligations as set
forth in this Lease, then Landlord shall have the right to perform any such
obligations as it deems necessary at Tenant's sole cost and expense, and any
time required by Landlord to complete such obligations shall be considered a
period of holding over and the terms of this Paragraph 25 shall apply. The
provisions of this Paragraph 25 shall survive any expiration or earlier
termination of this Lease.
26. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an
event of default on the part of Tenant:
(1) ABANDONMENT. Abandonment of the Premises for a continuous period in
excess of five (5) days. Tenant waives any right to notice Tenant may
have under Section 1951.3 of the Civil Code of the State of California,
the terms of this Paragraph 26.A. being deemed such notice to Tenant as
required by said Section 195 1.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any
other amount due and payable hereunder upon the date when said payment
is due, as to which time is of the essence.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A., such failure
continuing for thirty (30) days after written notice of such failure,
as to which time is of the essence.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit
of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of thirty
(30) days. If under applicable law, the trustee in bankruptcy or Tenant
has the right to affirm this Lease and continue to perform the
obligations of Tenant hereunder, such trustee or Tenant shall, in such
time period as may be permitted by the bankruptcy court having
jurisdiction, cure all defaults of Tenant hereunder outstanding as of
the date of the affirmance of this Lease and provide to Landlord such
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adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or the Premises, if such
appointment remains undismissed or undischarged for a period of fifteen
(15) days after the order therefor.
(7) ATTACHMENT. The attachment, execution or other judicial seizure of
all or substantially all of Tenant's assets or Tenant's leasehold of
the Premises, if such attachment or other seizure remains undismissed
or undischarged for a period of fifteen (15) days after the levy
thereof.
(8) INSOLVENCY. The admission by Tenant in writing of its inability to
pay its debts as they become due.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any event of
default, Landlord shall have the rig ht to give a written termination
notice to Tenant, and on the date specified in such notice, Tenant's
right to possession shall terminate, and this Lease shall terminate
unless on or before such date all Rent in arrears and all costs and
expenses incurred by or on behalf of Landlord -hereunder shall have
been paid by Tenant and all other events of default of this Lease by
Tenant at the time existing shall have been fully remedied to the
satisfaction of Landlord. At any time after such termination, Landlord
may recover possession of the Premises or any part thereof and expel
and remove therefrom Tenant and any other person occupying the same,
including any subtenant or subtenants notwithstanding Landlord's
consent to any sublease, by any lawful means, and again repossess and
enjoy the Premises without prejudice to any of the remedies that
Landlord may have under this Lease, or at law or equity by any reason
of Tenant's default or of such termination. Landlord hereby reserves
the right, but shall not have the obligation, to recognize the
continued possession of any subtenant. The delivery or surrender to
Landlord by or on behalf of Tenant of keys, entry codes, or other means
to bypass security at the Premises shall not terminate this Lease.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may
have occurred, this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession under
Paragraph 26.B.(I) hereof, and Landlord may enforce all of Landlord's
rights and remedies
<PAGE>
under this Lease and at law or in equity, including without limitation,
the right to recover Rent as it becomes due, and Landlord, without
terminating this Lease, may exercise all of the rights and remedies of
a landlord under Section 1951.4 of the Civil Code of the State of
California or any successor code section. Acts of maintenance,
preservation or efforts to lease the Premises or the appointment of a
receiver under application of Landlord to protect Landlord's interest
under this Lease or other entry by Landlord upon the Premises shall not
constitute an election to terminate Tenant's right to possession.
(3) INCREASED SECURITY DEPOSIT. If Tenant is in default under Paragraph
26.A.(2) hereof and such default remains uncured for thirty (30) days
after such occurrence or such default occurs more than three times in
any twelve (12) month period, Landlord may require that Tenant increase
the Security Deposit to the amount of three times the current month's
Rent at the time of the most recent default.
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to the
provisions of Paragraph 26.B.(I) hereof, Landlord shall have the rights and
remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State
of California, or any successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law or at equity, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) the worth at the time of
award of the amount by which the unpaid Rent and other amounts that would have
been earned after the date of termination until the time of award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably avoided;
(3) the worth at the time of award of the amount by which the unpaid Rent and
other amounts for the balance of the Term after the time of award exceeds the
amount of such Rent loss that the Tenant proves could be reasonably avoided; and
(4) any other amount and court costs necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "worth at the time of award" as used in (1) and (2) above
shall be computed at the Applicable Interest Rate (defined below). The "worth at
the time of award" as used in (3) above shall be computed by discounting such
amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). If this Lease provides for any
periods during the Term during which Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of an
event of default, Tenant shall owe to Landlord the full amount of such Base Rent
or value of such Rent concession, plus interest at the Applicable Interest Rate,
<PAGE>
calculated from the date that such Base Rent or Rent concession would have been
payable.
D. LATE CHARGE. In addition to its other remedies, Landlord shall have the right
without notice or demand to add to the amount of any payment required to be made
by Tenant hereunder, and which is not paid and received by Landlord on or before
the first day of each calendar month, an amount equal to ten percent (10%) of
the delinquency for each month or portion thereof that the delinquency remains
outstanding to compensate Landlord for the loss of the use of the amount not
paid and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
extremely difficult and impracticable to compute and the amount stated herein
represents a reasonable estimate thereof. Any waiver by Landlord of any late
charges or failure to claim the same shall not constitute a waiver of other late
charges or any other remedies available to Landlord. Landlord shall waive late
fee one time per year.
E. INTEREST. Interest shall accrue on all sums not paid when due hereunder at
the lesser of eighteen percent (18%) per annum or the maximum interest rate
allowed by law ("Applicable Interest Rate") from the due date until paid.
F. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of the
parties are cumulative and not alternative, to the extent permitted by law and
except as otherwise provided herein.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from liens
arising out of or related to work or services performed, materials or supplies
furnished or obligations incurred by or on behalf of Tenant or in connection
with work made, suffered or done by or on behalf of Tenant in or on the Premises
or Project. If Tenant shall not, within ten (10) days following the imposition
of any such lien, cause the same to be released of record by payment or posting
of a proper bond, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to cause the same
to be released by such means as Landlord shall deem proper, including payment of
the claim giving rise to such lien. All sums paid by Landlord on behalf of
Tenant and all expenses incurred by Landlord in connection therefor shall be
payable to Landlord by Tenant on demand with interest at the Applicable Interest
Rate as Additional Rent. Landlord shall have the right at all times to post and
keep posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord, the Premises, the
Project and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give Landlord not less
<PAGE>
than ten (10) business days prior written notice of the commencement of any work
in the Premises or Project which could lawfully give rise to a claim for
mechanics' or materiaimen's liens to permit Landlord to post and record a timely
notice of non-responsibility, as Landlord may elect to proceed or as the law may
from time to time provide, for which purpose, if Landlord shall so determine,
Landlord may enter the Premises. Tenant shall not remove any such notice posted
by Landlord without Landlord's consent, and in any event not before completion
of the work which could lawfully give rise to a claim for mechanics' or
materialmen's liens.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express or
implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest. In
such event, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of "Landlord" to be performed after the
passing of title to Landlord's successor-in-interest. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant
with respect to the failure to perform any of the obligations of"Landlord," to
the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the terms of
this Lease shall be performed by Tenant at Tenant's sole cost and expense and
without any abatement of Rent. If Tenant shall fail to pay any sum of money,
other than Base Rent, required to be paid by Tenant hereunder or shall fail to
perform any other act on Tenant's part to be performed hereunder, including
Tenant's obligations under Paragraph 11 hereof, and such failure shall continue
for fifteen (15) days after notice thereof by Landlord, in addition to the other
rights and remedies of Landlord, Landlord may make any such payment and perform
any such act on Tenant's part. In the case of an emergency, no prior
notification by Landlord shall, be required. Landlord may take such actions
without any obligation and without releasing Tenant from any of Tenant's
obligations. All sums so paid by Landlord and all incidental costs incurred by
Landlord and interest thereon at the Applicable Interest Rate, from the date of
payment by Landlord, shall be paid to Landlord on demand as Additional Rent.
<PAGE>
31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant or
condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein, or constitute a course of dealing contrary to the
expressed terms of this Lease. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or decrease the right of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be made by a written
document signed by Landlord, based upon full knowledge of the circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws, ordinances,
regulations and other requirements with reference to sending, mailing, or
delivery of any notice or the making of any payment by Landlord or Tenant to the
other shall be deemed to be complied with when and if the following steps are
taken:
A. RENT. All Rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at Landlord's Remittance Address set
forth in the Basic Lease Information, or at such other address as Landlord may
specify from time to time by written notice delivered in accordance herewith.
Tenant's obligation to pay Rent and any other amounts to Landlord under the
terms of this Lease shall not be deemed satisfied until such Rent and other
amounts have been actually received by Landlord.
B. OTHER. All notices, demands, consents and approvals which may or are required
to be given by either party to the other hereunder shall be in writing and
either personally delivered, sent by commercial overnight courier, mailed,
certified or registered, postage prepaid or sent by facsimile with confirmed
receipt (and with an original sent by commercial overnight courier), and in each
case addressed to the party to be notified at the Notice Address for such party
as specified in the Basic Lease Information or to such other place as the party
to be notified may from time to time designate by at least fifteen (15) days
notice to the notifying party. Notices shall be deemed served upon receipt or
refusal to accept delivery. Tenant appoints as its agent to receive the service
of all default notices and notice of commencement of unlawful detainer
<PAGE>
proceedings the person in charge of or apparently in charge of occupying the
Premises at the time, and, if there is no such person, then such service may be
made by attaching the same on the main entrance of the Premises.
C. REQUIRED NOTICES. Tenant shall immediately notify Landlord in writing of any
notice of a violation or a potential or alleged violation of any Regulation that
relates to the Premises or the Project, or of any inquiry, investigation,
enforcement or other action that is instituted or threatened by any governmental
or regulatory agency against Tenant or any other occupant of the Premises, or
any claim that is instituted or threatened by any third party that relates to
the Premises or the Project.
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, OR the
collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs,
whether incurred at trial, appeal or review. In any action which Landlord or
Tenant brings to enforce its respective rights hereunder, the unsuccessful party
shall pay all costs incurred by the prevailing party including reasonable
attorneys' fees, to be fixed by the court, and said costs and attorneys' fees
shall be a part of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns, and shall be binding upon and inure to the benefit of
Tenant, its successors, and to the extent assignment is approved by Landlord as
provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made impossible by any
prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts
of God, inability to obtain services, labor, or materials or reasonable
substitutes for those items, government actions, civil commotions, fire or other
casualty, or other causes beyond the reasonable control of the party obligated
to perform, performance by that party for a period equal to the period of that
prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent,
however, is not excused by this Paragraph 35.
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36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease, surrender the
Premises to Landlord in the same condition as existed on the date Tenant
originally took possession thereof, including, but not limited to, all interior
walls cleaned, all holes in walls repaired, all carpets shampooed and cleaned,
all HVAC equipment in operating order and in good repair, and all floors
cleaned, waxed, and free of any Tenant-introduced marking or painting, all to
the reasonable satisfaction of Landlord. Tenant shall remove all of its debris
from the Project. At or before the time of surrender, Tenant shall comply with
the terms of Paragraph 12.A. hereof with respect to Alterations to the Premises
and all other matters addressed in such Paragraph. If the Premises are not so
surrendered at the expiration or sooner termination of this Lease, the
provisions of Paragraph 25 hereof shall apply. Al I keys to the Premises or any
part thereof shall be surrendered to Landlord upon expiration or sooner
termination of the Term. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall meet with Landlord for
a joint inspection of the Premises at the time of vacating, but nothing
contained herein shall be construed as an extension of the Term or as a consent
by Landlord ,to any holding over by Tenant. In the event of Tenant's failure to
give such notice or participate in such joint inspection, Landlord's inspection
at or after Tenant's vacating the Premises shall conclusively be deemed correct
for purposes, of determining Tenant's responsibility for repairs and
restoration. Any delay caused by Tenant's failure to carry out its obligations
under this Paragraph 36 beyond the term hereof, shall constitute unlawful and
illegal possession of Premises under Paragraph 25 hereof.
37. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective successors, executors,
administrators and permitted assigns, according to the context hereof.
B. TIME. Time is of the essence regarding this Lease and all of its provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of
the State of California.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and
attachments and the Basic Lease Information, contains all the agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its Exhibits, addenda and
attachments and the Basic Lease Information.
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E. MODIFICATION. This Lease may not be modified except by a written instrument
signed by the parties hereto. Tenant accepts the area of the Premises as
specified in the Basic Lease Information as the approximate area of the Premises
for all purposes under this Lease, and acknowledges and agrees that no other
definition of the area (rentable, usable or otherwise) of the Premises shall
apply. Tenant shall in no event be entitled to a recalculation of the square
footage of the Premises, rentable, usable or otherwise, and no recalculation, if
made, irrespective of its purpose, shall reduce Tenant's obligations under this
Lease in any manner, including without limitation the amount of Base Rent
payable by Tenant or Tenant's Proportionate Share of the Building and of the
Project.
F. SEVERABILITY. If, for any reason whatsoever, any of the provisions hereof
shall be unenforceable or ineffective, all of the other provisions shall be and
remain in full force and effect,
G. RECORDATION. Tenant shall not record this Lease or a short form memorandum
hereof.
H. EXAMINATION of Lease. Submission of this Lease to Tenant does not constitute
an option or offer to lease and this Lease is not effective otherwise until
execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than the
total Rent due nor any endorsement on any check or letter accompanying any check
or payment of Rent shall be deemed an accord and satisfaction of full payment of
Rent, and Landlord may accept such payment without prejudice to Landlord's right
to recover the balance of such Rent or to pursue other remedies. All offers by
or on behalf of Tenant of accord and satisfaction are hereby rejected in
advance.
J. EASEMENTS. Landlord may grant casements on the Project and dedicate for
public use portions of the Project without Tenant's consent; provided that no
such grant of dedication shall materially interfere with Tenant's Permitted Use
of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and
deliver to Landlord documents, instruments, maps and plats necessary to
effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that this
Lease has been agreed to by both the parties, that both Landlord and Tenant have
consulted with attorneys with respect to the terms of this Lease and that no
presumption shall be created against Landlord because Landlord drafted this
Lease. Except as otherwise specifically set forth in this Lease, with respect to
any consent, determination or estimation of Landlord required or allowed in this
Lease or
<PAGE>
requested of Landlord, Landlord's consent, determination or estimation shall be
given or made solely by Landlord in Landlord's good faith opinion, whether or
not objectively reasonable. If Landlord fails to respond to any request for its
consent within the time period, if any, specified in this Lease, Landlord shall
be deemed to have disapproved such request.
L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and
attachments attached hereto are hereby incorporated herein by this reference and
made a part of this Lease as though fully set forth herein.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light, air
or view by any structure which may be erected on lands adjacent to or in the
vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and Tenant
and nothing herein is intended to create any third party benefit.
0. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the observance
and performance of all of the other covenants, terms and conditions on Tenant's
part to he observed anti performed, Tenant shall peaceably and quietly hold and
enjoy the Premises for the term hereby demised without hindrance or interruption
by Landlord or any other person or persons lawfully or equitably claiming by,
through or under Landlord, subject, nevertheless, to all of the other terms and
conditions of this Lease. Landlord shall not be liable for any hindrance,
interruption, interference or disturbance by other tenants or third persons, nor
shall Tenant be released from any obligations under this Lease because of such
hindrance, interruption, interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number ofcounterparts, each
of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein as
Tenant, such multiple parties shall have joint and several responsibility to
comply with the terms of this Lease.
R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant hereunder
for any fractional month shall be prorated based on a month of 30 days. As used
herein, the term "fiscal year" shall mean the calendar year or such other fiscal
year as Landlord may deem appropriate.
38. ADDITIONAL PROVISIONS
A. ADDENDUM 1: PARAGRAPH 6. BASE RENT . Base Rent, net of Estimated Operating
Expenses per Paragraph 7 of this Lease, for
<PAGE>
the Premises at 420 North Bernardo Avenue in Mountain View, California shall be
as follows:
MONTHS 1-12: Base Rent shall be $72,850,00 per month. In addition to
Base Rent, Tenant shall also pay Tenant's proportionate share of
Estimated Operating Expenses as set forth in Paragraph 7 of the Lease
Agreement. Operating Expenses are initially estimated to be $8,678.00
per month. (These are estimations, final values will be available Nov.
1, 1999) Operating Expenses are estimated a year in advance and
collected on a monthly basis. Any adjustments (up or down) will be made
at the end of the calendar year.
MONTHS 13-24: Base Rent shall be $75,764.00 per month. In addition to
Base Rent, Tenant shall also pay Tenant's proportionate share of
Estimated Operating Expenses as set forth in Paragraph 7 of the Lease
Agreement.
MONTHS 25-36: Base Rent shall be $78,795.00 per month. In addition to
Base Rent, Tenant shall also pay Tenant's proportionate share of
Estimated Operating Expenses as set forth in Paragraph 7 of the Lease
Agreement.
MONTHS 37-48: Base Rent shall be $81,946.00 per month. In addition to
Base Rent, Tenant shall also pay Tenant's proportionate share of
Estimated Operating Expenses as set forth in Paragraph 7 of the Lease
Agreement.
MONTHS 49-60: Base Rent shall be $85,224.00 per month. In addition to
Base Rent, Tenant shall also pay Tenant's proportionate share of
Estimated Operating Expenses as set forth in Paragraph 7 of the Lease
Agreement.
B. ADDENDUM 2; OPTION TO RENEW.
OPTION TO RENEW. Tenant shall, provided this Lease is in full force and
effect and Tenant is not and has not been in default under any of the
terms and conditions ofthis Lease, have one (1) successive option(s) to
renew this Lease for a term of five (5) year(s) each, for the Premises
in "as in" condition and on the same terms and conditions set forth in
this Lease, except as modified by the terms, covenants and conditions
set forth below:
(1) If Tenant elects to exercise such option, then Tenant shall provide
Landlord with written notice no later than the date which is 270 days
prior to the expiration of the then current term of this Lease. If
Tenant fails to provide such notice,Tenant shall have no further or
additional right to extend or renew the term of this Lease.
<PAGE>
(2) The Base Rent in effect at the expiration of the then current term
of this Lease shall be increased to reflect the current fair market
rental for comparable space in the Building or Project and in other
similar buildings in the Mountain View rental market as of the date the
renewal term is to commence, taking into account the specific
provisions of this Lease which will remain constant, and the Building
amenities, location, identity, quality, age, conditions, term of lease,
tenant improvements, services provided, and other pertinent items.
(3) Landlord shall advise Tenant of the new Base Rent for the Premises
for the applicable renewal term which will be based on Landlord's
determination of fair market rental value, as well as additional terms
and conditions for the renewal term, no later than fifteen ( 15) days
after receipt of notice of Tenant's exercise of its option to renew.
Tenant shall have forty-five (45) days after receipt of such
notification from Landlord to accept the new Base Rent, terms and
conditions. If Tenant does not accept Landlord's determination of the
new Base Rent, terms and conditions within such forty-five (45) day
period, this option shall be null and void, and Landlord shall have no
further obligation to Tenant and may enter into a lease for the
Premises with a third party on such terms and conditions as Landlord
may determine in its sole discretion.
(4) Notwithstanding anything to the contrary contained in this
Paragraph, in no event shall the Base Rent for any renewal term be less
than the Base Rent in effect at the expiration of the previous term. In
addition, Landlord shall have no obligation to provide or pay for any
tenant improvements or brokerage commissions during any renewal term.
(5) Tenant's right to exercise any option(s) to renew under this
Paragraph shall be conditioned upon Tenant occupying the entire
Premises and the same not being occupied by any assignee, subtenant or
licensee other than Tenant or its affiliate at the time of exercise of
any option and commencement of the renewal term. Tenant's exercise of
any option to renew shall constitute a representation by Tenant to
Landlord that as of the date of exercise of the option and the
commencement of the applicable renewal term, Tenant does not intend to
seek to assign this Lease in whole or in part, or sublet all or any
portion of the Premises.
(6) Any exercise by Tenant of any option to renew under this Paragraph
shall be irrevocable. If requested by Landlord, Tenant agrees to
execute a lease amendment or, at Landlord's option, a new lease
agreement on Landlord's then standard lease form for the Building,
reflecting the foregoing terms and conditions, prior to the
commencement of the renewal term. The option(s) to renew granted tinder
this
<PAGE>
Paragraph is/are not transferable; the parties hereto acknowledge and
agree that they intend that each option to renew this Lease under this
Paragraph shall be "personal" to the specific Tenant named in this
Lease and that in no event will any assignee or sublessee have any
rights to exercise such option(s) to renew.
39. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL
REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY
JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN WHICH
THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE
COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY
MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES,
OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY
STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS
LEASE OR ON TORT LAW, EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO
CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 39. THE
PROVISIONS OF THIS PARAGRAPH 39 SHALL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS LEASE.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ John Petersen
-----------------------------------
John Petersen
Its: Vice President
Date: October 30, 1999
TENANT
PRI Automation,
A Massachusetts corporation
By: /s/ Stephen D. Allison
------------------------------------
Its: CFO
Date: October 22, 1999
<PAGE>
EXHIBIT A
INDUSTRIAL LEASE
RULES AND REGULATIONS
1. Driveways, sidewalks, halls, passages, exits, entrances, elevators,
escalators and stairways shall riot be obstructed by tenants or used by tenants
for any purpose other than for ingress to and egress from their respective
premises. The driveways, sidewalks, halls, passages, exits, entrances, elevators
and stairways are not for the use of the general public and Landlord shall in
all cases retain the right to control and prevent access thereto by all persons
whose presence, in the judgment of Landlord, shall be prejudicial to the safety,
character, reputation and interests of the Building, the Project and its
tenants~ provided that nothing herein contained shall be construed to prevent
such access to persons with whom any tenant normally deals in the ordinary
course of such tenant's business unless such persons are engaged in illegal
activities. No tenant, and no employees or invitees of any tenant, shall go upon
the roof of any Building, except as authorized by Landlord.
2. No sign, placard, banner, picture, name, advertisement or notice,
visible from the exterior of the Premises or the Building or the common areas of
the Building shall be inscribed, painted, affixed, installed or otherwise
displayed by Tenant either on its Premises or any part of the Building or
Project without the prior written consent of Landlord in Landlord's sole and
absolute discretion. Landlord shall have the right to remove any such sign,
placard, banner, picture, name, advertisement, or notice without notice to and
at the expense of Tenant, which were installed or displayed in violation of this
rule. If Landlord shall have given such consent to Tenant at any time, whether
before or after the execution of Tenant's Lease, such consent shall in no way
operate as a waiver or release of any of the provisions hereof or of the Lease,
and shall be deemed to relate only to the particular sign, placard, banner,
picture, name, advertisement or notice so consented to by Landlord and shall not
be construed as dispensing with the necessity of obtaining the specific written
consent of Landlord with respect to any other such sign, placard, banner,
picture, name, advertisement or notice.
All approved signs or lettering on doors and walls shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person or vendor
approved by Landlord and shall be removed by Tenant at the time of vacancy at
Tenant's expense.
3. The directory of the Building or Project will be provided
exclusively for the display of the name and location of tenants only and
Landlord reserves the right to charge for the use thereof and to exclude any
other names therefrom.
<PAGE>
4. All electrical ceiling fixtures hung in offices or spaces along the
perimeter of the Building must be fluorescent or of a quality, type, design, and
bulb color approved by Landlord. No articles shall be placed or kept on the
window sills so as to be visible from the exterior of the Building. No articles
shall be placed against glass partitions or doors which Landlord considers
unsightly from outside Tenant's Premises.
5. Each tenant shall be responsible for all persons for whom it allows
to enter the Building or the Project and shall be liable to Landlord for all
acts of such persons.
Landlord and its agents shall not be liable for damages for any error
concerning the admission to, or exclusion from, the Building or the Project of
any person.
During the continuance of any invasion, mob, riot, public excitement or
other circumstance rendering such action advisable in Landlord's opinion,
Landlord reserves the right (but shall not be obligated) to prevent access to
the Building and the Project during the continuance of that event by any means
it considers appropriate for the safety of tenants and protection of the
Building, property in the Building and the Project.
6. Tenant shall not alter any lock or access device or install a new or
additional lock or access device or bolt on any door of its Premises, without
the prior written consent of Landlord. If Landlord shall give its consent,
Tenant shall in each case furnish Landlord with a key for any such lock. Tenant,
upon the termination of its tenancy, shall deliver to Landlord the keys for all
doors which have been furnished to Tenant, and in the event of loss of any keys
so furnished, shall pay Landlord therefor.
7. The restrooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown into
them. The expense of any breakage, stoppage, or damage resulting from violation
of this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused the breakage, stoppage, or damage.
8. Tenant shall not use or keep in or on the Premises, the Building or
the Project any kerosene, gasoline, or inflammable or combustible fluid or
material except in strict accordance with the terms of the Lease.
9. Tenant shall not use, keep or permit to be used or kept in its
Premises any foul or noxious gas, o( substance. Tenant shall not allow the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors and/or
vibrations or interfere in any way with other tenants or those having business
therein, nor shall any animals or birds be brought or kept in or about the
Premises, the Building, or the Project.
<PAGE>
10. Except with the prior written consent of Landlord, Tenant shall not
sell, or permit the sale, at retail, of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises, nor
shall Tenant carry on, or permit or allow any employee or other person to carry
on, the business of stenography, typewriting or any similar business in or from
the Premises for the service or accommodation of occupants of any other portion
of the Building, or the business of a public barber shop, beauty parlor, nor
shall the Premises be used for any illegal, improper, immoral or objectionable
purpose, or any business or activity other than that specifically provided for
in such Tenant's Lease. Tenant shall not accept hairstyling, barbering,
shoeshine, nail, massage or similar services in the Premises or common areas
except as authorized by Landlord.
11. If Tenant requires telegraphic, telephonic, telecommunications,
data processing, burglar alarm or similar services, it shall first obtain, and
comply with, Landlord's reasonable instructions in their installation. The cost
of purchasing, installation and maintenance of such services shall be home
solely by Tenant.
12. Landlord will direct electricians as to where and how telephone,
telegraph and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of landlord.
The location of burglar alarms, telephones, call boxes and other office
equipment affixed to the Premises shall be subject to the prior written approval
of Landlord.
13. Tenant shall not install any radio or television antenna, satellite
dish, loudspeaker or any other device on the exterior walls or the roof of the
Building, without Landlord's consent. Tenant shall not interfere with radio or
television broadcasting or reception from or in the Building, the Project or
elsewhere.
14. Tenant shall not mark the partitions, woodwork or drywall or in any
way deface the Premises or any part thereof. Tenant shall not lay linoleum,
tile, carpet or any other floor covering so that the same shall be affixed to
the floor of its Premises in any manner except as approved in writing by
Landlord. The expense of repairing any damage resulting from a violation of this
rule or the removal of any floor covering shall be borne by the tenant by whom,
or by whose contractors, employees or invitees, the damage shall have been
caused.
15. Tenant shall not place a load upon any floor of its Premises which
exceeds the load per square foot which such floor was designed to carry or which
is allowed by law.
<PAGE>
Business machines and mechanical equipment belonging to Tenant which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenants in the Building shall be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Building must be acceptable to Landlord.
16. Each tenant shall store all its trash and garbage within the
interior of the Premises or as otherwise directed by Landlord from time to time.
Tenant shall not place in the trash boxes or receptacles any personal trash or
any material that may not or cannot be disposed of in the ordinary and customary
manner of removing and disposing of trash and garbage in the city, without
violation of any law or ordinance governing such disposal.
17. Canvassing, soliciting, distribution of handbills or any other
written material and peddling in the Building and the Project are prohibited and
each tenant shall cooperate to prevent the same. No tenant shall make
room-to-room solicitation of business from other tenants in the Building or the
Project, without the written consent of Landlord.
18. Landlord shall have the right, exercisable without notice and
without liability to any tenant, to change the name and address of the Building
and the Project.
19. Landlord reserves the right to exclude or expel from the Project
any person who, in Landlord's judgment, is under the influence of alcohol or
drugs or who commits any act in violation of any of these Rules and Regulations.
20. Without the prior written consent of Landlord, Tenant shall not use
the name of the Building or the Project or any photograph or other likeness of
the Building or the Project in connection with, or in promoting or advertising,
Tenant's business except that Tenant may include the Building's or Project's
name in Tenant's address.
21. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
22. Tenant assumes any and all responsibility for protecting its
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed.
23. Landlord reserves the right to designate the use of the parking
spaces on the Project. Tenant or Tenant's guests shall park between designated
parking lines only, and shall not
<PAGE>
occupy two parking spaces with one car, NO trucks, truck tractors, trailers or
fifth wheel are allowed to be parked anywhere at any time within the Project
other than in Tenant's own truck dock well. Vehicles in violation of the above
shall be subject to tow-away, at vehicle owner's expense. Vehicles parked on the
Project for more than a week including nights without prior written consent of
the Landlord shall be deemed abandoned and shall be subject to tow-away at
vehicle owner's expense. The parking areas shall not be used to provide car
wash, oil changes, detailing, automotive repair or other services unless
otherwise approved or furnished by Landlord.
24. No Tenant is allowed to unload, unpack, pack or in any way
manipulate any products, materials or goods in the common areas of the Project
including the parking and driveway areas of the Project. All products, goods and
materials must be manipulated, handled, kept, and stored within the Tenant's
Premises and not in any exterior areas, including, but not limited to, exterior
dock platforms, against the exterior of the Building, parking areas and driveway
areas of the Project. Tenant also agrees to keep the exterior of the Premises
clean and free of nails, wood, pallets, packing materials, barrels and any other
debris produced from their operation. All products, materials and goods are to
enter and exit the Premises by being loaded or unloaded through dock high doors
into trucks and or trailers, over dock high loading platforms into trucks and or
trailers or loaded or unloaded into trucks and or trailers within the Premises
through grade level door access.
25. Tenant shall be responsible for the observance of all of the
foregoing Rules and Regulations by Tenant's employees, agents, clients,
customers, invitees and guests.
26. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify, alter or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of any premises in the
Project.
27. Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in favor
of any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all tenants of the Building.
Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety and
security, for care and cleanliness of the Building and the Project and for the
preservation of good order therein. Tenant agrees to abide by all such Rules and
Regulations herein stated and any additional rules and regulations which are
adopted.
<PAGE>
EXHIBIT C
LEASE IMPROVEMENT AGREEMENT
This Lease Improvement Agreement ("Improvement Agreement") sets forth
the terms and conditions relating to construction of the initial tenant
improvements described in the Plans to be prepared and approved as provided
below, excluding Paragraph 1 to be completed by Landlord at Landlord's sole cost
and expense (the "Tenant Improvements") in the Premises. Capitalized terms used
but not otherwise defined herein shall have the meanings set forth in the Lease
(the "Lease") to which this Improvement Agreement is attached and forms a part.
1. Base Building Work. The "Base Building Work" described on Schedule 1 to
this Exhibit C, if any, has been or will be performed by Landlord at Landlord's
sole cost and expense.
2. Plans and Specifications.
2.1 Tenant shall retain the services of Weske and Associates (the
"Space Planner") to prepare a detailed space plan (the "Space Plan") mutually
satisfactory to Landlord and Tenant for the construction of the Tenant
Improvements in the Premises. Tenant shall submit the Space Plan and any
proposed revisions thereto to Landlord for Landlord's approval.
2.2 Based on the approved Space Plan, Tenant shall cause the Space
Planner to prepare detailed plans, specifications and working drawings mutually
satisfactory to Landlord and Tenant for the construction of the Tenant
Improvements (the "Plans"). Landlord and Tenant shall diligently pursue the
preparation of the Plans. Tenant shall submit the Plans and any proposed
revisions thereto, including the estimated cost of the Tenant Improvements. All
necessary revisions to the Space Plan and the Plans shall be made within ten
(10) business days after Landlord's response thereto. This procedure shall be
repeated until Landlord ultimately approves the Space Plan and Plans.
2.3 Tenant shall be responsible for ensuring that the Plans are
compatible with the design, construction and equipment of the Building, comply
with applicable Regulations and the Standards (defined below), and contain ail
such information as may be required to show locations, types and requirements
for all heat loads, people loads, floor loads, power and plumbing, regular and
special HVAC needs, telephone communications, telephone and electrical outlets,
lighting, light fixtures and related power, and electrical and telephone
switches, B.T.U. calculations, electrical requirements and special receptacle
requirements. The Plans shall also include mechanical, electrical, plumbing,
structural and engineering drawings mutually satisfactory to Landlord and Tenant
which shall be prepared by Weske and Associates. Notwithstanding Landlord's
<PAGE>
preparation, review and approval of the Space Plan and the Plans and any
revisions thereto, Landlord shall have no responsibility or liability whatsoever
for any errors or omissions contained in the Space Plan or Plans or any
revisions thereto, or to verify dimensions or conditions, or for the quality,
design or compliance with applicable Regulations of any improvements described
therein or constructed in accordance therewith. Tenant hereby waives all claims
against Landlord relating to, or arising out of the design or construction of,
the Tenant Improvements.
2.4 Landlord's criteria for approvals shall be based on reasonable
criteria established from time to time by Landlord, but Landlord will be deemed
to have acted reasonably if Landlord's disapproval is predicated upon (i) effect
on the structural integrity of the Building, (ii) possible damage to the
Building's mechanical, electrical, plumbing and HVAC systems, (iii)
noncompliance with applicable laws, codes and regulations, (iv) incompatibility
with the base building plans, (v) failure to use materials required by Schedule
2 pertaining to Standards, and (vi) effect on the exterior of the Building or
any of the Building's common areas. Landlord shall not be deemed to have
approved the Space Plan, the Plans, or any proposed revisions thereto, unless
approved by Landlord in writing. Landlord shall approve or disapprove any Space
Plan, Plans or proposed revisions thereto submitted to Landlord for Landlord's
approval within three (3) business days after Landlord's receipt thereof. If
Landlord has not approved in writing any Space Plan, Plans, or proposed
revisions thereto submitted to Landlord within five (5) business days after
Landlord's receipt thereof, Landlord shall be deemed to have disapproved the
same.
3. Specifications for Standard Tenant Improvement .
3.1 Specifications and quantities of standard building components which
will comprise and be used in the construction of the Tenant Improvements
("Standards") are set forth in Schedule 2 to this Exhibit C. As used herein,
"Standards" or "Building Standards" shall mean the standards for a particular
item selected from time to time by Landlord for the Building, including those
set forth on Schedule 2 of this Exhibit C, or such other standards of equal or
better quality as may be mutually agreed between Landlord and Tenant in writing.
3.2 No deviations from the Standards are permitted.
4. Tenant Improvement Cost
4.1 The cost of the Tenant Improvements shall be paid for by Tenant,
including, without limitation, the cost of: Standards; space plans and studies;
architectural and engineering fees; permits; approvals and other governmental
fees; labor, material, equipment and supplies; construction fees and other
amounts payable to contractors or subcontractors; taxes; off-site improvements;
remediation and preparation of the Premises for
<PAGE>
construction of the Tenant Improvements; taxes; filing and recording fees;
premiums for insurance and bonds; attorneys' fees; financing costs; and all
other costs expended or to be expended in tile construction ofthe Tenant
Improvements.
4.2 Provided Tenant is not in default under the Lease, including this
Improvement Agreement, Landlord shall contribute a one-time tenant improvement
allowance not to exceed $31,000.00 ("Tenant Improvement Allowance") toward the
cost of the initial Tenant Improvements. Provided Tenant is not then in default
under the Lease, including this Improvement Agreement, Landlord shall disburse
the Tenant Improvement Allowance to Tenant upon completion of construction of
the Tenant Improvements and expiration of the time for filing of any mechanics'
liens claimed or which might be filed on account of any work- ordered by Tenant
or its contractor or any subcontractor, and upon receipt by Landlord of a
certificate of completion executed by the Space Planner and Tenant's contractor,
and unconditional mechanics' lien releases (which mechanics' lien releases shall
be executed by tile subcontractors, labor suppliers and materialmen in addition
to Tenant's contractor), in each case in form and substance satisfactory to
Landlord, and all appropriate bills and supporting documentation for the work
ordered by Tenant or its contractor or any subcontractor.
4.3 In the event the estimated cost of the design and construction or
tile Tenant Improvements exceeds the Tenant Improvement Allowance, Tenant shall
pay such excess cost to Tenant's contractor. No credit shall be given to Tenant
if the cost of the Tenant Improvements is less than the Tenant Improvement
Allowance.
4.4 If the cost of the Tenant Improvements increases after the Tenant's
approval of the Plans due to the requirements of any governmental agency or
applicable Regulation or for any other reason, Tenant shall pay the amount of
such increase.
4.5 If Tenant requests any change(s) in the Plans after approval of the
estimate of the cost of the Tenant Improvements and any such requested changes
are approved by Landlord in writing in Landlord's sole discretion, Tenant shall
pay the amount of such increase.
5. Construction of Tenant Improvement .
5.1 Within fifteen (15) business days after Tenant's and Landlord's
approval of the Plans including the estimate of the cost of the Tenant
Improvements and Landlord's receipt of payment of any such estimated cost
exceeding the amount of the Tenant Improvement Allowance, Tenant shall cause the
contractor to proceed to secure a building permit and commence construction of
the Tenant Improvements provided that the Building has in Landlord's discretion
reached the stage of construction where it is appropriate to commence
construction of the Tenant Improvements in the Premises.
<PAGE>
5.2 Tenant shall be responsible for obtaining all governmental
approvals to the full extent necessary for the construction and installation of
the Tenant Improvements and for Tenant's occupancy of the Premises, in
compliance with all applicable Regulations. Tenant shall employ Hallmark
Construction as the contractor or such other contractor or contractors as shall
be approved by Landlord in writing to construct the Tenant Improvements in
conformance with the approved Space Plan and Plans. The construction contracts
between Tenant and the approved contractor shall be subject TO Landlord's prior
reasonable approval and shall provide for progress payments. The contractor(s)
shall be duly licensed and Landlord's approval of the contractor(s) shall be
conditioned, among other things, upon the contractor's reputation for quality of
work, timeliness of performance, integrity and Landlord's prior experience with
such contractor.
5.3 Landlord shall not be liable for any direct or indirect damages
suffered by Tenant as a result of delays in construction beyond Landlord's
reasonable control, including, but not limited to, delays due to strikes or
unavailability of materials or labor, or delays caused by Tenant (including
delays by the Space Planner, the contractor or anyone else performing services
on behalf of Landlord or Tenant).
5.4 All work to be performed on the Premises by Tenant or Tenant's
contractor or agents shall be subject TO the following conditions:
(a) Such work shall proceed upon Landlord's written approval of
Tenant's contractor, and public liability and property damage insurance carried
by Tenant's contractor, and shall further be subject to the provisions of
Paragraphs 12 and 27 of the Lease.
(b) All work shall be done in conformity with a valid building
permit when required, a copy of which shall be furnished to Landlord before such
work is commenced, and in any case, all such work, shall be performed in a good
and workmanlike and first-class manner, and in accordance with all applicable
Regulations and the requirements and standards of any insurance underwriting
board, inspection bureau or insurance carrier insuring the Premises pursuant to
the Lease. Notwithstanding any failure by Landlord to object to any such work,
Landlord shall have no responsibility for Tenant's failure to comply with all
applicable Regulations. Tenant shall be responsible for ensuring that
construction and installation of the Tenant Improvements will not affect the
structural integrity of the Building.
(c) If required by Landlord or any lender of Landlord, all work by
Tenant or Tenant's contractor shall be done with union labor in accordance with
all union labor agreements applicable to the trades being employed.
<PAGE>
(d) Landlord or Landlord's agents shall have the right to inspect
the construction of the Tenant Improvements BY Tenant during the progress
thereof. If Landlord shall give notice of faulty construction or any other
deviation from the approved Space Plan or Plans, Tenant shall cause its
contractor to Make corrections promptly. However, neither the privilege herein
granted to Landlord to make such inspections, nor the making of such inspections
by Landlord, shall operate as a waiver of any right of Landlord to require good
and workmanlike construction and improvements erected in accordance with the
approved Space Plan or Plans.
(e) Tenant shall cause its contractor to complete the Tenant
Improvements as soon as reasonably possible but in any event on or before the
Scheduled Term Commencement Date. Failure to complete the Tenant Improvements by
the Scheduled Term Commencement Date will not amount to a default under the
Lease.
(f) Tenant's construction of the Tenant Improvements shall comply
with the following: (i) the Tenant Improvements shall be constructed in strict
accordance with the approved Space Plan or Plans; (ii) Tenant's and its
contractor shall submit schedules of all work relating to the Tenant
Improvements to Landlord for Landlord's approval within ten (10) business days
following the selection of the contractor and the approval of the Plans.
Landlord shall within five (5) business days after receipt thereof inform Tenant
of any changes which are necessary and Tenant's contractor shall adhere to such
corrected schedule; and (iii) Tenant shall abide by all rules made by Landlord
with respect to the use of freight, loading dock, and service elevators, storage
of materials, coordination of work with the contractors of other tenants, and
any other matter in connection with this Improvement Agreement, including,
without limitation, the construction of the Tenant Improvements.
(g) Tenant or Tenant's contractor or agents shall arrange for
necessary utility, hoisting and elevator service with Landlord's contractor and
shall pay such reasonable charges for such services as may be charged by
Tenant's or Landlord's contractor.
(h) Tenant's entry to the Premises for any purpose, including,
without limitation, inspection or performance of Tenant construction by Tenant's
agents, prior to the date Tenant's obligation to pay rent commences shall be
subject to all the terms and conditions of the Lease except the payment of Rent.
Tenant's entry shall mean entry by Tenant, its officers, contractors, licensees,
agents, servants, employees, guests, invitees, or visitors.
<PAGE>
(i) Tenant shall promptly reimburse Landlord upon demand for any
reasonable expense actually incurred by the Landlord by reason of faulty work
done by Tenant or its contractors or by reason of any delays caused by such
work, or by reason of inadequate clean-up.
(j) Tenant hereby indemnifies and holds Landlord harmless with
respect to any and all costs, losses, damages, injuries and liabilities relating
in any way to any act or omission of Tenant or Tenant's contractor or agents, or
anyone directly or indirectly employed by any of them, in connection with the
Tenant Improvements and any breach of Tenant's obligations under this
Improvement Agreement, or in connection with Tenant's non-payment of any amount
arising out of the Tenant Improvements. Such indemnity by Tenant, as set forth
above, shall also apply with respect to any and all costs, losses, damages,
injuries, and liabilities related in any way to Landlord's performance or any
ministerial acts reasonably necessary (i) to permit Tenant to complete the
Tenant Improvements, and (ii) to enable Tenant to obtain any building permit or
certificate of occupancy for the Premises.
(k) Tenant's contractor and the subcontractors utilized by Tenant's
contractor shall guarantee to Tenant and for the benefit of Landlord that the
portion of the Tenant Improvements for which it is responsible shall be free
from any defects in workmanship and materials for a period of not less than one
(1) year from the date of completion thereof. Each of Tenant's contractor and
the subcontractors utilized by Tenant's contractor shall be responsible for the
replacement or repair, without additional charge, of all work done or furnished
in accordance with its contract that shall become defective within one (1) year
after the later to occur of(i) completion of the work performed by such
contractor of subcontractors and (ii) the Term Commencement Date. The correction
of such work shall include, without additional charge, all additional expenses
and damages incurred in connection with such removal or replacement of all or
any part of the Tenant Improvements, and/or the Building and/or common areas
that may be damaged or disturbed thereby. All such warranties or guarantees as
to materials or workmanship of or with respect to the Tenant Improvements shall
be contained in the construction contract or subcontract and shall be written
such that such guarantees or warranties shall inure to the benefit of both
Landlord and Tenant, as their respective interests may appear, and can be
directly enforced by either. Tenant covenants to give to Landlord any assignment
or other assurances which may be necessary to effect such rights of direct
enforcement.
(1) Commencing upon the execution of the Lease, Tenant shall hold
weekly meetings at a reasonable time with the Space Planner and the contractor
regarding the progress of the preparation of the Plans and the construction of
the Tenant Improvements, which meetings shall be held at a location designated
by Tenant, and Landlord and/or its agents shall
<PAGE>
receive prior notice of, and shall have the right to attend, all such meetings,
and upon Landlord's request, certain of Tenant's contractors shall attend such
meetings. One such meeting each month shall include the review of contractor's
current request for payment.
6. Insurance Requirements.
6.1 All of Tenant's contractors shall carry worker's compensation
insurance covering all of their respective employees, and shall also carry
public liability insurance, including property damage, all with limits, in form
and with companies as are required to be carried by Tenant as set forth in
Exhibit D to the Lease.
6.2 Tenant shall carry "Builder's All Risk" insurance in an amount
approved by Landlord covering the construction of the Tenant Improvements, and
such other insurance as Landlord may require, it being understood and agreed
that the Tenant Improvements shall be insured by Tenant pursuant to Exhibit D to
the Lease immediately upon completion thereof. Such insurance shall be in
amounts and shall include such extended coverage endorsements as may be
reasonably required by Landlord including, but not limited to, the requirement
that all of Tenant's contractors shall carry excess liability and Products and
Completed Operation coverage insurance, each in amounts not less than, $500,000
per incident, $1,000,000 in aggregate, and in form and with companies as are
required to be carried by Tenant as set forth in Exhibit D to the Lease.
6.3 Certificates for all insurance carried pursuant to this Improvement
Agreement must comply with the requirements of Exhibit D to the Lease and shall
be delivered to Landlord before the commencement of construction of the Tenant
Improvements and before the contractor's equipment is moved onto the site. In
the event the Tenant Improvements are damaged by any cause during the course of
the construction thereof, Tenant shall immediately repair the same at Tenant's
sole cost and expense. Tenant's contractors shall maintain all of the foregoing
insurance coverage in force until the Tenant Improvements are fully completed
and accepted by Landlord, except for any Product and Completed Operation
Coverage insurance required by Landlord, which is to be maintained for ten (10)
years following completion of the work and acceptance by Landlord and Tenant.
All policies carried under this Paragraph 6 shall insure Landlord and Tenant, as
their interests may appear, as well as the contractors. All insurance maintained
by Tenant's contractors shall preclude subrogation claims by the insurer against
anyone insured thereunder. Such insurance shall provide that it is primary
insurance as respects the owner and that any other insurance maintained by owner
is excess and noncontributing with the insurance required hereunder. Landlord
may, in its discretion, require Tenant to obtain a lien and completion bond or
some
<PAGE>
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of the Tenant Improvements and naming Landlord
as a co-obligee.
7. Completion and Rental Commencement Date
7.1 Tenant's obligation to pay Rent under the Lease shall commence on
the Scheduled Term Commencement Date and the Scheduled Term Commencement Date
shall be the Tenn Commencement Date notwithstanding anything to the contrary
contained in, Paragraph 3 of the Lease. However, Landlord Delays (as defined
below) shall extend the Term Commencement Date, but only in the event that
substantial completion of the Tenant Improvements is delayed despite Tenant's
reasonable efforts to adapt and compensate for such delays. In addition, no
Landlord Delays shall be deemed to have occurred unless Tenant has provided
notice, in compliance with the Lease, to Landlord specifying that a delay shall
be deemed to have occurred because of actions, inactions or circumstances
specified in the notice in reasonable detail. If such actions, inactions or
circumstances are not cured by Landlord within one (1) business day after
receipt of such notice ("Count Date"), and if such actions, inaction or
circumstances otherwise qualify as a Landlord Delay, then a Landlord Delay shall
be deemed to have occurred commencing as of the Count Date. The Term
Commencement Date shall be extended by one day for each day from the Count Date
that a Landlord Delay has occurred, as calculated as provided above. The term
"Landlord Delays," as such term may be used in this Improvement Agreement, shall
mean any delays in the completion of the Tenant Improvements which are due to
any act or omission of Landlord, its agents or contractors. Landlord Delays
shall include, but shall not be limited to: (i) delays in the giving of
authorizations or approvals by Landlord, (ii) delays due to the acts or failures
to act, of Landlord, its agents or contractors, where such acts or failures to
act delay the completion of the Tenant Improvements, provided that Tenant acts
in a commercially reasonable manner to mitigate any such delay, (iii) delays due
to the interference of Landlord, its agents or contractors with the completion
of the Tenant Improvements or the failure or refusal of any party to permit
Tenant, its agents and contractors, access to and use of the Building or any
Building facilities or services, including elevators and loading docks, which
access and use are necessary to complete the Tenant Improvements, and (iv)
delays due to Landlord's failure to allow Tenant sufficient access to the
Building and/or the Premises during Tenant's move into the Premises.
7.2 Within ten (10) days after completion of construction of the Tenant
Improvements, Tenant shall cause a Notice of Completion to be recorded in the
office of the Recorder of the county in which the Building is located in
accordance with Section 3093 of the Civil Code of the State of California or
any successor statute, and shall furnish a copy thereof to Landlord
<PAGE>
upon such recordation. If Tenant fails to do so, Landlord may execute and file
the same on behalf of Tenant as Tenant's agent for such purpose, at Tenant's
sole cost and expense. At the conclusion of construction, (i) Tenant shall cause
the Space Planner and the contractor (i) to update the approved working drawings
as necessary to reflect all changes made to the approved working drawings during
the course of construction, (ii) to certify to the best of their knowledge that
the "record-set" of as-built drawings are true and correct, which certification
shall survive the expiration or termination of' the Lease, and (c) to deliver to
Landlord two (2) sets of copies of such record set of drawings within ninety
(90) days following issuance of certificate of occupancy for the Premises, and
(iii) Tenant shall deliver to Landlord a copy of all warranties, guarantees, and
operating manuals and information relating to the improvements, equipment, and
systems in the Premises.
7.3 A default under this Improvement Agreement shall constitute a
default under the Lease, and the parties shall be entitled to all rights and
remedies under the Lease in the event of a default hereunder by the other party
(notwithstanding that the Term thereof has not commenced).
<PAGE>
7.4 Without limiting the "as-is" provisions of the Lease, except for
the Tenant Improvements, if any, to be constructed by Landlord pursuant to this
Improvement Agreement, Tenant accepts the Premises in its "as-is" condition and
acknowledges that it has had an opportunity to inspect the Premises prior to
signing the Lease.
7.5 Tenant's contractor shall be permitted to enter the premises for
the purpose of performing the Tenant Improvement work before the Scheduled
Commencement Date, so long as such entry does not interfere with the Landlord's
construction.
<PAGE>
SCHEDULE 1
TO EXHIBIT C
BASE BUILDING WORK
Landlord shall provide at Landlord's sole expense:
1. Demolition of current improvements at the premises.
2. The initial Tenant space plan session with architect and one revision of
space plan.
3. A new 2 x 4 non-directional ceiling grid suspended at 10 feet.
4. A new 4-ply built up mineral cap sheet roof membrane (rosin sheet, base
sheet, 4-ply tack sheet and a cap sheet).
5. 73 torts of new HVAC equipment using 10 gas/electric packaged units and 2
exhaust systems.
6. A conference room per Landlord's general plan (see Exhibit B).
7. A refurbished lobby, includes; paint and new tile to be determined with
Tenant's input.
8. Upgraded restroom cores to include new fixtures and tile.
9. An employee lunchroom equipped with sink and cabinets per Landlord's
general plan and new VCT (see Exhibit 13), material to be agreed upon with
Tenant.
10. A coffee bar with sink.
11. Paint and a 28oz level loop or cut-pile carpet, colors to be determined
with input of Tenant.
12. Lighting - 2x4 standard prismatic lens fixtures with 40 feet of candle of
illumination.
<PAGE>
SCHEDULE 2
TO EXHIBIT C
BUILDING STANDARDS
The following constitutes the Building Standard tenant improvements
("Standards") in the quantities specified: The following constitutes the
Building Standard tenant improvements ("Standards") in the quantities specified:
all construction will be performed in a good workmanlike manner. All completed
work and finishes shall attain the same or higher degree of quality as the
existing interiors.
<PAGE>
FIRST AMENDMENT
This First Amendment to Lease is made effective this Twenty-eighth day
of October, 1999, by and between Spieker Properties, L.P., a California limited
partnership, ("Landlord"), and PRI Automation Inc., a Massachusetts corporation,
("Tenant") for that approximately 31,000 square at 420 North Bernardo Avenue,
Mountain View, California.
RECITALS
A. Landlord and Tenant have entered into that certain Lease dated
October 22, 1999, for the Premises located at 420 North Bernardo Avenue,
Mountain View, California, and made subject to the terms and conditions of that
Lease. Unless expressly defined herein, all capitalized terms and conditions
used in this First Amendment to Lease shall have the same meaning ascribed to
them in the Lease.
B. Tenant wishes to alter the Site Plan (Exhibit B) to change the
location of the main restroom core to approximately the center of the 420 North
Bernardo Avenue Premises, (completed plan to be attached) this is subject to the
terms and conditions indicated below.
C. Landlord wishes to consent to Tenant's changing of the main restroom
core location in the 420 North Bernardo Avenue Premises, which is subject to the
terms and conditions indicated below.
AGREEMENT
NOW THEREFORE, Landlord and Tenant hereby agree as follows:
SCHEDULED TERM
COMMENCEMENT: The commencement of this Lease shall remain February 1, 2000.
POSSESSION: Paragraph 2B, as it relates to the construction of
improvements by Landlord, shall be altered to read, if
Landlord is unable to deliver the Premises by May 1, 2000, not
including improvements to be constructed by Tenant, Tenant
shall have the right to terminate the Lease by noticing
Landlord in writing. The date which Landlord shall have to
deliver the Premise shall be extended beyond May 1, 2000
should there be any construction delays caused by Tenant.
All other terms and conditions of the Lease Agreement shall remain in full force
and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this First
Amendment to Lease as evidenced by their signature below.
SPIEKER PROPERTIES, L.P., PRI AUTOMATION, INC.
a California limited partnership a Massachusetts corporation
By: Spieker Properties
a Maryland corporation
Its: General Partner
By: By: /s/ Stephen D. Allison
------------------------------ -------------------------
Joseph D. Russell, Jr.
Its: President, Silicon Valley Its: CFO
Date: Date: 11/3/99
------------------------- -------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000927362
<NAME> PRI AUTOMATION, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> JAN-02-2000
<CASH> 45,164
<SECURITIES> 0
<RECEIVABLES> 39,703
<ALLOWANCES> 2,227
<INVENTORY> 28,924
<CURRENT-ASSETS> 131,785
<PP&E> 45,887
<DEPRECIATION> 26,384
<TOTAL-ASSETS> 153,568
<CURRENT-LIABILITIES> 44,484
<BONDS> 0
0
0
<COMMON> 228
<OTHER-SE> 107,631
<TOTAL-LIABILITY-AND-EQUITY> 153,568
<SALES> 49,163
<TOTAL-REVENUES> 58,693
<CGS> 31,259
<TOTAL-COSTS> 37,315
<OTHER-EXPENSES> 21,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 404
<INCOME-TAX> 110
<INCOME-CONTINUING> 294
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<CIK> 0000927362
<NAME> PRI AUTOMATION, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-27-1998
<CASH> 49,736
<SECURITIES> 0
<RECEIVABLES> 37,987
<ALLOWANCES> 3,305
<INVENTORY> 22,621
<CURRENT-ASSETS> 132,391
<PP&E> 39,048
<DEPRECIATION> (19,556)
<TOTAL-ASSETS> 155,884
<CURRENT-LIABILITIES> 38,221
<BONDS> 0
0
0
<COMMON> 213
<OTHER-SE> 115,982
<TOTAL-LIABILITY-AND-EQUITY> 155,884
<SALES> 20,717
<TOTAL-REVENUES> 29,635
<CGS> 15,766
<TOTAL-COSTS> 20,145
<OTHER-EXPENSES> 20,664<F1>
<LOSS-PROVISION> 54
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (10,604)
<INCOME-TAX> (2,949)
<INCOME-CONTINUING> (7,655)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,655)
<EPS-BASIC> (0.36)
<EPS-DILUTED> (0.36)
<FN>
<F1>Includes $650 of special charges
</FN>
</TABLE>
