UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
--------------- ----------------
Commission File Number 0-25236
M I C R E L, I N C O R P O R A T E D
(Exact name of Registrant as specified in its charter)
California 94-2526744
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1849 Fortune Drive, San Jose, CA 95131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 944-0800
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 [ ]
As of April 30, 2000 there were 41,970,714 shares of common stock, no par
value, outstanding.
<PAGE>
MICREL, INCORPORATED
INDEX TO
REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 2000
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Condensed Consolidated Income Statements -
Three Months Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MICREL, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
March 31, December 31,
2000 1999 (1)
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,689 $ 15,360
Short-term investments 47,475 36,337
Accounts receivable, net 43,990 39,472
Inventories 21,616 23,851
Other current assets 1,794 1,108
Deferred income taxes 12,592 11,388
---------- ----------
Total current assets 141,156 127,516
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET 72,655 67,162
INTANGIBLE ASSETS, NET 7,399 7,933
OTHER ASSETS 464 483
---------- ----------
TOTAL $ 221,674 $ 203,094
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,295 $ 11,241
Income taxes payable 10,963 12,230
Deferred income on shipments to distributors 9,254 6,541
Other current liabilities 9,849 8,666
Current portion of long-term debt 5,170 5,132
---------- ----------
Total current liabilities 41,531 43,810
LONG-TERM DEBT 7,549 8,854
OTHER LONG-TERM OBLIGATIONS 1,408 1,761
SHAREHOLDERS' EQUITY:
Preferred stock, no par value -
authorized: 5,000,000 shares;
issued and outstanding: none -- --
Common stock, no par value -
authorized: 100,000,000 shares;
issued and outstanding:
2000 - 41,789,236; 1999 - 41,417,576 60,275 51,954
Accumulated other comprehensive income (loss) (23) 15
Retained earnings 110,934 96,700
---------- ----------
Total shareholders' equity 171,186 148,669
---------- ----------
TOTAL $ 221,674 $ 203,094
========== ==========
(1) Derived from the December 31, 1999 audited balance sheet included in the
1999 Annual Report on Form 10-K of Micrel, Incorporated
See notes to condensed consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
MICREL, INCORPORATED
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
NET REVENUES $ 67,313 $ 40,571
COST OF REVENUES 29,145 17,945
---------- ----------
GROSS PROFIT 38,168 22,626
OPERATING EXPENSES:
Research and development 8,230 5,818
Selling, general and administrative 9,306 5,821
---------- ----------
Total operating expenses 17,536 11,639
---------- ----------
INCOME FROM OPERATIONS 20,632 10,987
OTHER INCOME (LOSS), NET 612 (4)
---------- ----------
INCOME BEFORE INCOME TAXES 21,244 10,983
PROVISION FOR INCOME TAXES 7,010 3,624
---------- ----------
NET INCOME $ 14,234 $ 7,359
========== ==========
NET INCOME PER SHARE:
Basic $ 0.34 $ 0.18
========== ==========
Diluted $ 0.30 $ 0.17
========== ==========
SHARES USED IN COMPUTING PER
SHARE AMOUNTS:
Basic 41,603 40,290
========== ==========
Diluted 47,132 43,830
========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
MICREL, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 17,947 $ 10,175
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (10,942) (5,655)
Purchases of short-term investments (38,816) (14,919)
Proceeds from sales and maturities of short-term
investments 27,640 15,000
---------- ----------
Net cash used in investing activities (22,118) (5,574)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (1,267) (1,547)
Proceeds from the issuance of common stock, net 3,767 822
---------- ----------
Net cash provided by (used in) financing
activities 2,500 (725)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,671) 3,876
CASH AND CASH EQUIVALENTS - Beginning of period 15,360 13,415
---------- ----------
CASH AND CASH EQUIVALENTS - End of period $ 13,689 $ 17,291
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 284 $ 394
========== ==========
Cash paid for income taxes $ 5,230 $ 577
========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
MICREL, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited
1. SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information - The accompanying condensed consolidated
financial statements of Micrel, Incorporated and its wholly-owned subsidiaries
("Micrel" or the "Company") as of March 31, 2000 and for the quarter ended
March 31, 2000 and 1999 are unaudited. In the opinion of management, the
condensed consolidated financial statements include all adjustments
(consisting only of normal recurring accruals) that management considers
necessary for a fair presentation of its financial position, operating results
and cash flows for the interim periods presented. Operating results and cash
flows for interim periods are not necessarily indicative of results for the
entire year.
This financial data should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
Net Income per Common and Equivalent Share - Basic net income per share is
computed by dividing net income by the number of weighted average common
shares outstanding. Diluted net income per share reflects potential dilution
from outstanding stock options using the treasury stock method.
Reconciliation of weighted average shares used in computing net income per
share is as follows (in thousands):
<TABLE>
Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Weighted average common shares outstanding 41,603 40,290
Dilutive effect of stock options outstanding using
the treasury stock method 5,529 3,540
---------- ----------
Shares used in computing diluted net income
per share 47,132 43,830
========== ==========
</TABLE>
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
March 31, December 31,
2000 1999 (1)
---------- ------------
<S> <C> <C>
Finished goods $ 5,297 $ 5,958
Work in process 14,457 16,125
Raw materials 1,862 1,768
---------- ----------
$ 21,616 $ 23,851
========== ==========
</TABLE>
3. BORROWING ARRANGEMENTS
Under a revolving line of credit and security agreement, the Company can
borrow up to 80% of its eligible accounts receivable to a maximum of $5.0
million. Borrowings under the line of credit agreement bear interest rates of,
at the Company's election, the prime rate (9.0% at March 31, 2000) or the
bank's offshore rate, which approximates LIBOR (6.29% at March 31, 2000) plus
2.0. There were no borrowings under this revolving line of credit at March 31,
2000.
6
<PAGE>
MICREL, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited
Under the same security agreement, the Company has a non-revolving bank line
of credit of $40.0 million for funding purchases of capital equipment under
which the Company may borrow up to 100% of the cost of such equipment. Amounts
borrowed under this credit line are converted to four-year installment notes.
All equipment notes are collateralized by substantially all of the Company's
manufacturing equipment and bear interest rates of, at the Company's election,
the prime rate (9.0% at March 31, 2000), the banks non-revolving offshore
rate, which approximates LIBOR (6.29% at March 31, 2000) plus 2.13%, a fixed
rate based on the four-year U.S. Treasury Bill rate (6.35% at March 31, 2000)
plus 2.75% or an annual adjustable rate based on the one-year U.S. Treasury
Bill rate (6.23% at March 31, 2000) plus 2.75%. There were no borrowings under
this non-revolving line of credit at March 31, 2000.
The two lines of credit are covered by the same loan and security agreement,
which expires April 30, 2001 subject to automatic renewal on a month to month
basis thereafter unless terminated by either party upon 30 days notice.
The agreements contain certain restrictive covenants that include a
restriction on the declaration and payment of dividends without the lender's
consent. The Company was in compliance with all such covenants at March 31,
2000.
4. SIGNIFICANT CUSTOMERS
During the quarter ended March 31, 2000, three customers accounted for $9.1
million (13.5%), $8.3 million (12.3%) and $7.7 million (11.4%) of net
revenues, respectively. During the quarter ended March 31, 1999, no single
customer accounted for 10% or more of net revenues.
5. COMPREHENSIVE INCOME
Comprehensive income, which was comprised of the Company's net income for the
periods and changes in unrealized gains or losses on investments, was $14.2
million and $7.4 million for the quarter ended March 31, 2000 and 1999,
respectively.
6. SEGMENT REPORTING
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major
customers. The Company operates under two reportable segments, standard
products and custom and foundry products.
7
<PAGE>
MICREL, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited
<TABLE>
<CAPTION>
Net Revenues by Segment
(Dollars in thousands)
Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net Revenues:
Standard Products $ 48,701 $ 31,461
Custom and Foundry Products 18,612 9,110
---------- ----------
Total net revenues $ 67,313 $ 40,571
========== ==========
As a Percentage of Total Net Revenues:
Standard Products 72% 78%
Custom and Foundry Products 28 22
---------- ----------
Total net revenues 100% 100%
========== ==========
</TABLE>
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. Adoption of this statement is not
expected to materially impact the Company's consolidated financial position,
results of operations or cash flows. The Company is required to adopt this
statement in the first quarter of fiscal year 2001, with early adoption
permitted.
8. SUBSEQUENT EVENT
On April 13, 2000, the Company completed the acquisition of Electronic
Technology Corporation ("ETC"), a privately held provider of power management
and mixed signal products for the portable computing, communications and
automotive markets. Under the terms of the merger agreement, the Company
issued 76,120 shares of common stock in exchange for the outstanding shares of
capital stock of ETC. The transaction is intended to be accounted for as a
pooling of interests and to qualify as a tax-free reorganization.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Micrel designs, develops, manufactures and markets a range of high performance
standard analog, high-speed mixed-signal and digital integrated circuits.
These circuits are used in a wide variety of electronics products, including
those in the telecommunications, computer, industrial, and high bandwidth
communications markets. In addition to standard products, the Company
manufactures custom analog and mixed-signal circuits and provides wafer
foundry services.
The Company derives a substantial portion of its net revenues from standard
products. Standard products sales represented 72% of net revenues for the
quarter ended March 31, 2000 as compared to 78% for the similar period in the
prior year. The Company believes that a substantial portion of its net
revenues in the future will depend upon standard products sales, although such
sales as a proportion of net revenues may vary as the Company adjusts product
output levels to correspond with varying economic conditions and demand levels
in the markets which it serves. The standard products business is
characterized by short-term orders and shipment schedules, and customer orders
typically can be canceled or rescheduled without significant penalty to the
customer. Since most standard products backlog is cancelable without
significant penalty, the Company typically plans its production and inventory
levels based on internal forecasts of customer demand, which is highly
unpredictable and can fluctuate substantially. In addition, the Company is
limited in its ability to reduce costs quickly in response to any revenue
shortfalls.
The Company may experience significant fluctuations in its results of
operations. Factors that affect the Company's results of operations include
the volume and timing of orders received, changes in the mix of products sold,
competitive pricing pressures, the successful development of new products, and
the Company's ability to ramp up manufacturing capacity to meet increasing
demand. As a result of the foregoing or other factors, there can be no
assurance that the Company will not experience material fluctuations in future
operating results on a quarterly or annual basis, which could materially and
adversely affect the Company's business, financial condition, results of
operations or cash flows.
Results of Operations
The following table sets forth certain operating data as a percentage of total
net revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of revenues 43.3 44.2
---------- ----------
Gross profit 56.7 55.8
---------- ----------
Operating expenses:
Research and development 12.2 14.3
Selling, general and administrative 13.8 14.4
---------- ----------
Total operating expenses 26.0 28.7
---------- ----------
Income from operations 30.7 27.1
Other income (loss), net 0.9 0.0
---------- ----------
Income before income taxes 31.6 27.1
Provision for income taxes 10.5 9.0
---------- ----------
Net income 21.1% 18.1%
========== ==========
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Net Revenues. Net revenues increased 66% to $67.3 million for the quarter
ended March 31, 2000 from $40.6 million for the same period in 1999. Standard
products revenues increased 55% to $48.7 million representing 72% of net
revenues for the quarter ended March 31, 1999 from $31.5 million or 78% of net
revenues for the quarter ended March 31, 1999. Such increases resulted from
increased unit shipments combined with an increase in average selling prices.
Sales of standard products by the Company during the quarter were led by low
dropout regulators, high bandwidth communications products and computer
peripheral products. Such products were sold to manufacturers within the
telecommunications, computer, industrial, and high bandwidth communications
markets. Custom and foundry products revenues increased 104% to $18.6 million
representing 28% of net revenues for the quarter ended March 31, 2000 from
$9.1 million or 22% of net revenues for the comparable period in 1999. Such
increases were due primarily to increased sales of custom high bandwidth
communications products and to a lesser extent increased foundry sales.
The Company believes that pricing pressures that were prevalent during 1998
and the first half of 1999 have lessened as customers have become more
concerned about product availability. Increasing end customer demand during
the second half of 1999 and the first quarter of 2000 has resulted in capacity
constraints and increasing order lead times for semiconductor suppliers in
general. During the first quarter of 2000, standard product customer lead
times increased as compared to the same period in 1999, but customer demand
continues to be short-term focused. These factors limit forward visibility
and affect the Company's ability to predict future sales levels and
profitability.
International sales represented 42% and 47% of net revenues for the quarters
ended March 31, 2000 and 1999, respectively. On a dollar basis, international
sales increased 49% to $28.4 million for the quarter ended March 31, 2000 from
$19.0 million for the comparable period in 1999. The dollar basis increase in
international sales resulted from shipments to manufacturers of personal
computers and communications products primarily in Asia and Europe.
The Company's international sales are denominated in U.S. currency.
Consequently, changes in exchange rates that strengthen the U.S. dollar could
increase the price in local currencies of the Company's products in foreign
markets and make the Company's products relatively more expensive than
competitors' products that are denominated in local currencies, leading to a
reduction in sales or profitability in those foreign markets. The Company has
not taken any protective measures against exchange rate fluctuations, such as
purchasing hedging instruments with respect to such fluctuations.
The Company defers recognition of revenue derived from sales to domestic,
Canadian, and certain other international distributors until such distributors
resell the Company's products to their customers. Sales to stocking
representatives and O.E.M. customers are recognized upon shipment. The Company
estimates returns and warranty costs and provides an allowance as revenue is
recognized.
Gross Profit. Gross profit is affected by the volume of product sales, product
mix, manufacturing utilization, product yields and average selling prices. The
Company's gross margin increased to 57% for the quarter ended March 31, 2000
from 56% for the comparable period in the prior year. The improvement in gross
margin reflected an increase in manufacturing efficiency due to greater
capacity utilization.
Manufacturing yields, which affect gross margin, may from time to time decline
because the fabrication of integrated circuits is a highly complex and precise
process. Factors such as minute impurities and difficulties in the fabrication
process can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be nonfunctional. There can be no assurance that
the Company in general will be able to maintain acceptable manufacturing
yields in the future.
Research and Development Expenses. Research and development expenses include
costs associated with the development of new processes and the definition,
design and development of new products. The Company also expenses prototype
wafers and new production mask sets related to new products as research and
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
development costs until products based on new designs are fully characterized
by the Company and are demonstrated to support published data sheets and
satisfy reliability tests.
As a percentage of net revenues, research and development expenses represented
12% and 14% for the quarters ended March 31, 2000 and 1999, respectively. On
a dollar basis, research and development expenses increased $2.4 million or
41% to $8.2 million for the quarter ended March 31, 2000 from $5.8 million for
the comparable period in 1999. The dollar increase was primarily due to
increased engineering staffing costs and increased prototype material costs.
The Company believes that the development and introduction of new products is
critical to its future success and expects that research and development
expenses will increase on a dollar basis in the future.
Selling, General and Administrative Expenses. As a percentage of net revenues,
selling, general and administrative expenses represented 14% for each of the
quarters ended March 31, 2000 and 1999, respectively. On a dollar basis,
selling, general and administrative expenses increased $3.5 million or 60% to
$9.3 million for the quarter ended March 31, 2000 from $5.8 million for the
comparable period in 1999. The dollar increase was principally attributable
to increased commissions and staffing costs associated with the growth of the
Company's revenues, increased legal costs, and increased profit sharing
accruals to promote personnel retention. The Company expects that selling,
general and administrative expenses will increase on a dollar basis in the
future.
Other Income (Loss), Net. Other income (loss), net reflects interest income
from investments in short-term investment grade securities offset by interest
expense incurred on line of credit borrowings and term notes. Other income
(loss), net increased $616,000 to a net income of $614,000 for the quarter
ended March 31, 2000 from a net loss of $4,000 for the comparable period in
1999. The increase was primarily due to an increase in average cash and
investment balances.
Provision for Income Taxes. For the quarters ended March 31, 2000 and 1999,
the provision for income taxes was 33% of income before taxes. The income tax
provision for such interim periods reflects the Company's estimated annual
income tax rate.
Acquisition of Electronic Technology Corporation. On April 13, 2000, the
Company completed the acquisition of ETC, a privately held provider of power
management and mixed signal products for the portable computing,
communications and automotive markets. Under the terms of the merger
agreement, the Company issued 76,120 shares of common stock in exchange for
the outstanding shares of capital stock of ETC. The transaction is intended to
be accounted for as a pooling of interests and to qualify as a tax-free
reorganization.
Liquidity and Capital Resources
Since inception, the Company's principal sources of funding have been its cash
from operations, bank borrowings and sales of common stock. Principal sources
of liquidity at March 31, 2000 consisted of cash and short-term investments of
$61.2 million and bank borrowing arrangements. Borrowing agreements consisted
of (i) $5.0 million under a revolving line of credit, of which all was unused
and available at March 31, 2000, and (ii) $40.0 million under a non-revolving
line of credit, of which all was unused and available at March 31, 2000. The
two lines of credit are covered by the same loan and security agreement. This
agreement expires on April 30, 2001 subject to automatic renewal on a month-
to-month basis thereafter unless terminated by either party upon 30 days
notice. The agreement contains certain restrictive covenants that include a
restriction on the declaration and payment of dividends without the lender's
consent. The Company was in compliance with all such covenants at March 31,
2000. (see Note 3 of Notes to Condensed Consolidated Financial Statements
contained in Item 1)
As of March 31, 2000, the Company had $12.7 million outstanding under term
notes that are collateralized by the equipment purchased.
The Company's working capital increased by $15.9. million to $99.6 million as
of March 31, 2000 from $83.7 million as of December 31, 1999. The increase was
primarily attributable to a $9.5 million increase in cash, cash equivalents
and short-term investments, $4.5 million increase in accounts receivable,
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
combined with a $4.9 million decrease in accounts payable, which were
partially offset by a $2.7 million increase in deferred income on shipments to
distributors.
The Company's cash flows from operating activities increased to $17.9 million
for the quarter ended March 31, 2000 from $10.2 million for the comparable
period in the prior year. The cash flows from operating activities generated
by the Company in the quarter ended March 31, 2000 were primarily attributable
to net income of $18.7 million after adding back non-cash activities combined
with an increase in income taxes payable of $3.3 million after adding back the
tax benefit from employee stock transactions, an increase in deferred income
on shipments to distributors of $2.7 million, and a decrease in inventories of
$2.2 million, which were partially offset by a decrease in accounts payable of
$4.9 million and an increase in accounts receivable of $4.5 million.
The Company's investing activities during the quarter ended March 31, 2000
used cash of $22.1 million as compared to $5.6 million of cash used for
investing activities during the comparable period in the prior year. Cash used
for investing activities during the quarter ended March 31, 2000 resulted from
net purchases of short-term investments of $11.2 million and net purchases of
property, plant and equipment of $10.9 million primarily for wafer fab and
testing equipment to increase production capacity..
The Company's financing activities during the quarter ended March 31, 2000
provided cash of $2.5 million as compared to cash used of $700,000 during the
comparable period in the prior year. Cash provided by financing activities
during the quarter ended March 31, 2000 was the result of $3.8 million in
proceeds from the issuance of common stock through the exercise of employee
stock options, which was partially offset by $1.3 million in repayments of
long-term debt.
The Company currently intends to spend up to approximately $100.0 million
during 2000 primarily for the purchase of additional wafer and test
manufacturing equipment and leasehold improvements. The Company expects that
its cash requirements through 2000 will be met by its existing cash balances
and short-term investments, cash from operations and its existing credit
facilities.
Factors That May Affect Operating Results
The statements contained in this Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. Forward-looking statements
include: statements regarding future products or product development;
statements regarding future research and development spending and the
Company's product development strategy; statements regarding the levels of
international sales; statements regarding future expansion or utilization of
manufacturing capacity; statements regarding future expenditures; and
statements regarding current or future acquisitions. All forward-looking
statements included in this document are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update
any such forward-looking statements. It is important to note that the
Company's actual results could differ materially from those in such forward-
looking statements. Some of the factors that could cause actual results to
differ materially are set forth below.
The Company may experience significant fluctuations in its results of
operations. Factors that affect the Company's results of operations include
the volume and timing of orders received, changes in the mix of products sold,
market acceptance of the Company's and its customers' products, competitive
pricing pressures, the Company's ability to timely acquire, install and
utilize capital equipment to expand manufacturing capacity to meet increasing
demand, availability of production capacity at assembly subcontractors, the
Company's ability to introduce new products on a timely basis, the timing of
new product announcements and introductions by the Company or its competitors,
the timing and extent of research and development expenses, fluctuations in
manufacturing yields, cyclical semiconductor industry conditions, the
Company's ability to hire and retain key technical and management personnel,
the Company's access to advanced process technologies and the timing and
extent of process development costs. As a result of the foregoing or other
factors, there can be no assurance that the Company will not experience
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
material fluctuations in future operating results on a quarterly or annual
basis, which would materially and adversely affect the Company's business,
financial condition, results of operations or cash flows.
The Company believes that a substantial portion of its net revenues in the
future will continue to depend upon standard products sales. As compared with
the custom and foundry products business, the standard products business is
characterized by shorter product lifecycles, greater pricing pressures, larger
competitors and more rapid technological change. Generally, the standard
products market is a rapidly changing market in which the Company faces the
risk that, as the market changes, its product offerings will become obsolete.
The Company competes in the standard products market with established
companies, most of which have substantially greater financial, engineering,
manufacturing and marketing resources than the Company. No assurance can be
given that the Company will be able to compete successfully in the standard
products market or that it will be able to successfully introduce new standard
products in the future. The failure of the Company to compete successfully in
the standard products business would materially and adversely affect the
Company's financial condition, results of operations, or cash flows.
The semiconductor industry is highly competitive and subject to rapid
technological change. Significant competitive factors include product
features, performance, price, timing of product introductions, emergence of
new computer standards, quality and customer support. Because the standard
products market for integrated circuits is diverse and highly fragmented, the
Company encounters different competitors in its various market areas. Most of
these competitors have substantially greater technical, financial and
marketing resources and greater name recognition than the Company. Due to the
increasing demand for integrated circuits, the Company expects intensified
competition from existing integrated circuit suppliers and the entry of new
competition. Increased competition could adversely affect the Company's
financial condition or results of operations. There can be no assurance that
the Company will be able to compete successfully in either the standard
products or custom and foundry products business in the future or that
competitive pressures will not adversely affect the Company's financial
condition, results of operations, or cash flows.
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. The Company is currently
involved in several lawsuits regarding claims of patent infringement. See
"Legal Proceedings" in Item 1 of Part II of this Form 10-Q. There can be no
assurance that these existing lawsuits or any other potential future
litigation (or claims for indemnity resulting from infringement claims) will
not materially adversely affect the Company's business, financial condition,
results of operations, or cash flows.
The Company's future success depends in part upon its intellectual property,
including patents, trade secrets, know-how and continuing technology
innovation. There can be no assurance that the steps taken by the Company to
protect its intellectual property will be adequate to prevent misappropriation
or that others will not develop competitive technologies or products. There
can be no assurance that any patent owned by the Company will not be
invalidated, circumvented or challenged, that the rights granted thereunder
will provide competitive advantages to the Company or that any of the
Company's pending or future patent applications will be issued with the scope
of the claims sought by the Company, if at all. Furthermore, there can be no
assurance that others will not develop technologies that are similar or
superior to the Company's technology, duplicate the Company's technology or
design around the patents owned by the Company.
The Company has generated a substantial portion of its net revenues from
export sales. The Company believes that a substantial portion of its future
net revenues will depend on export sales to customers in international markets
including Asia. International markets are subject to a variety of risks,
including changes in policy by foreign governments, social conditions such as
civil unrest, and economic conditions including high levels of inflation,
fluctuation in the value of foreign currencies and currency exchange rates and
trade restrictions or prohibitions. In addition, the Company sells to domestic
customers that do business worldwide and cannot predict how the businesses of
these customers may be affected by economic conditions in Asia or elsewhere.
Such factors could adversely affect the Company's future revenues, financial
condition, results of operations or cash flows.
13
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The fabrication of integrated circuits is a highly complex and precise
process. Minute impurities, contaminants in the manufacturing environment,
difficulties in the fabrication process, defects in the masks used to print
circuits on a wafer, manufacturing equipment failures, wafer breakage or other
factors can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be nonfunctional. Moreover, there can be no
assurance that the Company will be able to maintain acceptable manufacturing
yields in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk disclosures set forth in the 1999 Form 10-K have not
changed significantly during the quarter ended March 31, 2000.
14
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. To the extent that the Company
becomes involved in such intellectual property litigation, it could result in
substantial costs and diversion of resources to the Company and could have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
On July 2, 1999, National Semiconductor Corporation (''National''), a
competitor of the Company, filed a complaint against the Company, entitled
National Semiconductor Corporation v. Micrel Semiconductor, Inc. in the United
States District Court, Northern District of California, in San Jose,
California, alleging that the Company infringes five National Semiconductor
patents. The complaint in the lawsuit seeks unspecified compensatory damages
for infringement, treble damages as well as permanent injunctive relief
against further infringement of the National patents at issue.
On February 26, 1999, the Lemelson Medical, Education & Research Foundation
(the "Lemelson Partnership") filed a complaint which was served on the Company
on June 15, 1999, entitled Lemelson Medical, Education & Research Foundation,
Limited Partnership v. Lucent Technologies Inc., et al. in the United States
District Court in Phoenix, Arizona, against 88 defendants, including the
Company, alleging infringement of Lemelson Foundation patents. The complaint
in the lawsuit seeks unspecified compensatory damages, treble damages and
attorneys' fees, as well as injunctive relief against further infringement of
the Lemelson patents at issue. The Company intends to defend itself against
these claims.
On May 9, 1994, Linear Technology Corporation ("Linear" or "LTC"), a
competitor of the Company, filed a complaint against the Company, entitled
Linear Technology Corporation v. Micrel, Incorporated, in the United States
District Court in San Jose, California, alleging patent and copyright
infringement and unfair competition. All claims, except the patent
infringement claim, have been settled or dismissed. In this lawsuit, Linear
claimed that two of the Company's products infringed one of Linear's patents.
The complaint in the lawsuit sought unspecified compensatory damages, treble
damages and attorneys' fees as well as preliminary and permanent injunctive
relief against infringement of the Linear patent at issue. On August 20, 1999,
the United States District Court in San Jose adjudicated in favor of the
Company in this patent infringement suit brought by the plaintiff. The
plaintiff alleged in the suit that the Company had infringed upon U.S. Patent
No. 4,755,741 which covers design techniques used to increase the efficiency
of switching regulators. The United States District Court in San Jose found
the patent to be invalid under the "on sale bar" defense as the plaintiff had
placed integrated circuits containing the alleged invention on sale more than
a year before filing its patent application. The United States District Court
in San Jose dismissed the plaintiff's complaint on the merits of the case and
awarded the Company its legal costs. An appeal of the Judgment was filed by
Linear on September 17, 1999 and will be entered after the judge signs the
final Judgement order.
The Company believes that the ultimate outcome of the legal actions discussed
above will not result in a material adverse effect on the Company's financial
condition, results of operation or cash flows. However, litigation is subject
to inherent uncertainties, and no assurance can be given that the Company will
prevail in these lawsuits. Accordingly, the pending lawsuits as well as
potential future litigation with other companies, could result in substantial
costs and diversion of resources and could have a material adverse effect on
the Company's financial condition, results of operations or cash flows.
In the event of an adverse ruling in any intellectual property litigation that
now exists or might arise in the future, the Company might be required to
discontinue the use of certain processes, cease the manufacture, use and sale
of infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to the infringing technology. There can be no
assurance, however, that under such circumstances, a license would be
available under reasonable terms or at all. In the event of a successful claim
against the Company and the Company's failure to develop or license substitute
technology on commercially reasonable terms, the Company's financial
condition, results of operations, or cash flows could be adversely affected.
15
<PAGE>
Certain claims and lawsuits have arisen against the Company in its normal
course of business. The Company believes that these claims and lawsuits will
not have a material adverse effect on the Company's financial position, cash
flow or results of operation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities. In April 2000, the Company issued
76,120 shares of its common stock in exchange for all outstanding shares of
common stock of Electronic Technology Corporation, a then privately held
corporation, in connection with the acquisition of that corporation. The
shares of common stock issued as acquisition consideration were issued in a
transaction exempt from registration under Section 4(2) of the Securities Act
of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------ -------------------------
10.1 Standard Industrial/Commercial Single-Tenant Lease Agreement
Dated March 3, 2000 between the Registrant and Rose
Ventures II
10.2 Loan and Security Agreement Dated March 8, 2000 between the
Registrant and Bank of the West
27.1 Financial Data Schedule.
(b) Reports on Form 8-K. The Company did not file any Reports on Form
8-K during the quarter ended March 31, 2000.
16
<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.
MICREL, INCORPORATED
--------------------
(Registrant)
Date: May 15, 2000 By /s/ Richard D. Crowley, Jr.
----------------------------
Richard D. Crowley, Jr.
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
17
<PAGE>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
March 3, 2000, is made by and between Rose Ventures II, Inc., a California
Corporation("Lessor")and Micrel. Inc., a California Corporation ("Lessee"),
(collectively the "Parties." or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known as 218O Fortune Drive, San Jose located in the County of Santa
Clara, State of California, and generally described as (describe briefly the
nature of the property and, if applicable, the "Project", if the property is
located within a Project) a 2-story office building having approximately
56,826 square feet more or less plus exterior parking (see exhibit A)
("Premises"). (See also Paragraph 2)
1.3 Term: Eleven (11) years and -0- months ("Original Term")
commencing May 1, 2000 ("Commencement Date") and ending April 30, 2011
("Expiration Date"). (See also Paragraph 3)
1.4 Early Possession: Upon Execution ("Early Possession Date") (See
also Paragraphs 3.2 and 3.3)
1.5 Base Rent: $56,826.00 per month ("Base Rent"), payable on the
First (1st) day of each month commencing May 1, 2000 (See addendum) (See also
Paragraph 4)
[x] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $56, 826. 00 as Base Rent for the
Period May 1 2000.
1.7 Security Deposit: $73,873.00 ("Security Deposit"). (See also
Paragraph 5)
1.8 Agreed Use: General office use research and development,
engineering and other related legal uses. (See also Paragraph 6)
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise
stated herein. (See also Paragraph 8)
1.10 Real Estate Brokers: (See also Paragraph 15)
(a) Representation: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction (check applicable boxes).
[ ]_____________________ represents Lessor exclusively ("Lessors Broker");
[ ]_____________________ represents Lessee exclusively ("Lessees Broker"); or
[x] Cornish & Carey Commercial Oncor International represents both Lessor and
Lessee ("Dual Agency").
(b) Payment to Brokers: Upon execution and delivery of this
Lease by both parties, Lessor shall pay to the Broker the fee agreed to in
their separate written agreement (or if there is no such agreement, the sum
of ___ % of the total Base Rent for the brokerage services rendered by said
Broker)
1.11 Guarantor. The obligations of the Lessee under this lease are to
be guaranteed by - Not Applicable ("Guarantor"). (See Paragraph 37)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 56 and Exhibits _______, all of which
constitute a part of this Lease
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may
have been used in calculating rental, is an approximation which the Parties
agree is reasonable and the rental based thereon is not subject to revision
whether or not the actual size is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee broom clean
and free of debris on the Commencement Date or the Early Possession Date
whichever first occurs ("Start Date"), and, so long as the required service
contracts described in Paragraph 7 1(b) below are obtained by Lessee within
thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems (HVAC), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"Building") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole
obligation with respect to such matter, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth
with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If, after the Start Date, Lessee does not give Lessor
written notice of any non-compliance with this warranty within: (i) one year
as to the surface of the roof and the structural portions of the roof,
foundations and bearing walls, (ii) six (6) months as to the HVAC systems,
(iii) thirty (30) days as to the remaining systems and other elements of the
Building, correction of such non-compliance shall be the obligation of Lessee
at Lessee's sole cost and expense.
2.3 deleted
(a) deleted
Page 1 of 12
<PAGE>
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate The obligation
to pay for such costs pursuant to the provisions of Paragraph 7.1(c):
provided, however, that if such Capital Expenditure is required during the
last two years of this Lease or if Lessor reasonably determines that it is
not economically feasible to pay its share thereof, Lessor shall have the
option to terminate this Lease upon ninety (90) days prior written notice to
Lessee unless Lessee notifies Lessor, in writing, within ten (10) day after
Lessor's termination notice that Lessee will pay for such Capital
Expenditure. If Lessor does not elect to terminate, and fails to tender its
share of such Capital Expenditure, Lessee may advance such funds and deduct
same, with Interest, from Rent until Lessor's share of such costs have been
fully paid. If Lessee is unable to finance Lessor's share, or if the balance
of the Rent due and payable for the remainder of this Lease is not sufficient
to fully reimburse Lessee on an offset basis, Lessee shall have the right to
terminate this Lease upon thirty (30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in
intensity of use, or modification to the Premises then, and in that event,
Lessee shall be fully responsible for the cost thereof, and Lessee shall not
have any right to terminate this Lease.
2.4 Acknowledgements. Lessee acknowledges that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical, HVAC
and fire sprinkler systems, security, environmental aspects, and compliance
with Applicable Requirements), and their suitability for Lessee's intended
use; (b) Lessee has made such investigation as it deems necessary with
reference to such matters and assumes all responsibility therefor as the same
relate to its occupancy of the Premises; and (c) neither Lessor, Lessor's
agents, nor any Broker has made any oral or written representations or
warranties with respect to said matters other than as set forth in this
Lease. In addition, Lessor acknowledges that: (a) Broker has made no
representations,/ promises or warranties concerning Lessees ability to honor
the Lease or suitability to occupy the Premises; and (b) it is Lessor's sole
responsibility to investigate the financial capability and/or suitability of
all proposed tenants.
2.5 deleted
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease (including, but not limited to, the obligations to maintain the
Premises) shall, however, be in effect during such period. Any such early
possession shall not affect the Expiration Date.
3.3 Delay In Possession. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease. Lessee shall not,
however, be obligated to pay Rent or perform its other obligations until it
receives possession of the Premises. If possession is not delivered within
sixty (60) days after the Commencement Date, Lessee may, at its option, by
notice in writing within ten (10) days after the end of such sixty (60) day
period cancel this Lease, in which event the Parties shall be discharged from
all obligations hereunder. If such written notice is not received by Lessor
with in said ten (10) day period, Lessee's right to cancel shall terminate.
Except as otherwise provided if possession is not tendered to Lessee by the
Start Date and Lessee does not terminate this Lease as aforesaid, any period
of rent abatement that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to what Lessee
would otherwise have enjoyed under the terms hereof, but minus any days of
delay caused by the acts or omissions of Lessee. If possession of the
Premises is not delivered within four (4) months after the Commencement Date,
this Lease shall terminate unless other agreements are reached between Lessor
and Lessee, in writing.
3.4 Lessee Compliance. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its
obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery
of such evidence, Lessee shall be required to perform all of its obligations
under this Lease from and after the Start Date, including the payment of
Rent, notwithstanding Lessor's election to withhold possession pending
receipt of such evidence of insurance. Further, if Lessee is required to
perform any other conditions prior to or concurrent with the Start Date, the
Start Date shall occur but Lessor may elect to withhold possession until such
conditions are satisfied.
4. Rent.
4.1. Rent Defined. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to
be rent ("Rent")
4.2 Payment. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction
(except as specifically permitted in this Lease), on or before the day on
which it is due. Rent for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual
number of days of said month. Payment of Rent shall be made to Lessor at its
address stated herein or to such other persons or place as Lessor may from
time to time designate in writing. Acceptance of a payment which is less than
the amount then due shall not be a waiver of Lessor's rights to the balance
of such Rent, regardless of Lessor's endorsement of any check so stating.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent or otherwise
defaults under this Lease, Lessor may use, apply or retain all or any portion
of said Security Deposit for the payment of any amount due Lessor or to
reimburse or compensate Lessor for any liability, expense, loss or damage
which Lessor may suffer or incur by reason thereof. If Lessor uses or applies
all or any portion of said Security Deposit, Lessee shall within ten (10)
days after written request therefor deposit monies with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or
termination of this Lease, if Lessor elects to apply the Security Deposit
only to unpaid Rent, and otherwise within thirty (30) days after the Premises
have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return
that portion of the Security Deposit not used or applied by Lessor. No part
of the Security Deposit shall be considered to be held in trust, to bear
interest or to be prepayment for any monies to be paid by Lessee under this
Lease
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the Agreed
Use, or any other legal use which is reasonably comparable thereto, and for
no other purpose. Lessee shall not use or permit the use of the Premises in a
manner that is unlawful, creates damage, waste or a nuisance, or that
disturbs owners and/or occupants of, or causes damage to neighboring
properties. Lessor shall not unreasonably withhold or delay its consent to
any written request for a modification of the Agreed Use, so long as the same
will not impair the structural integrity of the improvements on the
Premises or the mechanical or electrical systems therein, is not
significantly more burdensome to the Premises. If Lessor elects to withhold
consent, Lessor shall within five (5) business days after such request give
written notification of same, which notice shall include an explanation of
Lessor's objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release,
either by itself or in combination with other materials expected to be on the
Premises, is either: (I) potentially injurious to the public health, safety
or welfare, the environment or the Premises, (ii) regulated or monitored by
any governmental authority, or (iii) a basis for potential liability of
Lessor to any governmental agency or third party under any applicable statute
Page 2 of 12
<PAGE>
or common law theory. Hazardous Substances shall include, but not be limited
to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products,
by-products or fractions thereof. Lessee shall not engage in any activity in
or on the Premises which constitutes a Reportable Use of Hazardous Substances
without the express prior written consent of Lessor and timely compliance (at
Lessee's expense) with all Applicable Requirements. "Reportable Use" shall
mean (i) the installation or use of any above or below ground storage tank,
(ii) the generation, possession, storage, use, transportation, or disposal of
a Hazardous that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be files with, any
governmental authority, and/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements
requires that a notice be given to persons entering or occupying the Premises
or neighboring properties. Not withstanding the foregoing. Lessee may use any
ordinary and customary materials reasonably required to be used in the normal
course of the Agreed Use, so long as such use is in compliance with all
Applicable Requirements, is not a Reportable Use, and does not expose the
Premises or neighboring property to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may
condition its consent to any Reportable Use upon receiving such additional
assurances as Lessor reasonably deems necessary to protect itself, the
public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and
provide Lessor with a copy of any report, notice, claim or other
documentation which it has concerning the presence of such Hazardous
Substance.
(c) Lessee Remediation. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonable recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance brought onto the Premises during the term ,of this Lease,
by or for Lessee, or any third party.
(d) Lessee Indemnification. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any,
harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, claims, expenses, penalties, and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance
brought onto the Premises by or for Lessee, or any third party (provided,
however, that Lessee shall have no liability under this Lease with respect to
underground migration of any Hazardous Substance under the Premises from
adjacent properties). Lessee's obligation shall include, but not be limited
to, the effects of any contamination or injury to person, property or the
environment created or suffered by the Lessee, and the cost of
investigation, removal, remediation, restoration and or abatement, and shall
survive the expiration or termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at
the time of such agreement.
(e) Lessor Indemnification. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and
lenders, harmless from and against any and all environmental damages,
including the cost of remediation, which existed as a result of Hazardous
Substances on the Premises prior to the Start Date or which are caused by the
gross negligence or willful misconduct of Lessor, its agents or employees.
Lessor's obligations as and when required by the Applicable Requirements,
shall include, but not be limited to the cost of investigation removal
remediation, restoration and/or abatement, and shall survive the expiration
or termination of this Lease.
(f) Investigations and Remediations. Lessor shall retain the
responsibility and pay for any investigations or remediation measures
required by governmental entities having jurisdiction with respect to the
existence of Hazardous Substances on the Premises prior to the Start Date,
unless such remediation measure is required as a result of Lessee's use
(including "Alterations", as defined in Paragraph 7.3(a) below) of the
Premises, in which event Lessee shall be responsible for such payment. Lessee
shall cooperate fully in any such activities at the request of Lessor,
including Lessor and Lessor's agents to have reasonable access to the
Premises at reasonable times in order to carry out Lessor's investigative and
remedial responsibilities.
(g) deleted
6.3 Lessees Compliance with Applicable Requirements. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense,
fully, diligently and in a timely manner, materially comply with all
Applicable requirements, the requirements of any applicable fire insurance
underwriter or rating bureau, and the recommendations of Lessors engineers
and/or consultants which relate in any manner to the Premises, without regard
to whether said requirements are now in effect or become effective after the
Start Date. Lessee shall, within ten (10) days after receipt of Lessor's
written request, provide Lessor with copies of all permits and other
documents, and other information evidencing Lessee's compliance with any
Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of
any threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving the failure of Lessee or the Premises to
comply with any Applicable Requirements.
6.4 Inspection; Compliance. Lessor and Lessor's "Lender" (as
defined in Paragraph 30 below) and consultants shall have the right to enter
into Premises at any time, in the case of an emergency, and otherwise at
reasonable times during business hours with reasonable notice, for the
purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease. The cost of any such inspections shall
be paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is
requested or ordered by a governmental authority. in such case, Lessee shall
upon request reimburse Lessor for the cost of such inspections, so long as
such inspection is reasonably related to the violation or contamination.
7. Maintenance; Repairs, utility Installations; Trade Fixtures and
Alterations.
7.1 Lessees Obligations.
(a) In General. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair,
normal wear and tear excepted (whether or not the portion of the Premises
requiring repairs, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, but not limited to, all equipment
or facilities, such as plumbing, heating, ventilating, air-conditioning,
electrical, lighting facilities, boilers. pressure vessels, fire protection
system, fixtures, walls (interior and exterior), foundations, ceilings,
roofs, floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks and
parkways located in, on, or adjacent to the Premises. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices, specifically including the procurement and maintenance
of the service contracts required by Paragraph 7.1(b) below. Lessee's
obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof
in good order, condition and state of repair. Lessee shall, during the term
of this Lease, keep the exterior appearance of the building in a first-class
condition consistent with the Building's appearance at the time of occupancy
and the exterior appearance of other similar facilities of comparable age and
size in the vicinity, including, when necessary, the exterior repainting of
the Building.
(b) Service Contracts. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (I) HVAC equipment, (ii) boiler, and pressure
vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) driveways and parking lots.
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(c) Replacement. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of
replacing such Basic Elements, then such Basic Elements shall be replaced by
Lessor, and the cost thereof shall be prorated between the Parties and Lessee
shall only be obligated to pay, each month during the remainder of the term
of this Lease, on the date on which Base Rent is due, an amount equal to the
product of multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is the number of
months of the useful life of such replacement as such useful life is
specified pursuant to Federal income tax regulations or guidelines for
depreciation thereof (including interest on the unamortized balance as is
then commercially reasonable in the judgment of Lessor's accountants), with
Lessee reserving the right to prepay its obligation at any time.
7.2 Lessors Obligations. Subject to the provisions of paragraphs 2.2
(Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14
(Condemnation), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises,
or the equipment therein, all of which obligations are intended to that of
the Lessee. It is the intention of the Parties that the terms of this Lease
govern the respective obligations of the Parties as to maintenance and repair
of the Premises, and they expressly waive the benefit of any statute now or
hereafter in effect to the extent it is consistent with the terms of this
Lease.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility
Installations" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and
fencing in or on the Premises. The term "Trade Fixtures" shall mean Lessee's
machinery and equipment that can be removed without doing material damage to
the Premises. The term "Alterations" shall mean any modification of the
improvements, other than Utility Installations or Trade Fixtures, whether by
addition or deletion. "Lessee Owned Alterations and/or Utility Installations"
are defined as Alterations and/or Utility Installations made by Lessee that
are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not
make Alterations or Utility Installations to the Premises without Lessor's
prior written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof) without
such consent but upon notice to Lessor, as long as they are not visible from
the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during this Lease as
extended does not exceed $100,000 in any one year.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be
deemed conditioned upon Lessee's: (I) acquiring all applicable governmental
permits, (ii) furnishing Lessor with copies of both the permits and the plans
and specifications prior to commencement of the work, and (iii) compliance
with all conditions of said permits and other Applicable Requirements in a
prompt and expeditious manner. Any Alterations or Utility Installations shall
he performed in a workmanlike manner with good and sufficient materials
Lessee shall promptly upon completion furnish Lessor with as-built plans and
specifications.
(c) indemnification. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility. If Lessee shall
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend and protect itself, Lessor and the Premises against
the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof. If Lessor shall require,
Lessee shall furnish a surety bond in an amount equal to one and one-half
times the amount of such contested lien, claim or demand, indemnifying
Lessor against liability for the same. Lessor elects to participate in any
such action, Lessee shall pay Lessor's attorneys' fees and costs.
7.4 Ownership; Removal; Surrender; and Restoration
(a) Ownership. Subject to Lessor's right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the owner of all or
any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or termination
of this Lease, become the property of Lessor and be surrendered by Lessee
with the Premises.
(b) Removal. Except for the TI's shown in Exhibit B and normal wear
and tear, by delivery to Lessee of written notice from Lessor not earlier
than ninety days (90) and not later than thirty (30) days prior to the end of
the term of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or
termination of this Lease. Lessor may require the removal at any time of all
or any part of any Lessee Owned Alterations or Utility Installations made
without the required consent.
(c) Surrender/Restoration. Lessee shall surrender the Premises
by the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and
in good operating order, condition and state of repair, ordinary wear and
tear excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice.
Lessee shall repair any damage occasioned by the installation, maintenance or
removal of Trade Fixtures, Lessee Owned Alterations and/or Utility
Installations, furnishings, and equipment as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or groundwater contaminated by Lessee.
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee. The failure by Lessee to timely vacate the Premises pursuant to this
Paragraph 7 4(c) without the express written consent of Lessor shall
constitute a holdover under the provisions of Paragraph 26 below.
Notwithstanding the above, Lessee shall be in compliance with restoration and
surrender obligation so long as received in similar condition as received at
Lease Commencement
8. insurance; indemnity.
8.1 Payment For Insurance. Lessee shall pay for all insurance required
under Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000
per
occurrence. Premiums for policy periods commencing prior to or extending
beyond the Lease term shall be prorated to correspond to the Lease term.
Payment shall be made by Lessee to Lessor within ten (10) days following
receipt of an invoice.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based
upon or arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$2,000,000 per occurrence with an "Additional Insured-Managers or Lessors of
Premises Endorsement" and contain the "Amendment of the Pollution Exclusion
Endorsement" for damage caused by heat, smoke or fumes from a hostile fire.
The Policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under this Lease as an `insured contract' for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance shall
not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance carried by Lessee shall be primary to and
not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried by Lessor. Lessor shall maintain liability insurance
as described in Paragraph 8.2(a), in addition to, and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as
an additional insured therein.
8.3 Property Insurance - Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to
the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time,
or the amount required by any Lenders, but in no event more than the
commercially reasonable and available insurance value thereof. If Lessor is
the Issuing Party, however, Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee's personal property shall be
insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage
is available and commercially appropriate, such policy or policies shall
insure against all risks of direct physical loss or damage (except the perils
of flood and/or earthquake unless required by a Lender), including coverage
for debris removal and the enforcement of any Applicable Requirements
requiring the upgrading, demolition, reconstruction or replacement of any
portion of the Premises as the result of a covered loss. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
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coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a
factor of not less than the adjusted U.S. Department of Labor Consumer Price
Index for All Urban Consumers for the city nearest to where the Premises are
located. If such insurance coverage has a deductible clause, the deductible
amount shall not exceed $50,000 per occurrence, and Lessee shall be liable
for such deductible amount in the event of an Insured Loss.
(b) Rental Value. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor with loss payable to Lessor
and any Lender, insuring the loss of the full Rent for one (1) year. Said
insurance shall provide that in the event the Lease is terminated by reason
of an insured loss, the period of indemnity for such coverage shall be
extended beyond the date of the completion of repairs or replacement of the
Premises, to provide for one full year's loss of Rent from the date of such
loss. Said insurance shall contain an agreed valuation provision in lieu of
any coinsurance clause, and the amount of coverage shall be adjusted annually
to reflect the projected Rent otherwise payable by Lessee, for the next
twelve (12) month period. Lessee shall be liable for any deductible amount in
the event of such loss not to exceeds $50,000.
(c) Adjacent Premises. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to
the Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused
by Lessee's acts, omissions, use or occupancy of the Premises.
8.4 Lessee's Property/Business Interruption Insurance
(a) Property Damage. Lessee shall obtain and maintain insurance
coverage on all of the Lessee's personal property, Trade Fixtures, and Lessee
Owned Alterations and Utility Installations. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $250,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property, Trade Fixtures and Lessee Owned
Alterations and Utility Installations. Lessee shall provide Lessor with
written evidence that such insurance is in force.
(b) Business Interruption. Lessee shall obtain and maintain loss
of income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly
insured against by prudent lessees in the business of Lessee or attributable
to prevention of access to the Premises as a result of such perils.
(c) No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 Insurance Policies. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where
the Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current
issue of "Best's Insurance Guide", or such other rating as may be required by
a Lender. Lessee hall not do or permit to be done anything which invalidates
the required insurance policies. Lessee shall, prior to the Start Date,
deliver to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of the required insurance.
No such Policy shall be cancelable or subject to modification except after
thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor
with evidence of renewals or "insurance binders" evidencing renewal thereof,
or Lessor may order such insurance and charge the cost thereof to Lessee,
which amount shall be payable by Lessee to Lessor upon demand. Such policies
shall be for a term of at least one year, or the length of the remaining term
of this Lease, whichever is less. If either Party shall fail to procure and
maintain the insurance required to be carried by it, the other Party may, but
shall not be required to, procure and maintain the same.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages against the other, for loss of or
damage to its property arising out of or incident to the perils required to
be insured against herein. The effect of such releases and waivers is not
limited by the amount of insurance carried or required, or by any deductibles
applicable hereto. The Parties agree to have their respective property damage
insurance carriers waive any right to subrogation that such companies may
have against Lessor or Lessee, as the case may be, so long as the insurance
is not invalidated thereby.
8.7 Indemnity. Except for Lessor's gross negligence or willful
misconduct Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, liens, judgments, penalties, attorneys' and consultants' fees,
expenses and/or liabilities arising out of, involving, or in connection with,
the use and/or occupancy of the Premises by Lessee. If any action or
proceeding is brought against Lessor or reason of any of the foregoing
matters, Lessee shall upon notice defend the same at Lessee's expense by
counsel reasonably satisfactory to Lessor and Lessor shall cooperate with
Lessee in such defense. Lessor need not have first paid any such claim in
order to be defended or indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are
a part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall
under no circumstances be liable for injury to Lessee's business or for any
loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which can reasonably be repaired in nine (9) months or less
from the date of the damage or destruction. Lessor shall notify Lessee
in writing within thirty (30) days from the date of the damage or destruction
as to whether or not the damage is Partial or Total.
(b) "Premises Total Destruction" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in nine
(9) months or less from the date of the damage or destruction. Lessor shall
notify Lessee in writing within thirty (30) days from the date of the damage
or destruction as to whether or not the damage is Partial or Total.
(c) "Insured Loss" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements,
and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage - insured Loss. if a Premises Partial Damage that
is an insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect provided however that Lessee shall at
Lessor's election make the repair of any damage or destruction the total cost
to repair of which is $10,000 or less, and, in such event, Lessor shall make
any applicable insurance proceeds available to Lessee on a reasonable basis
for that purpose. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds
(except as to the deductible which is Lessee's responsibility) as and when
required to complete said repairs. In the event, however, such shortage was
due to the fact that, by reason of the unique nature of the improvements,
full replacement Cost insurance coverage Was not commercially available,
Lessor shall have no obligation to pay for the shortage in insurance proceeds
or to fully restore the unique aspects of the Premises unless Lessee provides
Lessor with the funds to cover same, or adequate assurance thereof, within
ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall
remain in full force and effect. If such funds or assurance are not received,
Lessor may nevertheless elect by written notice to Lessee within ten (10)
days thereafter to: (i) make such restoration and repair as is commercially
reasonable with Lessor paying any shortage in proceeds, in which case this
Lease shall remain in full force and effect, or have this Lease terminate
thirty (30) days thereafter. Lessee shall not be entitled to reimbursement of
any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to
Paragraph 9.3, notwithstanding that there may be some insurance coverage, but
the net proceeds of any such insurance shall be made available for the
repairs if made by either Party.
9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (I) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee
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within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage. Such termination shall be effective sixty (60)
days following the date of such notice. In the event Lessor elects to
terminate this Lease, Lessee shall have the right within ten (10) days after
receipt of the termination notice to dye written notice to Lessor of Lessee's
commitment to pay for the repair of such damage without reimbursement from
Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance
thereof within thirty (30) days after making such commitment. In such event
this Lease shall continue in full force and effect, and Lessor shall proceed
to make such repairs as soon as reasonably possible after the required funds
are available. If Lessee does not make the required commitment, this Lease
shall terminate as of the date specified in the termination notice.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by
the gross negligence or willful misconduct of Lessee, Lessor shall have the
right to recover Lessor's damages from Lessee, except as provided in
Paragraph 8.6.
9.5 Damage Near End of Term. If at any time daring the last
twelve (12) months of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor or
Lessee may terminate this Lease effective sixty (60) days following the date
of occurrence of such damage by giving a written termination notice to the
other party within thirty (30) days after the date of occurrence of such
damage. Notwithstanding the foregoing, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by, (a) exercising such option and (b)
providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of
(i) the date which is ten (10) days after Lessee's receipt of Lessor's
written notice purporting to terminate this Lease, or (ii) the day prior to
the date upon which such option expires. If Lessee duly exercises such option
during such period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's commercially reasonable expense, repair such damage as soon as
reasonably possible and this Lease shall continue in full force and effect.
If Lessee fails to exercise such option and provide such funds or assurance
during such period, then this Lease shall terminate on the date specified in
the termination notice and Lessee's option shall be extinguished.
9.6 Abatement of Rent; Lessee's Remedies.
(a) Abatement. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall
be abated in proportion to the degree to which Lessee's use of the Premises
is impaired. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) Remedies. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such
repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may, at any time prior to the commencement of such repair or
restoration, give written notice to Lessor and to any Lenders of which Lessee
has actual notice, of Lessee's election to terminate this Lease on a date not
less than sixty (60) days following the giving of such notice. If Lessee
gives such notice and such repair or restoration is not commenced within
thirty (30) days thereafter, this Lease shall terminate as of the date
specified in said notice. If the repair or restoration is commenced within
said thirty (30) days, this Lease shall continue in full force and effect.
"Commence" shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 Termination - Advance Payments. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by
Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of
Lessee's Security Deposit as has not been, or is not then required to be,
used by Lessor.
9 8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 Definition of "Real Property Taxes." As used herein , the term
"Real Property Taxes" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other
than inheritance, personal income or estate taxes); improvement bond; and/or
license fee imposed upon or levied against any legal or equitable interest of
Lessor in the Premises, Lessor's right to other income therefrom, and/or
Lessor's business of leasing, by any authority having the direct or indirect
power to tax and where the funds are generated with reference to the Building
address and where the proceeds so generated are to be applied by the city,
county or other local taxing authority of a jurisdiction within which the
Premises are located. The term "Real Property Taxes" shall also include any
tax fee levy assessment or charge, or any increase therein, imposed by reason
of events occurring during the term of this Lease, including but not limited
to, a change in the ownership of the Premises.
10.2
(a) Payment of Taxes. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to
Paragraph 10.2(b), all such payments shall be made at least ten (10) days
prior to any delinquency date. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes shall
cover any period of time prior to or after the expiration or termination of
this Lease, Lessee's share of such taxes shall be prorated to cover only that
portion of the tax bill applicable to the period that this Lease is in
effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee
shall fail to pay any required Real Property Taxes, Lessor shall have the
right to pay the same, and Lessee shall reimburse Lessor therefor upon
demand.
(b) Advance Payment. In the event Lessee incurs a late charge on
any Rent payment, Lessor may, at Lessor's option, estimate the current Real
Property Taxes, and require that such taxes be paid in advance to Lessor by
Lessee, either: (i) in a lump sum amount equal to the installment due, at
least twenty (20) days prior to the applicable delinquency date, or (ii)
monthly in advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be an amount
equal to the amount of the estimated installment of taxes divided by the
number of months remaining before the month in which said installment becomes
delinquent. When the actual amount of the applicable tax bill is known, the
amount of such equal monthly advance payments shall be adjusted as required
to provide the funds needed to pay the applicable taxes. If the amount
collected by Lessor is insufficient to pay such Real Property Taxes when due,
Lessee shall pay Lessor, upon demand, such additional sums as are necessary
to pay such obligations. All monies paid to Lessor under this Paragraph may
be intermingled with other monies of Lessor and shall not bear interest. in
the event of a Breach by Lessee in the performance of its obligations under
this Lease, then any balance of funds paid to Lessor under the provisions of
this Paragraph may, at the option of Lessor, be treated as an additional
Security Deposit.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property
Taxes for all of the land and improvements included within the tax parcel
assessed, such proportion to be conclusively determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available.
10.4 Personal Property Taxes. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee. When possible, Lessee shall cause such property to be
assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee's
property within ten (10) days after receipt of a written statement.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "assign or assignment") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent.
(b) deleted
(c) Merger and Acquisition and Permitted Transfer: Notwithstanding
anything to the contrary in this Lease, Tenant may, without Landlord's prior
written consent, sublet the Premises or assign the Lease to: (i) a
subsidiary, affiliate, division or corporation controlling, controlled by or
under common control with tenant; (ii) a successor corporation related to
Tenant by merger, consolidation, non-bankruptcy reorganization, or government
action; or (iii) a purchaser of substantially all of Tenant's assets located
in the Premises. The above is referenced hereafter as "Permitted Transfer."
For the purpose of this Lease, sale of Tenant's capital stock through any
public exchange or issuance's for purpose of raising financing shall not be
deemed an assignment, subletting, or any other transfer of the Lease or the
Premises.
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(d) An assignment or subletting without consent shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or
a noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a
noncurable Breach, Lessor may either: (I) terminate this Lease, or (ii) upon
thirty (30) days written notice, increase the monthly Base Rent to one
hundred ten percent (110%) of the Base Rent then in effect. Further, in the
event of such Breach and rental adjustment, (I) the purchase price of any
option to purchase the Premises held by Lessee shall be subject to similar
adjustment to one hundred ten percent (110%) of the price previously in
effect, and (ii) all fixed and non-fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased to One Hundred Ten Percent
(110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease: (ii)
release Lessee...of any obligations hereunder: or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any
other obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for Lessee's Default or
Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible
for the performance of Lessee's obligations under this Lease, including any
assignee or sublessee, without first exhausting Lessor's remedies against any
other person or entity responsible therefore to Lessor, or any security held
by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination
as to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a fee of
$1,000 as consideration as may be considering and processing said request.
Lessee agrees to provide Lessor with such other or additional information
and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed
to have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by
Lessee during the term of said assign or sublease, other than such
obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented to in
writing.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee
of all or any part of the Premises and shall be deemed included n all
subleases under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such
Rent and apply same toward Lessee's obligations under this Lease; provided,
however, that until a Breach shall occur in the performance of Lessee's
obligations, Lessee may collect said Rent. Lessor shall not, by reason of the
foregoing or any assignment of such sublease, nor by reason of the collection
of Rent, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee. Lessee
hereby irrevocably authorizes and directs any such sublessee, upon receipt of
a written notice from Lessor stating that a Breach exists in the performance
of Lessee's obligations under this Lease to nay to Lessor all Rent due and to
become due under the sublease Sublessee shall rely upon any such notice from
Lessor and shall pay all Rents to Lessor without any obligation or right to
inquire as to whether such Breach exists, notwithstanding any claim from
Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time
of the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or
Breaches of such sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. A "Default" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "Breach" is defined as the occurrence of one or
more of the following Defaults, and the failure of Lessee to cure such
Default within any applicable grace period:
(a) The abandonment of the Premises; or vacating of the Premises
without providing a commercially reasonable level of security, or where the
coverage of the property insurance described in Paragraph 8.3 is jeopardized
as a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make payment of Rent or any Security
Deposit required to be made by Lessee hereunder, whether to Lessor or to a
third party, when due, to provide reasonable of insurance or surety bond, or
to fulfill any obligation under this Lease which endangers or threatens life
or property, where such failure continues for a period of three (3) business
days following written notice to Lessee.
(c) The failure by Lessee to provide (I) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service
contracts, (iii) the rescission of an unauthorized assignment or subletting,
(iv) a Estoppel Certificate, (v) a requested subordination, (vi) deleted,
(vii) any document requested under
Paragraph 42 (easements), or (viii) deleted
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40
hereof, other than those described in subparagraphs 13.1(a), (b) or (c),
above, where such Default continues for a period of thirty (30) days after
written notice; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure,
then it shall not be deemed to be a Breach if Lessee commences such cure
within said thirty (30) day period and thereafter diligently prosecutes such
cure to completion.
(e) The occurrence of any of the following events: (I) the making
of any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "debtor" as defined in ii U.S.C. 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located
at the Premises or of Lessee's interest in this I ease where possession is
not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph 13.1 (e) is contrary to any
applicable law, such provision shall be of no force or effect, and not affect
the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) deleted.
13.2 Remedies. If either party fails to perform any of its affirmative
duties or obligations, within ten (10) days after written notice (or in case
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of an emergency, without notice), Lessor at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining
reasonably required bonds, insurance policies, or governmental licenses,
permits or approvals. The costs and expenses of any such performance by
Lessor shall be due and payable by Lessee upon receipt of invoice therefor.
If any check given to Lessor by Lessee shall not be honored by the bank upon
which it is drawn, Lessor, at its option, may require all future payments to
be made by Lessee to be by cashier's check. In the event of a Breach, Lessor
may, with or without further notice or demand, and without limiting Lessor in
the exercise of any right or remedy which Lessor may have by reason of such
Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that the Lessee
proves could have been reasonably avoided; (iii) the worth at the time of
award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss that the
Lessee proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Lessor for all the detriment proximately caused by
the Lessee's failure to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result therefrom, including
but not limited to the cost of recovering possession of the Premises,
expenses or reletting, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall
be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of the District within which the Premises are located at the
tome of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Breach of this Lease shall not waive Lessor's right to
recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the
right to recover in such proceeding any unpaid Rent and damages as are
recoverable therein, or Lessor may reserve the right to recover all or any
part thereof in a separate suit. If a notice and grace period required under
Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to
perform or quit given to Lessee under the unlawful detainer statute shall
also constitute the notice required by Paragraph 13.1. In such case, the
applicable grace period required by Paragraph 13.1 and the unlawful detainer
statute shall run concurrently, and the failure of Lessee to cure the Default
within the greater of the two such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or
assign, subject only to reasonable limitations. Acts of maintenance, efforts
to relet, and/or the appointment of a receiver to protect the Lessor's
interests, shall not constitute a termination of the Lessee's right to
possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the State wherein the Premises are located.
The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 deleted.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed upon Lessor by any Lender.
Accordingly, if any Rent shall not be received by Lessor within ten (10) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a one-time late charge equal to five
percent (5%) of each such overdue amount. The Parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of such late payment. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's Default or Breach
with respect to such overdue amount, nor prevent the exercise of any other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding any provision of this Lease
to the contrary, Base Rent shall, at Lessor's option, become due and payable
quarterly in advance
13.5 Interest. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such
as Base Rent) or within thirty (30) days following the date on which it was
due for non-scheduled payment, shall bear interest from the date when due, as
to scheduled payments, or the thirty-first (31st) day after t was due as to
non-scheduled payments. The interest ("Interest") charged shall be equal to
the prime rate reported in the Wall Street Journal as published closest prior
to the date when due plus four percent (4%), but shall not exceed the maximum
rate allowed by law. Interest is payable in addition to the potential late
charge provided for in Paragraph 13.4.
13.6 Breach by Lessor.
(a) Notice of Breach. Lessor shall not be deem in breach of this
Lease unless Lessor fails within reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor except in case of emergency where injury to persons or loss of
property is imminent, and any Lender whose name and address shall have been
furnished Lessee in writing for such purpose, of written notice specifying
wherein such obligation of Lessor has not been performed; provided, however,
that if the nature of Lessor's obligation is such that more than thirty (30)
days are reasonably required for its performance, then Lessor shall not be in
breach if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
(b) Performance by Lessee on Behalf Lessor. in the event that
nether Lessor nor Lender cures said breach within thirty (30) days
after receipt of said notice, or if having commenced said cure they do not
diligently pursue it to completion, then Lessee may elect to cure said breach
at Lessee's expense and offset from Rent an amount equal to the greater of
one month's Base Rent or the Security Deposit, and to pay an excess of such
expense under protest, reserving Lessee's right to reimbursement from Lessor.
Lessee shall document the cost of said cure and supply said documentation to
Lessor.
14. Condemnation. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (collectively "Condemnation"), this Lease shall terminate as to the
part taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building
portion of the Premises, or more than twenty-five percent (25%) of the land
area portion of the Premises not occupied by any building, is taken by
Condemnation, Lessee may, at Lessee's option, to be exercised in writing
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in proportion to the reduction in
utility of the Premises caused by such Condemnation. Condemnation awards
and/or payments shall be the property of Lessor, whether such award shall be
made as compensation for diminution in value of the leasehold, the value of
the part taken, or for severance damages; provided, however, that Lessee
shall be entitled to any compensation for Lessee's relocation expenses, loss
of business goodwill and/or Trade Fixtures, without regard to whether or not
this Lease is terminated pursuant to the provisions of this Paragraph. All
Alterations and Utility Installations made to the Premises by Lessee, for
purposes of Condemnation only, shall be considered the property of the Lessee
and Lessee shall be entitled to any and all compensation which is payable
therefor. In the event that this Lease is not terminated by reason of the
Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. Brokers' Fee.
15.1 Additional Commission. No additional commission shall be due any
Broker on exercise of any Options hereunder.
15.2 deleted
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15.3 Representations and Indemnities of Broker Relationships. Lessee
and Lessor each represent and warrant to the other that it has had no
dealings with any person, firm, broker or finder (other than the Brokers, if
any) in connection with this Lease, and that no one other than said named
Brokers is entitled to any commission or finder's fee in connection herewith.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges
which may be claimed by any such unnamed broker, finder or other similar
party by reason of any dealings or actions of the indemnifying Party,
including any costs, expenses, and/or attorneys' fees reasonably incurred
with respect thereto.
16. Estoppel Certificates.
(a) Each Party (as "Responding Party") shall within ten (10) days
after written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in
form similar to the then most current "Estoppel Certificate" form published
by the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
(b) If the Responding Party shall fail to execute or deliver
the Estoppel Certificate within such ten business day period, the Requesting
Party may execute an Estoppel Certificate stating that: (i) the Lease is in
full force and effect without modification except as may be represented by
the Requesting Party, (ii) there are no uncured defaults in the Requesting
Party's performance, and (iii) if Lessor is the Requesting Party, not more
than one month's Rent has been paid in advance. Prospective purchasers
and encumbrancers may rely upon the Requesting Party's Estoppel Certificate,
and the Responding Party shall be estopped from denying the truth of the
facts contained in said Certificate.
(c) If Lessor desires to finance, or sell the Premises, or any part
thereof, Lessee and all Guarantors shall deliver to any potential lender or
purchaser designated by Lessor such financial statements as may be reasonably
required by such lender or purchaser, including, but not limited to, Lessee's
financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Definition of Lessor. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the Lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor. Except as provided in
Paragraph 15, upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability
with respect to the obligations and/or covenants under this Lease thereafter
to be performed by the Lessor. Subject to the foregoing, the obligations
and/or covenants in this Lease to be performed by the Lessor shall be binding
only upon the Lessor as hereinabove defined. Notwithstanding the above, and
subject to the provisions of Paragraph 20 below, the original Lessor under
this Lease, and all subsequent of the Lessor's interest in this Lease shall
remain liable and responsible with regard to the potential duties and
liabilities of Lessor pertaining to Hazardous Substances as outlined in
Paragraph 6 above.
18. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Days. Unless otherwise specifically indicated to the contrary the word
"days" as used in this Lease shall mean and refer to calendar days
20. Limitation on Liability. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute
personal obligations of Lessor, the individual partners of Lessor or its or
their individual partners, directors, officers or shareholders, and Lessee
shall look to the Premises, and to no other assets of Lessor, for the
satisfaction of any liability of Lessor with respect to this Lease, and shall
not seek recourse against the individual partners of Lessor, or its or their
individual partners, directors, officers or shareholders, or any of their
personal assets for such satisfaction. This limitation of liability shall not
apply to Lessor's obligation to return Security Deposit.
21. Time of Essence. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
22. No Prior or Other Agreements: Broker Disclaimer. This Lease contains
all agreements between the Parties with respect to any matter mentioned
herein, and no other prior or contemporaneous agreement or understanding
shall be effective. Lessor and Lessee each represents and warrants to the
Brokers that it has made, and is relying solely upon, its own Investigation
as to the nature, quality, character and financial responsibility of the
other Party to this Lease and as to the nature, quality, character of the
Premises. Brokers have no responsibility with respect thereto or with respect
to any default or breach hereof by either Party. The liability (including
court costs and Attorneys' fees), of any Broker with respect to negotiation,
execution, delivery or performance by either Lessor or Lessee under this
Lease or any amendment or modification hereto shall be limited to an amount
up to the fee received by such Broker pursuant to this Lease; provided,
however, that the foregoing limitation on each Broker's liability shall not
be applicable to any gross negligence or willful misconduct of such Broker.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
courier) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing
of notices. Either party may by written notice to the other specify a
different address for notice, except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for notice. A
copy of all notices to Lessor shall be concurrently transmitted to such party
or parties at such addresses as Lessor may from time to time hereafter
designate in writing.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown
on the receipt card, or if no delivery date is shown, the postmark thereon.
If sent by regular mail the notice shall be deemed given forty-eight (48)
hours after the same is addressed as required herein and mailed with postage
prepaid. Notices delivered by United States Express Mail or overnight courier
that guarantee next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the Postal Service or courier. Notices
transmitted by facsimile transmission or similar means shall be deemed
delivered upon telephone confirmation of receipt, provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday
or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. The acceptance of Rent by Lessor shall not be a waiver of any
Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor
on account of monies or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessee in connection herewith, which such
statements and/or conditions shall be of no force or effect whatsoever unless
specifically agreed to in writing by Lessor at or before the time of deposit
of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto. The Security Deposit
shall not be returned to Lessee until such time as the Recorded Memorandum is
removed from the County records.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this
Lease. in the event that Lessee holds over, then the Base Rent shall be
increased to one hundred fifty percent (150%) of the Base Rent applicable
during the month immediately preceding the expiration or termination. Nothing
contained herein shall be construed as consent by Lessor to any holding over
by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall wherever possible be cumulative with all other remedies
at law or in equity.
28. Covenants and Conditions; Construction of Agreement. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the
plural and vice versa. This Lease shall not be construed as if prepared by
one of the Parties, but rather according to its fair meaning as a whole, as
if both Parties had prepared it.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
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30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "Security Device"), now
or hereafter placed upon the Premises, to any and all advances made on the
security thereof, and to all renewals, modifications, and extensions thereof.
Lessee agrees that the holders of any such Security Devices (in this Lease
together referred to as "Lessor's Lender") shall have no liability or
obligation to perform any of the obligations of Lessor under this Lease. Any
Lender may elect to have this Lease and/or any Option granted hereby superior
to the lien of its Security Device by giving written notice thereof to
Lessee, whereupon this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership; (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor; or
(iii) be bound by prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "Non-Disturbance Agreement") from the Lender which Non-
Disturbance Agreement provides that Lessee's possession of the Premises, and
this Lease, including any options to extend the term hereof, will not be
disturbed so long as Lessee is not in Breach hereof and attorns to the record
owner of the Premises. Further, within sixty (60) days after the execution of
this Lease, Lessor shall use its commercially reasonable efforts to obtain a
Non-Disturbance agreement from the holder of any pre-existing Security Device
which is secured by the Premises. In the event that Lessor is unable to
provide the Non-Disturbance Agreement within said sixty (60) days, then
Lessee may, at Lessee's option, directly contact Lessor's lender and attempt
to negotiate for the execution and delivery of a Non-Disturbance Agreement.
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection
with a sale, financing or refinancing of the Premises, Lessee and Lessor
shall execute such further writings as may be reasonably required to
separately document any subrogation, attornment and/or Non-Disturbance
Agreement provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such
proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to
decision or judgment. The term, "Prevailing Party" shall include, without
limitation, a Party or Broker who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or
the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fees award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred. In addition, Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in the preparation and service of notices
of Default and consultations in connection therewith, whether or not legal
action is subsequently commenced in connection with such Default or resulting
Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times during normal business hours
with 24 hour notice for the purpose of showing the same to prospective
purchasers, lenders, or lessees, and making such alterations, repairs,
improvements or additions to the Premises as Lessor may deem necessary. All
such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "For Sale" signs
and Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "For Lease" signs. Lessee may at any time place on or
about the Premises any ordinary "For Sublease" sign.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor
shall not be obligated to exercise any standard of reasonableness in
determining whether to permit an auction.
34. Signs. Except for ordinary "For Sublease" signs Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises, provided, however, that Lessor may elect to continue any one
or au existing subtenancies. Lessor's failure within ten (10) days following
any such event to elect to the contrary by written notice to the holder of
any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest
36. Consents. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including, but not limited to, architects',
attorneys', engineers' and other consultants' fees) incurred in
the consideration of, or response to, a request by Lessee for any Lessor
consent, including, but not limited to, consents to an assignment, a
subletting or the presence or use of a Hazardous Substance, shall be paid by
Lessee upon receipt of an invoice and supporting documentation therefore.
Lessor's consent to any act, assignment or subletting shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the
time of such consent. The failure to specify herein any particular condition
to Lessor's consent shall not preclude the imposition by Lessor at the time
of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish its reasons in writing and in reasonable
detail within ten (10) business days following such request.
37. deleted
38. Quiet Possession. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
39. Options.
39.1 Definition. "Option" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any Lease that Lessee has
on other property of Lessor; (b) the right of first refusal or first offer to
lease either the Premises or other property of Lessor; (c) the right to
purchase or the right of first refusal to purchase the Premises or other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to
Lessee or permitted Transferee in this Lease is personal to the original
Lessee or permitted Transferee, and cannot be assigned or exercised by anyone
other than said original Lessee or permitted Transferee and only while the
original Lessee or permitted Transferee is in full possession of the Premises
and, if requested by Lessor, with Lessee certifying that Lessee has no
intention of thereafter assigning or subletting
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised
unless the prior Options have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any Rent is
unpaid (without regard to whether notice thereof is given Lessee), (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessee has been given three (3) or more notices of separate Default, whether
or not the Defaults are cured during the twelve (12) month period immediately
preceding the exercise of the Option
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default during
any twelve (12) month period, whether or not the Defaults are cured, or (iii)
if Lessee commits a Breach of this Lease.
Page 10 of 12
<PAGE>
40. deleted
41. Security Measures. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. Reservations. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights
and dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay.
44. Authority. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each Party
shall within thirty (30) days after request, deliver to the other Party
satisfactory evidence of such authority.
45. Conflict. Any conflict between the printed provisions of this
Lease and the typewritten or handwritten provisions shall be controlled by
the typewritten or handwritten provisions.
46. Offer. Preparation of this Lease by either Party or their agent and
submission of the same to the other Party shall not be deemed an offer to
lease to the other Party. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. Multiple Parties. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. Mediation and Arbitration of Disputes. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [x]is not attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS .OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
Page 11 of 12
<PAGE>
ATTENTION: NO REPRESENTATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR
TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE
PARTIES ARE URGES TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION
OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND
THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Santa Clara, California Executed at:_______________________
on:_________________________ on:_______________________
By LESSOR: By LESSEE:
Rose Ventures II, Inc., A California Micrel, Inc., A California
Corporation Corporation
By: /s/ Stephen P. Diamond By: /s/ Raymond Zinn
Name Printed: Stephen P. Diamond Name Printed: Raymond Zinn
Title: President Title: President & CEO
By:_________________________ By: /s/ Robert J. Baker
Name Printed:_______________ Name Printed: Robert J. Barker
Title: _____________________ Title: VP Corporate Business
Development
Page 12 of 12
<PAGE>
LEASE ADDENDUM
THIS IS AN ADDENDUM TO THE ATTACHED LEASE DATED FEBRUARY 25, 2000, BETWEEN
ROSE VENTURES II, INC., A CALIFORNIA CORPORATION, AS LESSOR, AND MICREL, INC.
A CALIFORNIA CORPORATION, AS LESSEE. REGARDING LEASED PREMISES KNOWN AS 2180
FORTUNE DRIVE, SAN JOSE, CALIFORNIA.
To the extent the provisions of this Addendum, add to, or are contrary to the
provisions of the attached Lease, the provisions hereof shall be controlling,
and all other provisions of the Lease shall be given full force and effect.
51. Scheduled Rent Increases - initial Lease Term:
may 1, 2000 - April 30, 2001. The rent shall be $2.00 per square foot NNN for
28,413 square feet. If Lessee occupies all or a portion of the remaining
28,413 SF of the Premises at 2180 Fortune Drive, San Jose prior to the
commencement of the 13th month following the Rent Commencement Date for any
purpose other than construction or storage of construction materials, Lessee
shall pay Rent for the additional space at a rate of $1.30 per square foot
per month from the date of such occupancy through the expiration of the 12th
month following the Rent Commencement Date. In no event should the Rent
exceed $73,873.80 per month for the first 24 months of the lease term
on May 1, 2001, and for each of the succeeding months through April 30, 2002,
the Base Rent payable monthly by Lessee shall be $73,873.80. During the
remaining ten (10) years of the initial term of this Lease, commencing May 1,
2002, and on each subsequent annual anniversary date thereof, the Base Rent
payable each month shall be three percent (3%) more than the Base Rent of the
month immediately preceding each such adjustment date.
52. Lessor Allowance to Lessee for Alterations & Improvements:
During the initial term of this Lease, Lessor shall pay to Lessee up to
$100,000 as an allowance for Lessee's cost to make alterations to the leased
premises which the Lessor has consented to in the manner provided in the
Lease. To secure said allowance funds from Lessor, Lessee shall submit
satisfactory written proof to Lessor that Lessee has expended, or has
contracted to expend, such funds for such alterations and improvements.
53. Management Fee:
During the initial term of the Lease, and during any Option terms exercised
by Lessee, Lessee agrees to pay Lessor a sum each month equal to three
percent (3%) of the Basic Rent payable during each month as a management fee
for Lessor.
54. Building Plans:
To the extent now available to Lessor, Lessor shall provide to Lessee with a
copy of any plans for the existing building and its improvements.
55. Parking:
Lessee has investigated the available on-site parking areas and the number of
available parking spaces and accepts the same in their present condition.
56. Hazardous Materials:
Lessor shall have no obligation to further investigate the condition of the
leased premises regarding its current condition as relates to toxic hazardous
materials.
57. Americans With Disabilities Act:
Lessor believes the leased premises may not comply with, but makes no
representation concerning the compliance of the leased premises or
improvements thereon with the American With Disabilities Act, and
responsibility and cost for compliance therewith shall be borne solely by
Lessee.
58. Right of First Offering to Purchase the Building:
In the case of Sale, Lessee or Assignee shall have the right of first
offering at the same terms and conditions as Owner is offering the building
for sale. Lessee shall have ten (10) working days to notify Lessor of its
intention to purchase. If Lessee elects not to purchase, Owner may offer such
space to third parties upon substantially the same terms and conditions as
contained in Owner's prior written notification to Lessee, but in no event
less than 10% below the original offering price.
59. Assignment and Enforcement of Seller Warranties:
Lessor does hereby assign to Lessee all of Lessor's right in Seller
warranties and representation given by the Seller to Lessor in the Purchase
Contract for Lessor's purchase of the Premises, as more particularly set
forth in Paragraph 12.1(d) of the Purchase Contract dated December 27, 1997,
between Novell, Inc. as Seller and Lessor as Buyer ("Sellers Warranties"),
and agrees to fully cooperate with Lessee in enforcement of the Seller's
Warranties including the bring of a legal action against Seller to enforce
such warranty and representation regarding compliance of the Premises.
60. Bill of Sale of Personal Property:
By this Bill of Sale effective upon commencement of this Lease, Lessor does
hereby unconditionally convey, transfer and deliver to Lessee all right,
title and interest to all personal property such as furniture, cubicles, and
racking remaining on the Premises at the Commencement Date, without warranty
except as to title and free of any encumbrances, and otherwise :as is where
is" in all other respects, Lessor will defend and indemnify Lessee as to any
adverse claim as to title or encumbrance on the subject personal property.
Lessor: Rose Ventures II, Inc.
A California Corporation
By: /s/ Stephen P. Diamond Date: 3/7/00
------------------------ --------
Stephen P. Diamond
President
Lessee: Micrel, Inc.
A California Corporation
By: /s/ Raymond Zinn Date 3/7/00
---------------------- -------------
Raymond Zinn
tenant Improvements permitted by Lessor and to remain with Premises at
termination. See Exhibit "B"
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT, dated as of March 8, 2000, is entered into between Micrel
Incorporated, a California corporation (hereinafter called "Borrower"), whose
chief executive office is at the address set forth in Section 1.7
hereinbelow, and Bank of the West, a California banking corporation, whose
address is set forth in Section 1.5.
The parties agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
definitions:
1.1 Accounts. The term "Account(s)" means all presently existing and
hereafter arising accounts, contract rights, instruments, documents, chattel
paper, and all other forms of obligations owing to Borrower arising out of
the sale or lease of goods or the rendition of services by Borrower whether
or not earned by performance, and any and all credit insurance, guaranties
and other security therefor, as well as all merchandise returned to or
reclaimed by Borrower.
1.2 Agreement. The term "this Agreement" means this Loan and Security
Agreement, any concurrent or subsequent rider to this Loan and Security
Agreement and any extensions, supplements, amendments or modifications to
this Loan and Security Agreement and/or to any such rider.
1.3 Applicable Revolving Loan Rate. The term "Applicable Revolving Loan
Rate" shall be either (i) the Prime Rate or (ii) the Revolving Offshore Rate,
as designated by Borrower or otherwise applicable to such loan or advance
under Article 2 of this Agreement.
1.4 Applicable Term Loan "A" Rate. The term "Applicable Term Loan 'A'
Rate" shall be either (i) the Prime Rate, (ii) the Term Offshore Rate, or
(iii) the Term Fixed Rate, as designated by Borrower or otherwise applicable
to such loan or advance under Article 3 of this Agreement.
1.5 Bank. The term "Bank" shall mean and refer to Bank of the West, a
California banking corporation, with a place of business located at Two North
Second Street, Suite 300, South Bay Business Banking Group, San Jose,
California 95113.
1.6 Bank Expenses. The term "Bank Expenses" means: all costs and
expenses incurred by Bank in connection with this Agreement or the
transactions contemplated hereby, including, without limitation, all costs or
expenses required to be paid by Borrower under this Agreement which are paid
or advanced by Bank; taxes and insurance premiums of every nature and kind of
Borrower paid by Bank; filing, recording, publication, search fees, appraiser
fees authorized by this Agreement, auditor fees authorized by this Agreement,
title insurance premiums paid or incurred by Bank in connection with Bank's
transactions with Borrower; costs and expenses incurred by Bank in collecting
or realizing upon the Collateral (with or without suit), to correct any
default or enforce any provision of this Agreement, or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, preparing
for sale and/or advertising to sell the Collateral, whether or not a sale is
consummated; costs and expenses of suit incurred by Bank in enforcing or
defending this Agreement or any portion hereof; and reasonable attorneys'
fees and expenses incurred by Bank in advising, structuring, drafting,
reviewing, amending, terminating, enforcing, defending or concerning this
Agreement, any portion hereof, any agreement related hereto, or any of the
transactions contemplated hereby, whether or not suit is brought, and
including, but not limited to, any expenses incurred in relation to opposing
or seeking to obtain relief from any stay or restraining order prohibiting
Bank from exercising its rights as a secured creditor, foreclosing upon or
disposing of Collateral, or such related matters.
1.7 Borrower. The term "Borrower" shall mean and refer to the party
first named above, whose address is 1849 Fortune Drive, San Jose, CA 95131.
1.8 Borrower's Books. The term "Borrower's Books" means all of
Borrower's books and records including, but not limited to: minute books;
ledgers, records indicating, summarizing or evidencing Borrower's assets,
liabilities, the Collateral, the Obligations, and all information relating
thereto; records indicating, summarizing or evidencing Borrower's business
operations or financial condition; and all computer programs, disc or tape
files, printouts, runs, and other computer prepared information and the
equipment containing such information.
1.9 Borrowing Base. The term "Borrowing Base" means the sum of: (a)
eighty percent (80%) of the net amount of Eligible Accounts after deducting
therefrom all payments, adjustments and credits applicable thereto; and (b)
the amount of the advances agreed to be made pursuant to any rider, amendment
or modification to this Agreement that may now or hereafter be entered into
by Bank and Borrower.
1.10 Code. The term "the Code" means the California Uniform Commercial
Code, and any and all terms used in this Agreement which are defined in the
Code and not specifically defined herein shall be construed and defined in
accordance with the meaning and definition ascribed to such terms under the
Code.
1.11 Collateral. The term "Collateral" means and includes all of
Borrower's presently existing and hereafter acquired equipment (whether
acquired pursuant to any advance made by Bank or otherwise), wherever
located, including without limitation, equipment used to design, manufacture,
test and package semiconductor devices, machinery, machine tools, motors,
controls, attachments, parts, tools, and accessories incidental thereto; and
all substitutions, replacements, accessories, additions, attachments,
improvements, accessions, Proceeds and products of the foregoing.
1.12 Credit. The term "Credit" means all Obligations in respect of
amounts actually paid or advanced by Bank under this Agreement.
Loan and Security Agreement - Page 1
<PAGE>
1.13 Daily Balance. The term "Daily Balance" shall mean the amount
determined by taking the amount of the Credit owed at the beginning of a
given day, adding any new Credit advanced to or incurred by Borrower on such
date, and subtracting any payments or collections which are deemed to be paid
and are applied by Bank in reduction of the Credit on that date under the
provisions of this Agreement.
1.14 Eligible Accounts. The term "Eligible Accounts" means and includes
those accounts of Borrower which are due and payable within forty-five (45)
days (or less) from the date of invoice and strictly comply with all of
Borrower's warranties and representations to Bank; but Eligible Accounts
shall not include the following: (a) accounts with respect to which the
account debtor is an officer, employee, partner, joint venturer or agent of
Borrower; (b) accounts with respect to which goods are placed on consignment,
guarantied sale or other terms by reason of which the payment by the account
debtor may be conditional; (c) accounts with respect to which the account
debtor is not a resident of the United States of America; (d) accounts with
respect to which the account debtor is the United States of America or any
department, agency or instrumentality thereof; (e) accounts with respect to
which the account debtor is a subsidiary of, related to, affiliated or has
common shareholders, officers or directors with Borrower; (f) accounts with
respect to which Borrower is or may become liable to the account debtor for
goods sold or services rendered by the account debtor to Borrower; (g)
accounts not paid by an account debtor within ninety (90) days from the date
of the invoice; (h) accounts with respect to which account debtors dispute
liability or make any claim, or have any defense, crossclaim, counterclaim or
offset; (i) accounts with respect to which any Insolvency Proceeding is filed
by or against the account debtor, or if an account debtor becomes insolvent,
fails or goes out of business; (j) all accounts owed by an account debtor
when fifty percent (50%) or more of all outstanding accounts owed by the
account debtor to Borrower have not been paid within ninety (90) days after
the date of invoice; and (k) accounts owed by any single account debtor which
exceed twenty percent (20%) of all of the Eligible Accounts.
1.15 Equipment. Intentionally Omitted
1.16 Eurodollar Reserve Percentage. The term "Eurodollar Reserve
Percentage" means for any day during any Interest Period the maximum reserve
percentage (expressed as a decimal, rounded upward to the next 1/100ths of
one percent) in effect on such day (whether or not applicable to any bank)
under the regulations issued from time to time by the Federal Reserve Bank
for determining the maximum reserve requirements (including any emergency,
supplemental, or other marginal reserve requirements) with respect to
Eurocurrency Funding (currently referred to as "Eurocurrency Liabilities").
The Revolving Offshore Rate and/or the Term Offshore Rate (as the case may
be) shall be adjusted automatically as to all Revolving Offshore Rate and/or
the Term Offshore Rate loans (as the case may be) then outstanding as of the
effective date of any change in the Eurodollar Reserve Percentage.
1.17 Event of Default. The term "Event of Default" shall have the
meaning set forth in Article 11 of this Agreement.
1.18 Insolvency Proceeding. The term "Insolvency Proceeding" means any
proceeding commenced by or against any person or entity, including Borrower,
under any provision of the federal Bankruptcy Code, as amended, or under any
other bankruptcy or insolvency law, including, but not limited to,
assignments for the benefit of creditors, formal or informal moratoriums,
compositions or extensions with some or all creditors.
1.19 Interest Period. The term "Interest Period" means the period of
one (1) month, two (2) months, three (3) months, or six (6) months, as
designated by Borrower at the time Borrower requests a Revolving Offshore
Rate-Based Loan or an Term Offshore Rate-Based Loan (as the case may be);
provided, however, that such Interest Period shall in no event extend beyond
the date certain set forth in Section 5.1 of this Agreement (as same may from
time to time be amended) with respect to revolving loans and advances under
Article 2 and provided further, however, that such Interest Period shall in
no event extend beyond the maturity date of any term loans set forth in any
note executed and delivered by Borrower to Bank (as same may from time to
time be amended) with respect to term loans and advances under Article 3.
1.20 Judicial Officer or Assignee. The term "Judicial Officer or
Assignee" means any trustee, receiver, controller, custodian, assignee for
the benefit of creditors or any other person or entity having powers or
duties like or similar to the powers and duties of a trustee, receiver,
controller, custodian or assignee for the benefit of creditors.
1.21 LIBOR Rate. The term "LIBOR Rate" means the rate of interest per
annum that appears on page 3750 of the Dow Jones Telerate Screen (or any
successor page) for United States dollar deposits in amounts equal to the
amount of the Revolving Offshore Rate-Based loan or the Term Offshore Rate-
Based loan (as the case may be) and with a maturity comparable to the
Interest Period, which amount shall be determined at 11:00 a.m. (London local
time) two (2) business days prior to the commencement of the Interest Period;
provided, however, that if such rate is no longer published by Dow Jones,
then the LIBOR Rate shall be determined by reference to such other index that
Bank may reasonably designate in good faith as the rate at which United
States dollar deposits with a maturity comparable to the Interest Period and
in an amount equal to the amount of the Revolving Offshore Rate-Based loan or
the Term Offshore Rate-Based loan (as the case may be) would be offered to
major banks on the London Eurocurrency market at 11:00 a.m. (London local
time) two (2) business days prior to the commencement of the Interest Period.
1.22 Obligations. The term "Obligations" means any and all obligations,
loans, advances, overdrafts, debts, liabilities (including, without
limitation, any and all amounts charged to Borrower's account pursuant to any
agreement authorizing Bank to charge Borrower's account), lease and other
contractual obligations, guaranties, covenants, promises and duties owing by
Borrower to Bank of any kind and description (whether advanced pursuant to or
evidenced by this Agreement; by any note or other instrument; or by any other
agreement between Bank and Borrower and whether or not for the payment of
money), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and including, without limitation,
any debt, liability or obligation owing from Borrower to others which Bank
may have obtained by assignment, participation, operation of law, or
otherwise, and further including, without limitation, all interest not paid
when due and all Bank Expenses.
1.23 Over Advance. The term "Over Advance" shall have the meaning set
forth in Section 2.1 of this Agreement.
1.24 Prime Rate. The term "Prime Rate" means the variable rate of
interest, per annum, most recently announced by Bank at its headquarters
office in San Francisco, California as its "prime rate", with the
understanding that Bank's "prime rate" is only one of Bank's base rates and
Loan and Security Agreement - Page 2
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serves as a basis upon which effective rates of interest are calculated for
loans making reference thereto and may not be the lowest of Bank's base
rates.
1.25 Prime Rate-Based Loans. The term "Prime Rate-Based loans" means
all advances and extensions of credit which shall bear interest at the Prime
Rate.
1.26 Proceeds. The term "Proceeds" means whatever is received upon the
sale, lease, exchange, collection or other disposition of Collateral or
proceeds, including, without limitation, proceeds of insurance covering
Collateral, tax refunds, and any and all Accounts, general intangibles,
Negotiable Collateral, equipment, money, deposit accounts, goods, or other
tangible and intangible property of Borrower resulting from the sale or other
disposition of the Collateral, and the proceeds thereof.
1.27 Revolving Offshore Rate. The term "Revolving Offshore Rate" shall,
for any Interest Period, be the rate of interest per annum (rounded upward to
the next 1/32nd of one percent) resulting from the sum of (i) two percent
(2.00%) per annum and (ii) a quotient, the numerator of which is the LIBOR
Rate and the denominator of which is the difference between (a) one (1.0) and
(b) the Eurodollar Reserve Percentage. Expressed as a formula, the Revolving
Offshore Rate shall be as follows:
Revolving Offshore Rate = [2.00%] + [LIBOR Rate/(1.00 - Eurodollar Reserve
Percentage)]
1.28 Revolving Offshore Rate-Based Loans. The term "Revolving Offshore
Rate-Based loans" means all advances and extensions of credit which shall
bear interest at the Revolving Offshore Rate.
1.29 Term Fixed Rate. The term "Term Fixed Rate" shall mean the rate of
interest determined in accordance with the note attached hereto as Exhibit
"A."
1.30 Term Fixed Rate-Based Loans. The term "Term Fixed Rate-Based
loans" means all advances and extensions of credit which shall bear interest
at the Term Fixed Rate.
1.31 Term Offshore Rate. The term "Term Offshore Rate" shall, for any
Interest Period, be the rate of interest per annum (rounded upward to the
next 1/32nd of one percent) resulting from the sum of (i) two and one-eighth
percent (2.125%) per annum and (ii) a quotient, the numerator of which is the
LIBOR Rate and the denominator of which is the difference between (a) one
(1.0) and (b) the Eurodollar Reserve Percentage. Expressed as a formula, the
Term Offshore Rate shall be as follows:
Term Offshore Rate = [2.125%] + [LIBOR Rate/(1.00 - Eurodollar Reserve
Percentage)]
1.32 Term Offshore Rate-Based Loans. The term "Term Offshore Rate-Based
loans" means all advances and extensions of credit which shall bear interest
at the Term Offshore Rate.
1.33 Term Treasury Rate. The term "Term Treasury Rate" shall mean the
rate of interest determined in accordance with the note attached hereto as
Exhibit "A."
All accounting terms and computations shall be based upon generally
accepted accounting principles consistently applied.
2. REVOLVING LOANS AND TERMS OF PAYMENT
2.1 Revolving Loans. Upon request of Borrower, made at any time and
from time to time during the term hereof, and so long as no Event of Default
has occurred, Bank shall lend to Borrower an amount equal to the Borrowing
Base; provided, however, that in no event shall Bank be obligated to make
advances to Borrower under this Section 2.1 whenever the Daily Balance of
loans and advances under this Article 2 exceeds, at any one time, either the
Borrowing Base or the sum of Five Million Dollars ($5,000,000.00).
All loans made pursuant to this Section 2.1 shall be added to and
deemed part of the Credit when made. If, at any time and for any reason, the
Daily Balance of loans and advances under this Article 2 exceeds the amount
of the loans and advances for which Borrower is eligible based upon the above
limitations, or if the advances made pursuant to any rider to this Agreement
exceed the percentage or dollar limitations contained in such rider (an "Over
Advance"), then Borrower shall immediately pay to Bank, in cash, the amount
of such Over Advance.
2.2 Revolving Loans Procedure for Borrowing and Interest Rate. Except
as hereinbelow provided, all advances under this Article 2 made and advanced
by Bank from and after March 8, 2000 or outstanding on the date hereof shall
bear interest on the amount of such advance from time to time outstanding at
a per annum rate equal to the "Applicable Revolving Loan Rate" (as
hereinafter defined).
(a) Method of Borrowing. Each revolving loan or advance under this
Article 2 shall be made upon Borrower's request, which request shall (a) be
on such form and in such manner as Bank may from time to time specify; (b)
specify if the loan or advance is to be a Prime Rate-Based loan or a
Revolving Offshore Rate-Based loan; (c) specify the amount of each such loan
or advance [which, in connection with any Revolving Offshore Rate-Based
loans, shall be in multiples of One Hundred Thousand Dollars ($100,000.00)];
(d) be received by Bank not later than 10:00 a.m. Pacific local time either
(i) three (3) business days prior to the requested borrowing date, with
respect to Revolving Offshore Rate-Based loans or (ii) on the borrowing date,
with respect to Prime Rate-Based loans; and (e) with respect to any Revolving
Offshore Rate-Based loans, specify an Interest Period for such Revolving
Offshore Rate-Based loan. If a request fails to specify if the loan or
advance is a Prime Rate-Based loan or a Revolving Offshore Rate-Based loan,
such loan and advance shall be a Prime Rate-Based loan. If any request for a
Revolving Offshore Rate-Based loan fails to specify an Interest Period, such
Interest Period shall be one (1) month. If an Interest Period would end on a
date that is not a business day, such Interest Period shall extend to the
next following business day.
(b) Conversions. Borrower may, from time to time, elect to convert
one or more Prime Rate-Based loans to Revolving Offshore Rate-Based loans
upon Borrower's request, which request shall (a) be on such form and in such
manner as Bank may from time to time specify; (b) specify the amount of each
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<PAGE>
such loan or advance to be converted in multiples of One Hundred Thousand
Dollars ($100,000.00); (c) be received by Bank not later than 10:00 a.m.
Pacific local time three (3) business days prior to the requested conversion
date; and (d) specify an Interest Period. If any request to convert a Prime
Rate-Based loan to a Revolving Offshore Rate-Based loan fails to specify an
Interest Period, such Interest Period shall be one (1) month. If an Interest
Period would end on a date that is not a business day, such Interest Period
shall extend to the next following business day.
By not later than 10:00 a.m. Pacific local time three (3) business days
prior to the end of any Interest Period, Borrower shall elect to either
convert any Revolving Offshore Rate-Based loans expiring at the end of such
Interest Period into Prime Rate-Based loans or to renew such Revolving
Offshore Rate-Based loans, which request shall (a) be on such form and in
such manner as Bank may from time to time specify; (b) specify what portion
(if any) of the loan or advance is to be converted to a Prime-Based loan and
what portion (if any) is to remain as a Revolving Offshore Rate-Based loan
[which, in connection with Revolving Offshore Rate-Based loans shall be in
multiples of One Hundred Thousand Dollars ($100,000.00)]; and (c) specify an
Interest Period for any loans or advances to be continued as Revolving
Offshore Rate-Based loans; provided, however, that such Interest Period shall
in no event extend beyond the date certain set forth in Section 5.1 of this
Agreement (as same may from time to time be amended). If Borrower fails to
timely elect to renew such Revolving Offshore Rate-Based loans, such failure
shall be deemed an election to convert such Revolving Offshore Rate-Based
loans into Prime Rate-Based loans at the expiration of the Interest Period.
If any request to renew a Revolving Offshore Rate-Based loan fails to specify
an Interest Period, such Interest Period shall be one (1) month. If an
Interest Period elected by Borrower with respect to any renewed Revolving
Offshore Rate-Based loans would end on a date that is not a business day,
such Interest Period shall extend to the next following business day.
(c) Changes in the Prime Rate. In the event that the Prime Rate
announced is, from time to time hereafter, changed, adjustment in the rate of
interest payable by Borrower with respect to Prime Rate-Based loans then
outstanding shall be made on the effective date of the change in the Prime
Rate. The rate of interest, as adjusted, shall apply to all outstanding
Prime Rate-Based loans until the Prime Rate is again adjusted.
2.3 Computation and Payment of Interest and Principal. All interest
chargeable under this Agreement on a per annum basis shall be computed on a
basis of a 360-day year for actual days elapsed. Interest payable by
Borrower under this Article 2 shall be due and payable on the fifth (5th) day
of each calendar month (in arrears) during the term of this Agreement with
respect to the availability of this facility under Section 5.1. If Borrower
fails to make any installment of principal, interest or Bank Expenses in the
time and manner prescribed by this Agreement, Bank may, at Bank's option,
elect to treat any due but unpaid principal, interest and/or Bank Expenses as
a Prime Rate-Base loan and all such advances shall bear interest on the Daily
Balance of loans and advances under this Article 2 thereof, at a per annum
rate applicable to Prime Rate-Based loans under the terms of Article 2 of
this Agreement. Notwithstanding anything to the contrary contained in this
Agreement, and regardless of the existence or non-existence of any Event of
Default under this Agreement, Bank shall have the right (but not the
obligation) to withdraw and charge any deposit or other accounts maintained
by Borrower with Bank for the amount of any payment due Bank hereunder (and
Borrower hereby consents to such withdrawal, charge and application by Bank).
The receipt of any check or other item of payment by Bank shall not be
considered payment until such check or other item of payment is honored when
presented for payment, in which event, said check or other item of payment
shall be deemed to have been paid to Bank in accordance with Bank's rules and
regulations relating to credits to deposit accounts or, in Bank's discretion,
two (2) calendar days after the date Bank actually receives possession of
such check or other item of payment. Amounts once borrowed and repaid under
this Article 2 shall be available for re-borrowing. On the date of
termination under Article 4, all Obligations owed by Borrower to Bank under
this Article 2 shall become immediately due and payable without notice or
demand and shall be repaid to Bank in cash or by a wire transfer of
immediately available funds.
2.4 Default Interest Rate. Notwithstanding anything to the contrary
contained in Article 2 of this Agreement, the Credit shall bear interest,
from and after any Event of Default and without constituting a waiver of any
such Event of Default, on the Daily Balance of loans and advances under this
Article 2, at a per annum rate two (2) percentage points above the Applicable
Revolving Loan Rate.
2.5 Account Stated. Bank shall render monthly statements of the Credit
owing by Borrower to Bank, including statements of all principal, interest
and Bank Expenses owing, and such statement shall be conclusively presumed to
be correct and accurate and constitute an account stated between Borrower and
Bank unless, within ninety (90) days after receipt thereof by Borrower,
Borrower shall deliver to Bank, by registered or certified mail, at Bank's
place of business indicated above, written objection thereto specifying the
error or errors, if any, contained in any such statement.
3. TERM LOAN FACILITY "A"
3.1 Term Loan Facility "A" Advances.
(a) Upon the request of Borrower made at any time, and from time to
time, during Draw Period "A" (as hereinafter defined), subject to and upon
the terms and conditions of this Agreement, and so long as no Event of
Default has occurred, Bank agrees to make term loans to Borrower (the "Term
Loan Facility 'A'"). For the purpose of this Agreement, "Draw Period 'A'"
shall mean the period between the date of this Agreement and the earlier of:
(i) April 30, 2001 or (ii) the date on which the aggregate of all advances
made pursuant to this Article 3 equals Forty Million Dollars
($40,000,000.00).
(b) Borrower may use the proceeds of this Term Loan Facility "A" for
the purchase of items of new and used equipment that is acquired from and
after June 1, 1999 for use in connection with Borrower's business. If such
loan or advance is approved by Bank, each advance made by Bank under this
Term Loan Facility "A" shall be made either to Borrower or to the vendor of
any new and used equipment financed with the proceeds of such advance (at
Bank's option). In no event shall said proceeds be used by Borrower for any
purpose other than purchase of the new and used equipment approved by Bank.
In the event that Bank opts to disburse the proceeds of any such advance
directly to the vendor(s) of any new and used equipment, and if the amount of
the advance to be made by Bank does not equal the total purchase price of
such new and used equipment together with all installation charges, sales
tax, freight, and software charges, Borrower shall deliver to Bank an amount
equal to the difference between the cost (including all installation charges,
sales tax, freight, and software charges) and the amount of such advance,
which difference shall be remitted to said vendor(s) with the advance by
Bank. Bank shall not be obligated to make any advance under this Article 3
with respect to the purchase of any items of equipment unless and until Bank
has received and approved the following: (1) a copy of Borrower's purchase
order, (2) an original delivery and acceptance certificate executed by
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<PAGE>
Borrower with respect to any equipment to be purchased, and (3) such other
documentation as Bank may require (including, without limitation, schedules
attached hereto describing said new and used equipment and financing
statements relative thereto). Amounts once borrowed and repaid under Term
Loan Facility "A" shall not be available for re-borrowing.
3.2 Documentation and Interest. Each advance made under this Term Loan
Facility "A" shall be evidenced by and subject to the terms of a separate
promissory note to be executed by Borrower in substantially the form of
Exhibit "A" attached to this Agreement, with appropriate insertions (the
"Term Loan Facility 'A' Note"). All loans and advances made under Term Loan
Facility "A" shall be added to and deemed a part of the Obligations and shall
bear interest, on the Daily Balance owing in connection with such note, at a
per annum rate equal to the Applicable Term Loan "A" Rate.
3.3 Monthly Accounting. Bank shall render monthly statements of all
amounts owing by Borrower to Bank under Term Loan Facility "A", including
statements of all principal, interest, and Bank Expenses owing, and such
statements shall be conclusively presumed to be correct and accurate and
constitute an account between Borrower and Bank unless, within ninety (90)
days after receipt thereof by Borrower, Borrower delivers to Bank, by
registered or certified mail, at Bank's place of business, a written
objection specifying the error or errors, if any, contained in any such
statement.
4. TERM
4.1 Term and Termination. This Agreement shall commence on the date
hereof. Borrower's right to receive term loan advances under Article 3 of
this Agreement shall remain in full force and effect until April 30, 2001 and
Borrower's obligations with respect to any Term Loan Facility "A" Notes
outstanding on April 30, 2001 and the terms and conditions of this Agreement
as same relate to the Term Loan Facility "A" and the Term Loan Facility "A"
Notes shall continue in full force and effect (and shall be subject to Bank's
rights and remedies set forth therein). With respect to Borrower's right to
requests revolving loan advances under Article 2 of this Agreement only, this
Agreement shall remain in full force and effect until April 30, 2001 and
shall continue on a month-to-month basis after such April 30, 2001 date until
Borrower's right to requests revolving loan advances under Article 2 of this
Agreement is terminated by either party by thirty (30) days' written notice.
Notice of such termination of Borrower's right to requests revolving loan
advances under Article 2 of this Agreement shall be effectuated by the
mailing of a registered or certified letter of notice. Notwithstanding the
foregoing, upon the occurrence of an Event of Default, Bank may terminate all
of its obligations under this Agreement without notice (including, without
limitation, those relating to Borrower's right to receive term loan advances
under Article 3 of this Agreement, those relating to Borrower's right
continue to make installment payments under the Term Loan Facility "A" Notes,
and those relating to Borrower's right to request revolving loan advances
under Article 2 of this Agreement).
On the date of termination, all Obligations owed by Borrower to Bank
shall become immediately due and payable without notice or demand and shall
be repaid to Bank in cash or by a wire transfer of immediately available
funds. Notwithstanding termination, until all Obligations owing by Borrower
with respect to term loan advances under Article 3 of this Agreement have
been fully repaid and performed, Bank shall retain its security interest in
all existing Collateral and Collateral arising thereafter, and Borrower shall
continue to perform all Obligations with respect to term loan advances under
Article 3 of this Agreement.
4.2 Termination of Security Interest. After termination and when Bank
has received payment and performance in full of all Obligations owing under
Article 3 of this Agreement, and upon the execution by Borrower and delivery
to Bank of a general release in favor of Bank, Bank shall execute a
termination of all security agreements and security interests given by
Borrower to Bank.
5. CREATION OF SECURITY INTEREST
5.1 Grant of Security Interest. Borrower hereby grants to Bank a
continuing security interest in the Collateral in order to secure prompt
repayment and performance of all Obligations owing under Article 3 and all
Bank Expenses related to the Obligations under Article 3 of this Agreement.
Bank's security interest in the Collateral shall attach to the Collateral
without further act on the part of Bank or Borrower. In the event that any
Collateral sold, conveyed or otherwise transferred by Borrower, the proceeds
of such sale, conveyance or transfer shall be applied to pay off and satisfy
the Term Loan Facility "A" Note secured by such Collateral.
5.2 Security Documents; Attorney-In-Fact. Borrower shall execute and
deliver, or cause to be executed and delivered, to Bank, concurrent with
Borrower's execution of this Agreement, (if requested by Bank) concurrently
with any advances under Article 3 of this Agreement), and at any other time
or times hereafter at the request of Bank, all financing statements,
continuation financing statements, fixture filings, landlord waivers,
security agreements, chattel mortgages, assignments, deeds of trust,
assignments of leases, endorsements of certificates of title, affidavits,
reports, notices, and letters of authority and all other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and maintain
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under this Agreement.
Borrower hereby irrevocably makes, constitutes and appoints Bank (and any of
Bank's officers, employees or agents designated by Bank to act on Bank's
behalf) as Borrower's true and lawful attorney with power to sign the name of
Borrower on any of the above-described documents or on any other similar
documents which need to be executed, recorded, and/or filed in order to
perfect or continue perfected Bank's security interest in the Collateral and
to do all things necessary to carry out this Agreement. Borrower ratifies
and approves all acts of the attorney, and neither Bank nor its attorney will
be liable for any acts or omissions or for any error of judgment or mistake
of fact or law made in good faith. The appointment of Bank as Borrower's
attorney, and each and every one of Bank's rights and powers, being coupled
with an interest, are irrevocable so long as any Obligations remain unpaid or
unperformed.
To protect or perfect any security interest granted to Bank hereunder,
Bank may, in its sole discretion, discharge any lien or encumbrance or bond
the same, pay any insurance, fees or charges, maintain guards, warehousemen
or any personnel to protect the Collateral, pay any service bureau or obtain
any records, and all costs for the same shall be Bank Expenses.
6. CONDITIONS PRECEDENT
As conditions precedent to the making of the loans and the extension of
the financial accommodations hereunder, Borrower shall execute and deliver or
cause to be executed and delivered, to Bank, in form and substance
satisfactory to Bank and its counsel, each of the following:
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6.1 Agreement. This Agreement, together with supplemental security
agreements, chattel mortgages, riders and other documents required by Bank;
6.2 Financing Statement. Financing statements (Form UCC-1) in form
acceptable for filing and recording with the appropriate governmental
authorities;
6.3 Resolutions. If Borrower is a corporation, certified extracts from
the minutes of the meetings of Borrower's board of directors, authorizing the
borrowings and the granting of the security interests provided for herein and
authorizing specific officers to execute and deliver the agreements provided
for herein;
6.4 Certificates. If Borrower is a corporation, a certificate of good
standing showing that Borrower is in good standing under the laws of the
state of its incorporation, and certificates indicating that Borrower has
qualified to transact business and is in good standing in any other state in
which Borrower conducts business;
6.5 Search Results. UCC, tax lien, litigation, judgment and other
searches, title reports, fictitious business name statement filings,
insurance certificates, notices or other similar documents which Bank may
require and in such form as Bank may require, in order to reflect Bank's
first priority security interest in the Collateral and in order to fully
consummate all of the transactions contemplated under this Agreement;
6.6 Waivers. Waivers executed by landlords and mortgagees of any real
property on which the Collateral is located;
6.7 Officers' Warranties and Representations. An executed form of
Warranties and Representations of Officers; and
6.8 Insurance. Evidence satisfactory to Bank that Borrower has obtained
insurance policies or binders, in such amounts as may be acceptable to Bank,
respecting the tangible assets of Borrower which are to serve as Collateral
and naming Bank as a loss payee on a 438-BFU endorsement and/or additional
insured (at Bank's discretion).
6.9 Secured Lending Audit. If requested by Bank, an audit, inspection
or other report prepared by auditors or consultants acceptable to Bank
confirming (i) the location, quantity, quality, and value of all equipment,
(ii) the accuracy, authenticity, amount, aging, payment history, obligors,
and status of all Accounts, and (iii) such other attributes, locations,
quantities, qualities, and values of the Collateral as Bank deems necessary
or appropriate.
7. MANAGEMENT AND STATUS OF COLLATERAL AND INSPECTIONS AND AUDITS
7.1 Collateral Records. Borrower shall maintain a comprehensive and up-
to-date list of all Collateral, showing the date of purchase, any identifying
descriptions and numbers, and records of maintenance. Borrower shall deliver
a copy of such list to Bank upon execution of this Agreement, and at such
time or times thereafter as Bank may request.
7.2 Condition of Collateral. Borrower shall keep and maintain the
Collateral in good operating condition and repair and make all necessary
replacements thereto so that the value and operating efficiency thereof shall
at all times be maintained and preserved. Borrower shall not permit any
items of Collateral to become a fixture to real estate or an accession to
other property, and the Collateral is now and shall at all times remain and
be personal property.
7.3 Certificate of Title. Upon Bank's request, Borrower shall
immediately deliver to Bank, properly endorsed, any and all evidences of
ownership, certificates of title or applications for titles to any or all
items of Collateral.
7.4 Inspection of Collateral. Bank shall have the right, now and at all
times hereafter, during Borrower's usual business hours, or at the regular
business hours of any third party in possession of Collateral, to inspect and
examine the Collateral and to check and test the same as to quality,
quantity, value and condition, and at any time when an event of default under
this Agreement or under any Obligations has occurred and is outstanding
Borrower agrees to reimburse Bank for its reasonable costs and expenses in so
doing.
7.5 Borrower's Books. Bank shall have the right, at all times, during
Borrower's normal business hours, or at the regular business hours of any
third party having custody of or control over Borrower's Books, to inspect,
review, examine, and audit (i) Borrower's Books, (ii) the accuracy,
authenticity, amount, aging, payment history, obligors, and status of all
Accounts, and (iii) such other attributes, locations, quantities, qualities,
and values of Borrower or the Collateral as Bank deems necessary or
appropriate. In connection with the foregoing, Bank shall have the right to
make summaries and photocopies thereof. At any time when an event of default
under this Agreement or under any Obligations has occurred and is
outstanding, Borrower agrees to reimburse Bank for its reasonable costs and
expenses in performing such inspection, review, examination, audit and
photocopying.
8. WARRANTIES AND REPRESENTATIONS
In order to induce Bank to enter into this Agreement and to make the
loans and/or issue the letters of credit contemplated hereby, Borrower
warrants, represents and agrees that, until all Obligations are fully paid
and performed:
8.1 Title to Properties. Borrower has and at all times will have good,
marketable and indefeasible title to the Collateral; the Collateral is and at
all times shall remain free and clear of all liens, claims, encumbrances, and
purchase money or other security interests (except as held by Bank or as may
be consented to, in writing, by Bank), and the Collateral is and shall, at
all times, remain of good and of merchantable quality, free from defects.
8.2 Validity of Accounts. The accounts are and will, at all times
pertinent hereto, be bona fide existing obligations created by the sale or
lease of goods or the rendition of services to account debtors in the
ordinary course of Borrower's business, and are and will be unconditionally
owed to Borrower without rights of return or cancellation. At the time each
account is generated and/or assigned to Bank: (a) all accounts will be due
and payable in accordance with the terms set forth in Section 1.14 of this
Agreement, or on such other terms approved in writing by Bank in advance of
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the creation of accounts, and such terms shall be expressly set forth on the
face of all invoices; (b) all property giving rise to accounts shall have
been delivered to the account debtor or to the agent of the account debtor
for immediate shipment to and unconditional acceptance by the account debtor;
(c) no account will be past due; (d) all accounts shall be unconditionally
owed to Borrower without defense, offset or counterclaim dispute; and (e)
Borrower shall have received no notice of actual or imminent Insolvency
Proceeding of any account debtor.
8.3 Place of Business. Borrower's chief executive office is located at
the address set forth in Section 1.7 hereinabove and all of the locations at
which Borrower conducts business or stores any Collateral are as set forth in
the Warranties and Representations of Officers delivered by Borrower to Bank
of even date herewith. Borrower covenants and agrees that it will not,
during the term of this Agreement, relocate said chief executive office
location without prior written notification to Bank.
8.4 Legal Status. Borrower is and shall at all times hereafter be duly
organized and existing and in good standing under the laws of the state of
its incorporation, and qualified or licensed to do business, and in good
standing as a foreign corporation, if applicable, in all jurisdictions in
which such qualification or licensing is required.
8.5 Authorization and Validity. This Agreement and each other document,
contract and instrument required by or at any time delivered to Bank in
connection with this Agreement have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof will
constitute legal, valid and binding agreements and obligations of Borrower or
the party which executes the same, enforceable in accordance with their
respective terms.
8.6 No Violation. The execution, delivery and performance by Borrower
of this Agreement shall not: (a) violate any law or regulation, (b)
constitute a breach of any provision contained in the Articles of
Incorporation, Bylaws or other organization papers of Borrower, or (c)
constitute an event of default under any agreement to which Borrower is now
or hereafter becomes a party or by which Borrower may be bound.
8.7 Payment of Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed against
Borrower, or any of Borrower's property, have been paid in full before
delinquency.
8.8 No Litigation. Except as disclosed by Borrower to Bank in writing
prior to or concurrently with the execution and delivery of this Agreement,
there are not presently any actions or proceedings pending by or against
Borrower before any court or administrative agency alleging seeking an award
of damages in an aggregate at any one time in excess of One Million dollars
($1,000,000) or which, in the reasonable opinion of Bank or its counsel
involving claims representing a foreseeable liability in an aggregate at any
one time in excess of One Million dollars ($1,000,000), and Borrower has no
knowledge of any pending, threatened or imminent litigation, governmental
investigations or claims, complaints, actions or prosecutions involving
Borrower outside of the limits set forth in this sentence, except for ongoing
collection matters. If any of the foregoing do arise during the term of this
Agreement, Borrower shall notify Bank in writing within thirty (30) days.
8.9 Financial Statements and Condition. All financial statements and
information relating to Borrower which have been or may hereafter be
delivered by Borrower to Bank are true and correct and have been prepared in
accordance with generally accepted accounting principles consistently
applied, and there has been no material adverse change in the financial
condition of Borrower since the submission of such financial information to
Bank.
8.10 Permits, Franchises. Borrower possesses, and will hereafter
possess, all permits, memberships, franchises, contracts and licenses
required and all trademark rights, trade names, trade name rights, patents,
patent rights and fictitious name rights necessary to enable Borrower to
conduct the business in which Borrower is now engaged without conflict with
the rights of others.
8.11 ERISA Warranty. Borrower has not withdrawn from (and no
termination, partial termination or other event has occurred with respect to)
any deferred compensation plan maintained for the benefit of Borrower's
employees, and has not withdrawn from any multi- employer plan described in
Section 4001(a)(3) of ERISA (as defined in Section 8.9 of this Agreement).
8.12 Environmental Matters. Borrower is now and at all times hereafter
shall remain in compliance with all federal, state and municipal laws,
regulations and ordinances relating to the handling, treatment and disposal
of toxic substances, wastes and hazardous material and shall maintain all
necessary authorizations and permits. None of the operations of Borrower is
now nor shall hereafter be the subject of any federal, state or municipal
investigation evaluating whether any remedial action is needed to respond to
a release of any toxic or hazardous waste or substance into the environment.
8.13 Solvency. Borrower is now and shall be at all times hereafter
solvent and able to pay Borrower's debts (including trade debts) as they
mature.
8.14 Lien Priority. The liens and security interests of Bank in the
Collateral are and shall remain first priority, except as expressly agreed
to, in writing, by Bank.
8.15 Warranties and Representations Cumulative. Each warranty,
representation and agreement contained in this Agreement shall be
automatically deemed repeated with each loan and/or advance and shall be
true, accurate and correct at each such time and shall be conclusively
presumed to have been relied on by Bank regardless of any investigation made
or information possessed by Bank. The warranties, representations and
agreements set forth herein shall be cumulative and in addition to any and
all other warranties, representations and agreements which Borrower shall
give, or cause to be given, to Bank, either now or hereafter.
9. NEGATIVE COVENANTS
Borrower will not, without Bank's prior written consent, during the term
hereof and so long as any Obligation remains unpaid or unperformed:
9.1 Change in Identity. Change Borrower's name, business structure, or
identity, or add any new fictitious name, or relocate Borrower's chief
executive office.
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9.2 Acquisitions and Mergers. Acquire, merge or consolidate with or
into any other business organization or enter into any partnership, joint
venture or other combination (each an "Acquisition") where (1) the sum of the
aggregate consideration paid for any such Acquisitions undertaken during the
term of this Agreement, including (i) the fair market value of any property
given, (ii) any cash paid, and (iii) the amount of any assumption of existing
obligations (but excluding consideration in the form of capital stock of
Borrower) which indebtedness is either unsecured or secured by assets of the
subject of such Acquisition, and less cash received as a result of the
Acquisition, does not exceed $5,000,000, (2) such Acquisition is undertaken
in accordance with all applicable requirements of law; and (3) such
Acquisition will not cause Borrower, on a projected basis, to violate any of
the financial covenants set forth in this Agreement.
9.3 Ordinary Course of Business. Enter into any transaction not in the
usual course of Borrower's business of design, manufacture and sale of semi-
conductor products and services.
9.4 Change in Financial Structure. Make any material change in
Borrower's financial structure or in any of Borrower's business objectives,
purposes, or operations.
9.5 Suspension of Business. Suspend or go out of business.
9.6 Dividends and Distributions. Do either or both of the following in
an amount exceeding (in the aggregate) One Million Dollars ($1,000,000) in
any of Borrower's fiscal years: (i) make any distribution or declare or pay
any cash dividends on any of its capital stock or (ii) purchase, acquire,
redeem or retire any of its capital stock, of any class, whether now or
hereafter outstanding.
9.7 Liens and Encumbrances. Grant a security interest in or permit a
lien, claim or encumbrance upon all or any portion of Borrower's assets or
the Collateral, except in favor of Bank and except for purchase money liens
on Equipment that it not manufacturing, production or testing and is
otherwise not Equipment with respect to which Bank has made and extended
loans and advances under Article 3.
9.8 Investment in Securities. Make any investment in securities, other
than the securities of the United States of America and other than in
accordance with any written investment policy from time to time approved by
Bank, which policy shall be in writing and shall be delivered to Bank prior
to or concurrently with the execution of this Agreement.
9.9 ERISA/Covenant. Withdraw from participation in, permit the
termination or partial termination of, or permit the occurrence of any other
event with respect to any deferred compensation plan maintained for the
benefit of Borrower's employees under circumstance that could result in
liability to the Pension Benefit Guaranty Corporation, or any of its
successors or assigns, or to any entity which provides funds for such
deferred compensation plan, or withdraw from any multi-employer plan
described in Section 4001(a)(3) of the Employee Retirement Income Security
Act ("ERISA") of 1974, as amended, which may cover Borrower's employees.
9.10 Relocation and Sale of Assets. Other than in the ordinary course
of Borrower's business, sell, lease, or otherwise dispose of, move, relocate,
or transfer, whether by sale or otherwise, any of Borrower's assets or the
Collateral.
9.11 Guarantees. Guaranty or otherwise become in any way liable with
respect to the obligations of any third party in an aggregate amount at any
one time exceeding One Million Dollars ($1,000,000), except by endorsement of
instruments or items of payment for deposit to the general account of
Borrower or which are transmitted or turned over to Bank.
9.12 Indebtedness. Incur any debts outside the ordinary course of
Borrower's business, except for renewals or extensions of existing debts.
9.13 Loans. Make any advance or loan to any person or entity in an
aggregate amount at any one time exceeding Two Million Five Hundred Thousand
Dollars ($2,500,000).
10. AFFIRMATIVE COVENANTS
Borrower hereby covenants and agrees that during the term hereof and until
all Obligations are fully paid and performed:
10.1 Location of Collateral. Except as permitted below, Borrower shall
keep the Collateral only at 1849 Fortune Drive, San Jose, CA 95131, at such
locations in the State of California as may be identified for the location of
collateral in that certain Warranties and Representations of Officers of
Borrower executed and delivered in connection with this Agreement, and at
such other locations within the state of California with respect to which
Borrower has provided Bank in writing the name and mailing address of the
landlord and (if requested by Bank) for which Borrower has obtained and
delivered to Bank a landlord's waiver or similar documentation from the
landlord at each such location in a form and content acceptable to Bank (the
"Permitted Locations"). If requested by Bank, Borrower shall provide Bank
with the name and mailing address of the landlord for each location described
above or where any of the Collateral may (from time to time) be kept and/or
the mortgagee, beneficiary, or lender of any mortgage, deed of trust or other
lien encumbering each such location. Notwithstanding the foregoing, Borrower
shall have the right to move, relocate, loan, sell or dispose of any items or
pieces of Collateral (and not just those items and pieces of Collateral
financed by Bank with loans and advances under Article 3) to locations other
than Permitted Locations provided (1) such movement, relocation, sale and/or
disposition is in the usual and ordinary course of Borrower's business and
(2) the aggregate book value of all Collateral (and not just those items and
pieces of Collateral financed by Bank with loans and advances under Article
3) located at locations that are not Permitted Locations does not exceed (at
any one time) ten percent (10%) of the aggregate book value of all of
Borrower's Collateral (and not just those items and pieces of Collateral
financed by Bank with loans and advances under Article 3). For the purpose
of this Agreement, "book value" shall mean the original purchase price of
each such item or piece of Collateral, less the accumulated deprecation
thereon as reflected on Borrower's books and in accordance with generally
accepted financial accounting principles (consistently applied). Within
thirty (30) days after the end of each fiscal quarter, Borrower shall provide
Bank with a detailed listing of the location of each item of Collateral (and
not just those items and pieces of Collateral financed by Bank with loans and
advances under Article 3) having an initial purchase price exceeding Five
Thousand Dollars ($5,000) each that is located at an address or location that
is not a Permitted Location.
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10.2 Value of Collateral. Bank shall not in any way or manner be liable
or responsible for: (a) the safekeeping of the Collateral; (b) any loss or
damage to the Collateral or occurring or arising in any manner or fashion
from any cause; (c) any diminution in the value of the Collateral; or (d) any
act or default by any carrier, warehouseman, bailee, forwarding agency or any
other person or entity whomsoever. All risk of loss, damage, destruction or
loss of value of the Collateral shall be borne by Borrower, whether or not
Borrower shall be in possession or control of the Collateral.
10.3 Notice of Litigation and/or Environmental Investigations. Promptly
after the commencement thereof, Borrower shall notify Bank in writing of:
(a) any litigation pending or threatened against Borrower before any court or
administrative agency alleging seeking an award of damages in an aggregate at
any one time in excess of One Million dollars ($1,000,000) or which, in the
reasonable opinion of Bank or its counsel involving claims representing a
foreseeable liability in an aggregate at any one time in excess of One
Million dollars ($1,000,000), and (b) any federal, state or municipal
investigation evaluating whether any remedial action is needed by Borrower to
respond to a release of any toxic or hazardous waste or substance into the
environment.
10.4 Taxes. Borrower shall make due and timely payment or deposit of
all federal, state and local taxes, assessments or contributions required of
Borrower by law, and will execute and deliver to Bank, on demand, appropriate
certificates attesting to the payment or deposit thereof. Borrower will make
timely payment or deposit of all F.I.C.A. payments and withholding taxes
required of Borrower by applicable laws, and will, upon request, furnish Bank
with proof satisfactory to Bank that Borrower has made such payments or
deposits. If Borrower fails to pay any such assessment, tax, contribution,
or make such deposit, or furnish the required proof, Bank may, in Bank's sole
and absolute discretion and without notice to Borrower: (a) make payment of
the same or any part thereof, or (b) set up such reserves against the Credit,
or otherwise reduce the loans and advances for which Borrower is eligible
under this Agreement, as Bank deems necessary to satisfy the liability
therefor, or both. Bank may conclusively rely on the usual statements of the
amount owing or other official statements issued by the appropriate
governmental agency. Each amount paid or deposited by Bank shall constitute
Bank Expenses and an advance to Borrower. Nothing herein contained shall
preclude Borrower from contesting, diligently, in good faith, and by
appropriate proceedings, the imposition of any assessments and taxes and to
withhold payment of such contested amounts pending the resolution of such
proceedings.
10.5 Compliance. Borrower shall maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of Borrower's business; conduct Borrower's business in an orderly and
regular manner; and comply with the provisions of all documents pursuant to
which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and
orders of any governmental authority applicable to Borrower or Borrower's
business.
10.6 Insurance.
(a) Acquisition and Maintenance. Borrower, at Borrower's expense,
shall keep and maintain the Collateral insured against loss or damage by
fire, theft, explosion, sprinklers and all other hazards and risks ordinarily
insured against by other owners who use such properties in similar businesses
for the full insurable value thereof. Borrower shall also keep and maintain
business interruption insurance and public liability and property damage
insurance relating to Borrower's ownership and use of the Collateral. All
such policies of insurance shall be in such form, with such companies, and in
such amounts and with such deductibles as may be satisfactory to Bank.
Borrower shall deliver to Bank certified copies of such policies of insurance
or certificates from the issuer of such insurance certifying to Bank in
writing that such insurance has been obtained and is in full force and effect
and evidence of the payments of all premiums therefor.
(b) Loss Payee Endorsement and Additional Insured. All such policies
of insurance covering the Collateral shall contain an endorsement in a form
satisfactory to Bank showing Bank as a loss payee thereof and shall contain a
waiver of warranties (Form 438-BFU). All proceeds payable under any policies
of insurance insuring the Collateral and involving losses as a result of
damage, destruction or casualty in aggregate amounts not exceeding One
Million Dollars ($1,000,000.00) during any twelve (12) consecutive month
period shall be payable to Borrower. All proceeds payable under any policies
of insurance insuring the Collateral that (i) involve losses as a result of
damage, destruction or casualty which, when added to all losses as a result
of damage, destruction or casualty during the immediately preceding twelve
(12) month period equals or exceeds One Million Dollars ($1,000,000.00)
and/or (ii) involve losses as a result of damage, destruction or casualty
which, in any one event of damage, destruction or casually equals or exceeds
One Million Dollars ($1,000,000.00) shall be payable to Bank. Upon receipt
by Bank, and at Bank's sole option, any proceeds payable and paid to Bank
under this Section 10.6 shall be either applied on account of the Obligations
or released to Borrower to purchase new, replacement Collateral in accordance
with terms, conditions and provisions acceptable to Bank, in Bank's
discretion. To further secure the payment and full performance of the
Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance required to be maintained by Borrower under Section
10.6(a) and the proceeds thereof, and Borrower shall direct all insurers
under such policies of insurance to pay all proceeds thereof directly to
Bank. All public liability insurance and all property damage insurance
covering the Collateral shall name Bank as an additional insured thereunder.
(c) Settlement of Claims. Prior to the occurrence of an Event of
Default, Borrower shall have the right to make, settle and adjust any and all
claims under such policies of insurance; provided, however, that Borrower
shall not legally conclude the settlement or adjustment of any claim which in
amount exceeds five percent (5%) of Borrower's total assets without Bank's
prior written consent. Following the occurrence of an Event of Default, Bank
(and any of its employees, officers or designated agents) is and shall be
irrevocably appointed as Borrower's lawful attorney-in-fact with full power
to make, settle and adjust all claims under such policies of insurance, to
endorse the name of Borrower on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance, and to make all
determinations and decisions with respect to such policies of insurance.
(d) Notice and Cancellation. Borrower will not cancel any of such
policies without Bank's prior written consent. Each such insurer shall agree
by endorsement upon the policy or policies of insurance issued by it to
Borrower as required above, or by independent instruments furnished to Bank,
that it will give Bank at least ten (10) days written notice before any such
policy or policies of insurance shall be altered or canceled, and that no act
or default of Borrower, or any other person, shall affect the right of Bank
to recover under such policy or policies of insurance required above or to
pay any premium in whole or in part relating thereto. Bank, without waiving
or releasing any Obligations or Event of Default, may, but shall have no
obligation to do so, obtain and maintain such policies of insurance and pay
such premiums and take any other action with respect to such policies which
Bank deems advisable. All sums so disbursed by Bank, as well as reasonable
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attorneys' fees, court costs, expenses and other charges relating thereto,
shall constitute Bank Expenses, when disbursed, and shall be payable on
demand.
10.7 Bank Accounts. Except for permitted investments, Borrower shall
keep all of Borrower's principal domestic bank accounts with Bank and shall
open no domestic bank account, deposit account or other account into which
money can be deposited in the United States without the written consent of
Bank.
10.8 ERISA/Covenant. Borrower shall furnish to Bank: (a) as soon as
possible, but in no event later than thirty (30) days after Borrower knows or
has reason to know that any reportable event with respect to any deferred
compensation plan has occurred, a statement of the chief financial officer of
Borrower setting forth the details concerning such reportable event and the
action which Borrower proposes to take with respect thereto, together with a
copy of the notice of such reportable event given to the Pension Benefit
Guaranty Corporation, if a copy of such notice is available to Borrower; (b)
promptly after the filing thereof with the United States Secretary of Labor
or the Pension Benefit Guaranty Corporation, copies of each annual report
with respect to each deferred compensation plan; (c) promptly after receipt
thereof, a copy of any notice Borrower may receive from the Pension Benefit
Guaranty Corporation or the Internal Revenue Service with respect to any
deferred compensation plan; provided, however, this subsection shall not
apply to notice of general application issued by the Pension Benefit Guaranty
Corporation or the Internal Revenue Service; and (d) when the same is made
available to participants in the deferred compensation plan, all notices and
other forms of information from time to time disseminated to the participants
by the administrator of the deferred compensation plan.
10.9 Reimbursements. Borrower shall immediately and without demand
reimburse Bank for all sums expended by Bank which constitute Bank Expenses
and Borrower hereby authorizes and approves all advances and payments by Bank
for items constituting Bank Expenses.
10.10 Accounting Methods. Borrower shall maintain a standard and modern
system of accounting in accordance with generally accepted accounting
principles consistently applied with ledger and account cards and/or computer
tapes, discs, printouts, and records pertaining to the Collateral which
contain information as may from time to time be requested by Bank. Borrower
shall permit Bank and any of Bank's employees, officers or agents, upon
demand, during Borrower's usual business hours, or the usual business hours
of third persons having control thereof, to have access to and examine all of
Borrower's Books relating to the Collateral, the Obligations, Borrower's
financial condition, and the results of Borrower's operations, and, in
connection therewith, permit Bank or any of Bank's agents, employees or
officers to copy and make extracts therefrom, and to inspect the properties
of Borrower.
10.11 Financial Statements. Borrower agrees to deliver to Bank the
following reports, statements, certificates, or other materials, which
materials will be in a form acceptable to Bank and will be delivered within
the time periods specified in this Section 10.11:
(a) within fifty (50) days after the end of each of Borrower's fiscal
quarters, (i) a balance sheet and profit and loss statement, prepared by
Borrower, certified by an officer or other authorized employee of Borrower to
be full, true, complete and accurate and further certified by such officer or
other authorized employee that there exists on the date of delivery to Bank
no condition or event which constitutes a breach of or Event of Default under
this Agreement, and covering Borrower's operations during such period and
(ii) a full true and correct copy of Borrower's Form 10-Q filed by Borrower
with the Securities and Exchange Commission;
(b) within ninety-five (95) days after the end of each of Borrower's
fiscal years, (i) a statement of the financial condition of Borrower for each
such fiscal year, including (but not limited to) a long-form balance sheet
and profit and loss statement, audited by certified public accountants
acceptable to Bank, certified by an officer or other authorized employee of
Borrower to be full, true, complete and accurate and further certified by
such officer or other authorized employee that there exists on the date of
delivery to Bank no condition or event which constitutes a breach of or Event
of Default under this Agreement, and covering Borrower's operations during
such period and (ii) a full true and correct copy of Borrower's Form 10-K
filed by Borrower with the Securities and Exchange Commission;
(c) within thirty (30) days after the end of each fiscal quarter
during which amounts under Article 2 of this Agreement are advanced by Bank
or are outstanding, an aged statement of all Accounts and accounts receivable
owing to Borrower, which statement shall show (at a minimum) the date of each
Account and account receivable, the payor of each Account and account
receivable, and the amount of each Account and account receivable; shall
otherwise be in a form and content acceptable to Bank and shall cover
Borrower's operations during such preceding calendar month; shall be prepared
by Borrower; shall be certified by an officer or other authorized employee of
Borrower to be full, true, complete and accurate; and shall be further
certified by such officer or other authorized employee that there exists on
the date of delivery to Bank no condition or event which constitutes a breach
of or Event of Default under this Agreement; and
(d) any other report requested by Bank relating to the Collateral and
the financial condition of Borrower (including, without limitation, an aged
statement of accounts payable and an aged statement of accounts receivable),
together with a certificate signed by an officer or other authorized employee
of Borrower to the effect that all reports, statements, computer disc or tape
files, printouts, runs, or other computer prepared information of any kind or
nature relating to the foregoing, or documents delivered or caused to be
delivered to Bank under this Section 10.11 are full, true, complete, correct,
and thoroughly present the financial condition of Borrower and that there
exists on the date of delivery to Bank no condition or event which
constitutes a breach of or Event of Default under this Agreement.
If Borrower is required hereunder to deliver fiscal year-end statements of
Borrower's financial condition which are prepared on an audited basis by
independent certified public accountants, then, contemporaneously therewith,
Borrower shall also deliver to Bank an unqualified opinion thereon by said
accountants. Borrower shall comply with any request and shall treat any
written request as a continuing obligation until expressly modified or
terminated in writing.
10.12 Notifications. Borrower shall promptly supply Bank with such
other information, including tax returns, concerning Borrower's affairs as
Bank may request from time to time hereafter. Borrower shall promptly notify
Bank of any material adverse change in Borrower's financial condition and of
any condition or event which constitutes a breach of or Event of Default
under this Agreement.
10.13 Financial Covenants. At all times during the term of this
Agreement, Borrower shall:
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(a) a ratio of total debt and liabilities to Tangible Net Worth of
less than one (1.0) to one (1.0);
(b) Tangible Net Worth in an amount not less than One Hundred Ten
Million Dollars ($110,000,000.00);
(c) a ratio of (i) the sum of cash, cash equivalents, short-term
investments, and accounts receivable to (ii) current liabilities of not less
than one and one-half (1.5) to one (1.0);
(d) an after-tax profit from operations for each of Borrower's fiscal
quarters and for each of Borrower's fiscal years; provided, however, that
Borrower may experience one (1) fiscal quarter during any rolling four (4)
fiscal quarter period in which Borrower does not earn an after-tax profit
from operations so long as the loss from operations during such quarter does
not exceed Two Million Five Hundred Thousand Dollars ($2,500,000.00); and
(e) a ratio of net after-tax profit plus depreciation and amortization,
on a rolling four (4) fiscal quarter basis, to current maturities of long
term liabilities and capitalized leases during such rolling four (4) fiscal
quarter period of not less than one and one-half (1.5) to one (1.0).
For purposes of this Section 10.13, the following terms shall have the
following meanings:
The term "after-tax profit from operations" means after tax profit from
operations as determined in accordance with generally accepted accounting
principles consistently applied, decreased by extraordinary gains, capital
gains from the sale of assets outside the ordinary course of business and
investment income earned outside the ordinary course of business.
The term "Tangible Net Worth" means net worth as determined in accordance
with generally accepted accounting principles consistently applied, increased
by debt subordinated to Bank and decreased by the following: patents,
licenses, goodwill, capitalized research and development costs, subscription
lists, organization expenses, monies due from affiliates (including officers,
directors, shareholders, parents, partners, joint venturers, subsidiaries and
commonly held companies), and such other assets as would be classified as
"intangible" under generally accepted accounting principles.
11. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an Event of Default under this Agreement:
11.1 Failure to Make Payment. If Borrower fails to pay within five (5)
days after Bank's service of a written notice that same is past due and
payable, or when declared due and payable, all or any portion of the
Obligations.
11.2 Breach. If Borrower fails or neglects to perform, keep or observe
any term, provision, condition, covenant, agreement, warranty or
representation contained in this Agreement or any other present or future
agreement between Borrower and Bank within three (3) days after Bank's
service of a written notice identifying Borrower's default under this Section
11.2.
11.3 Material Impairment. If there is a material impairment of the
prospect of repayment of all or any portion of the Obligations, or a material
impairment of the value of the Collateral or the priority of Bank's security
interests therein.
11.4 Seizure of Assets. If all or any of the assets of Borrower are
attached, seized, subjected to a writ or distress warrant, or are levied
upon, or come into the possession of any Judicial Officer or Assignee.
11.5 Voluntary Insolvency. If an Insolvency Proceeding is commenced by
Borrower.
11.6 Involuntary Insolvency. If an Insolvency Proceeding is commenced
against Borrower.
11.7 Injunction. If Borrower is enjoined, restrained or in any way
prevented by court order from continuing to conduct all or any material part
of Borrower's business affairs.
11.8 Lien, Levy. If a notice of lien, levy or assessment is filed of
record with respect to any or all of the assets of Borrower by the United
States Government, or any department, agency or instrumentality thereof, or
by any state, county, municipal or other governmental agency, or if any taxes
or debts owing at any time hereafter to any one or more of such entities
becomes a lien, whether choate or otherwise, upon any or all of the assets of
Borrower.
11.9 Judgment Lien. If one or more judgments and/or one or more other
claims becomes liens or encumbrances upon any or all of the assets of
Borrower in an aggregate amount at any one time in excess of One Million
Dollars ($1,000,000).
11.10 Third Party Agreements. If there is a default in any material
agreement to which Borrower is a party with third parties resulting in a
right by such third parties to accelerate the maturity of Borrower's
indebtedness.
11.11 Misrepresentations. If any misrepresentation exists in any
warranty or representation made to Bank by Borrower or any officer, director
or partner of Borrower, or if any warranty or representation is withdrawn by
Borrower or any officer, director or partner of Borrower.
11.12 Dissolution. If Borrower dissolves or liquidates, or if the
directors and/or shareholders of Borrower take action to effect such a
dissolution or liquidation.
11.13 Change of Ownership. If there is a change of control of Borrower
or any change in the direct, indirect, or beneficial ownership by any single
or affiliated group of owners in an amount of twenty percent (20%) or more
of the issued and outstanding stock of Borrower.
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11.14 Additional Defaults. If an event occurs which with the passage of
time would constitute an Event of Default.
Notwithstanding anything contained in this Article 11 to the contrary,
upon the occurrence of an Event of Default, Bank, at Bank's discretion, may
cease advancing monies or extending loans or other credit accommodations
under this Agreement or any other agreement between Bank and Borrower;
provided, however, that Bank shall refrain from further exercising its rights
and remedies and an Event of Default shall thereafter be deemed not to have
occurred by reason of the occurrence of any of the events set forth in
Sections 11.6, 11.8 and 11.9 of this Agreement if, within ten (10) days from
the date of such occurrence, the subject event or action is released,
discharged, dismissed, bonded against or satisfied.
12. BANK'S RIGHTS AND REMEDIES
12.1 Rights and Powers. If an Event of Default shall have occurred and
not been cured or waived in accordance with the terms hereof, Bank shall have
the following rights and powers and may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit
of Borrower under this Agreement, or any other agreement between Borrower and
Bank;
(c) Terminate this Agreement as to any future liability or obligation
of Bank, but without effecting Bank's rights and security interest in the
Collateral and without effecting the Obligations;
(d) Without notice to or demand upon Borrower or any guarantor, make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble
the Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, take and maintain possession of the
Collateral and the premises, or any part thereof, for so long as is required
by Bank, and at no cost to Bank, and to pay, purchase, contest or compromise
any encumbrance, charge or lien which in the opinion of Bank appears to be
prior or superior to Bank's security interest and to pay all expenses
incurred in connection therewith;
(e) Without constituting a retention of Collateral in satisfaction of
an Obligation within the meaning of Section 9505 of the Code or an action
under California Code of Civil Procedure Section 726, Bank may apply any and
all amounts maintained by Borrower with Bank as deposit accounts (as that
term is defined under Section 9105 of the Code) or other accounts against the
Obligations;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale and sell or dispose of (in the manner provided
for herein) the Collateral;
(g) Sell or dispose of the Collateral at either public or private
sales, or both, by way of one or more contracts or transactions, for cash or
on terms, in such manner and at such places (including Borrower's premises)
as is commercially reasonable in the opinion of Bank. It is not necessary
that the Collateral be present at any such sale;
(h) Bank shall give the Borrower and each holder of a security
interest in the Collateral who has filed with Bank a written request for
notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is
to be made of the Collateral, the time on or after which the private sale or
other disposition is to be made. The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 13.3 of this
Agreement, at least five (5) calendar days before the date fixed for the
sale, or at least five (5) calendar days before the date on or after which
the private sale or other disposition is to be made, unless the Collateral is
perishable or threatens to decline speedily in value. Notice to parties
other than Borrower claiming an interest in the Collateral shall be sent to
such addresses as they have furnished to Bank. If the sale is to be a public
sale, Bank shall also give notice of the time and place by publishing a
notice one time at least five (5) calendar days before the date of the sale
in a newspaper of general circulation in the county in which the sale is to
be held;
(i) Bank may credit bid and purchase at any public sale;
(j) Borrower shall pay all Bank Expenses incurred in connection with
Bank's enforcement and exercise of any of Bank's rights and remedies as
herein provided, whether or not suit is commenced by Bank;
(k) Any deficiency which exists after disposition of the Collateral
as provided above will be paid immediately by Borrower. Any excess will be
returned, without interest and subject to the rights of third parties, to
Borrower by Bank, or, in Bank's discretion, to any party who Bank believes,
in good faith, is entitled to such excess;
(l) Bank is hereby granted a license or other right to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral or any
disposition thereof, and Borrower's rights under all general intangibles,
licenses and franchise agreements shall inure to Bank's benefit, and Bank
shall have the right and power to enter into sub-license agreements with
respect to all such rights with third parties on terms acceptable to Bank.
12.2 Remedies Cumulative. Bank's rights and remedies under this
Agreement and all other agreements shall be cumulative. Bank shall have all
other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity. No exercise by Bank of one right or remedy shall
be deemed an election, and no waiver by Bank of any default on Borrower's
part shall be deemed a continuing waiver. No delay by Bank shall constitute
a waiver, election or acquiescence by Bank.
13. MISCELLANEOUS
Loan and Security Agreement - Page 12
<PAGE>
13.1 Taxes and Other Expenses Regarding the Collateral. If Borrower
fails to pay promptly when due to any person or entity, monies which Borrower
is required to pay by reason of any provision in this Agreement, Bank may,
but need not, pay the same and any such payment shall immediately constitute
an advance under and pursuant to the Credit, and Borrower shall promptly
reimburse Bank therefor. All such sums shall be Bank Expenses hereunder.
Any payments made by Bank shall not constitute: (a) an agreement by Bank to
make similar payments in the future, or (b) a waiver by Bank of any default
under this Agreement. Bank need not inquire as to, or contest the validity
of, any such expense, tax, security interest, encumbrance or lien and the
receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
13.2 Waivers.
(a) Application of Payments. Borrower waives the right to direct the
application of any and all payments or collections at any time or times
hereafter received by Bank on account of any Obligations, and Borrower agrees
that Bank shall have the continuing exclusive right to apply and reapply such
payments or collections to the Obligations in any manner as Bank may deem
advisable,
(b) Notices of Demand, Etc. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
documents, instruments, chattel paper, and guaranties at any time held by
Bank on which Borrower may in any way be liable.
(c) Confidentiality of Accounting. Borrower waives the right to
assert a confidential relationship, if any, Borrower may have with any
accounting firm and/or service bureau in connection with any information
requested by Bank pursuant to or in accordance with this Agreement, and
agrees that Bank may contact directly any such accounting firm and/or service
bureau in order to obtain such information.
13.3 Notices. Unless otherwise provided in this Agreement, all notices
or demands by any party relating to this Agreement shall be in writing and
sent by regular United States mail, postage prepaid, properly addressed to
Borrower at Borrower's address set forth in Section 1.7 of this Agreement or
to Bank at Bank's address set forth in Section 1.5 hereinabove, or to such
other addresses as Borrower or Bank may from time to time specify to the
other in writing.
13.4 Destruction of Borrower's Documents. Any documents, schedules,
invoices or other papers delivered to Bank may be destroyed or otherwise
disposed of by Bank six (6) months after they are delivered to or received by
Bank unless Borrower does request, in writing, the return of the said
documents, schedules, invoices or other papers and makes arrangements, at
Borrower's expense, for their return.
13.5 Choice of Law. The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined under, governed by and
construed in accordance with the laws of the State of California. The
parties agree that all actions or proceedings arising in connection with this
Agreement shall be tried and litigated only in the state courts located in
the County of San Francisco, State of California, or the County of Santa
Clara, State of California, or the federal courts located in the Northern
District of California. Borrower waives any right Borrower may have to
assert the doctrine of forum non conveniens or to object to such venue and
hereby consents to any court-ordered relief.
13.6 One Loan Transaction. The Obligations shall be secured by all
other security interests, liens or encumbrances heretofore, now, or at any
time hereafter granted by Borrower to Bank. If more than one person or
entity is signing this Agreement on behalf of Borrower, the Obligations of
each party signing this Agreement on behalf of Borrower shall be joint and
several.
13.7 Agreement Binding; Assignment. This Agreement shall be binding and
deemed effective when executed by Borrower and accepted and executed by Bank.
This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however, that
Borrower may not assign this Agreement or any rights hereunder without Bank's
prior written consent and any prohibited assignment shall be absolutely void.
No consent to an assignment by Bank shall release Borrower from its
obligations to Bank. Bank may assign this Agreement and its rights and
duties hereunder. Bank reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Bank's rights and benefits hereunder. Bank will provide Borrower with prior
written notice to Borrower; provided, however, that Borrower shall not have
any right, power or privilege to approve or consent to such assignment, sale,
transfer, negotiation and/or participation and the Bank's failure to give
such notice shall not constitute a breach or default under this Agreement.
In connection therewith, Bank may disclose all documents and information
which Bank now has or hereafter may have relating to Borrower or Borrower's
business.
13.8 Headings, Gender and Joint and Several Liability. Article and
section headings and article and section numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each article and section applies equally to this
entire Agreement. As used in this Agreement and when required by the
context, each number (singular or plural) shall include all numbers, and each
gender shall include all genders. If more than one person or entity is
signing this Agreement on behalf of Borrower, the Obligations of each party
signing this Agreement on behalf of Borrower shall be joint and several.
13.9 Construction. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Bank or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
13.10 Severability. Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining
the legal enforceability of any specific provision.
13.11 Integration. This Agreement cannot be changed or terminated
orally. No modification or amendment to this Agreement shall be effective
unless in writing, executed by Bank. Except as to currently existing
obligations of Borrower to Bank, all prior agreements, understandings,
representations, warranties, and negotiations between the parties, if any,
are merged into this Agreement.
Loan and Security Agreement - Page 13
<PAGE>
13.12 WAIVER OF JURY TRIAL. BANK AND BORROWER HEREBY WAIVE, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY
COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT
OR THE OBLIGATIONS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED IN CONNECTION
WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, OR THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER
CLAIM OR DISPUTE HOWSOEVER ARISING (INCLUDING TORT AND CLAIMS FOR BREACH OF
DUTY), BETWEEN BANK AND BORROWER.
13.13 Prior Loan and Security Agreement. The total Credit and the total
of Borrower's Obligations in respect to all letters of credit outstanding
under that certain Amended and Restated Loan and Security Agreement by and
between Bank and Borrower dated as of November 12, 1990 and any concurrent
or subsequent rider thereto and any extensions, supplements, amendments or
modifications thereto and/or to any such rider (collectively the "Prior
Agreement"), from and after the date of this Agreement, shall be deemed to
have been incurred pursuant to this Agreement which amends and restates the
Prior Agreement in its entirety. Borrower agrees and acknowledges that, as
of the date of this Agreement, there was due and owing under the Prior
Agreement the Daily Balance of $ ___________________, and accrued and unpaid
interest in the amount of $ _____________________; provided, however, that
the foregoing shall not apply to any Obligations owing by Borrower to Bank in
connection with any promissory notes evidencing any term loans previously
extended by Bank to Borrower.
IN WITNESS WHEREOF, Borrower has executed and delivered this Agreement on
the date first hereinabove written.
"Borrower"
Micrel Incorporated,
a California corporation
By: /s/ Raymond D. Zinn
----------------------
Print Name: Raymond D. Zinn
Title: President, CEO & Chairman of the Board of Directors
By: /s/ Richard D. Crowley, Jr.
Print Name: Richard D. Crowley, Jr.
Title: Vice President, Finance & CFO
Accepted and effective this eighth day of March, 2000, at Bank's place of
business in the City of San Jose, State of California.
"Bank"
Bank of the West,
a California banking corporation
By: /s/ Robert J. Galli
----------------------
Robert J. Galli
Senior Vice President
Loan and Security Agreement - Page 14
<PAGE>
Exhibit "A"
TERM LOAN FACILITY "A" NOTE
$____________________ _________________,______________
San Jose, California
1. BORROWING AND INTEREST RATE. In consideration of the loan and
advance of credit in the amount set forth above made by Bank of the West (the
"Bank") to or for the benefit of Micrel Incorporated (the "Borrower")
pursuant to that certain Loan and Security Agreement between Borrower and
Bank dated March 8, 2000 (the "Loan Agreement"), Borrower promises to pay
Bank, or order, at Two North Second Street, Suite 300, South Bay Business
Banking Group, San Jose, California 95113 on the dates and in the manner
hereinafter set forth, the principal amount set forth above, plus any
interest thereon at the Applicable Term Loan "A" Rate (as hereinafter
defined), and all Bank Expenses. Interest shall be computed on the
outstanding amount from time to time owing by Borrower to Bank under this
Note on the basis of three hundred sixty (360) days per year and actual days
elapsed.
2. APPLICABLE TERM LOAN "A" RATE.
(1) Initial Rate Selected by Borrower. Interest on the amounts from
time to time owing by Borrower to Bank under this Note shall accrue at the
rate designated by Borrower by initialing one (1) of the blanks set forth
below or as hereinafter designated by Borrower in accordance with the terms
of this Note (the "Applicable Term Loan 'A' Rate"); provided, however, that
if Borrower fails to elect either of the three options set forth below, the
Applicable Term Loan "A" Rate shall be the rate set forth in Subparagraph
2(1)(a) below:
____________ (a) Prime Rate-Based Loan.
Initial Here
Subject to Borrower's right to convert the Applicable Term Loan "A"
Rate as elsewhere provided in this Note and except as hereinbelow provided,
all amounts from time to time outstanding and unpaid under this Note shall
bear interest, on the Daily Balance owing, at the Prime Rate (as defined in
the Loan Agreement). The Prime Rate as of the date of this Note is
__________ percent (_____%) per annum. In the event that the Prime Rate
announced is, from time to time hereafter, changed, adjustment in the rate of
interest payable by Borrower shall be made on the effective date of the
change in the Prime Rate. The rate of interest, as adjusted, shall apply to
all amounts from time to time outstanding and unpaid under this Note until
the Prime Rate is adjusted again. All interest chargeable under this
Agreement on a per annum basis shall be computed on a basis of a 360-day year
for actual days elapsed.
____________ (b) Term Fixed Rate-Based Loan.
Initial Here
Subject to Borrower's right to convert the Applicable Term Loan "A"
Rate as elsewhere provided in this Note and except as hereinbelow provided,
all amounts from time to time outstanding and unpaid under this Note shall
bear interest, on the Daily Balance owing, at the rate designated below as
selected by Borrower at the time of its execution and delivery of this Note
(the "Term Fixed Rate"); provided, however, that if the option set forth in
this Section 2(1)(b) to have the obligations under this Note bear interest at
the Term Fixed Rate is selected and Borrower fails to further elect to have
such loan and advance accrue in accordance with the Annual Adjusting
procedure prescribed by Section 2(1)(b)(A) or the Four Year Fixed Rate
procedure prescribed by Section 2(1)(b)(B), then such loan and advance shall
Term Loan Facility "A" Note - Page 1
<PAGE>
be deemed to accrued interest in accordance with the Annual Adjusting
procedure prescribed by Section 2(1)(b)(A):
(A) Annual Adjusting
(i) Initial Rate: The rate of interest on the amounts from
time to time unpaid under this Note until and including the first day of the
thirteenth (13th) calendar month immediately succeeding the Funding Date (the
"Initial Rate") shall be at two and three-quarters percentage points (2.75%)
per annum in excess of the Adjustable Rate Index (as hereinafter defined)
and rounding the sum so determined to the next highest one-eighth of one
percentage point (0.125%). The "Adjustable Rate Index" shall be the yield
calculated on the basis of the actual weekly auction rate on fifty-two (52)
week Treasury Bills sold by the U.S. Treasury during the week preceding the
week in which funds are advanced by Bank to Borrower under this Note (the
"Funding Date") or the Term Loan Adjustment Date occurs (as the case may be).
Bank shall determine the Adjustable Rate Index and compute the Applicable
Term Loan "A" Adjustable Rate Index from information supplied in the Wall
Street Journal or another reliable publication or reporting service selected
by Bank. The parties agree that the Initial Rate is and shall be ______% per
annum.
(ii) Adjusted Rate: The Applicable Term Loan "A" Rate shall be
adjusted as of the first (1st) day of the thirteenth (13th) full calendar
month following the Funding Date and every twelve (12) months thereafter
(each a "Term Loan Adjustment Date") to reflect the value of the Adjustable
Rate Index on the Term Loan Adjustment Date. From and after each Term Loan
Adjustment Date until the next Term Loan Adjustment Date (each a "Term Loan
Adjustment Period"), the Applicable Term Loan "A" Rate shall be an amount
computed by adding two and three-quarters percentage points (2.75%) to the
value of the Adjustable Rate Index in effect on the Term Loan Adjustment Date
and rounding the sum so determined to the next highest one-eighth of one
percentage point (0.125%). The Applicable Term Loan "A" Rate for each Term
Loan Adjustment Period shall become effective automatically on the Term Loan
Adjustment Date for such Term Loan Adjustment Period. Any failure by Bank to
give Borrower notice of an adjustment of the Applicable Term Loan "A" Rate
and the amount of monthly installments, or any disagreement by Borrower as to
the correctness of any calculation by the holder hereof, shall not relieve
Borrower of the obligation to make monthly payments hereunder. In the event
of any failure by Bank to give Borrower notice of an adjustment of the
Applicable Term Loan "A" Rate, Borrower shall continue to make monthly
payments in the same amount as were payable prior to the Term Loan Adjustment
Date. If the amount of payments made is less than the amount applicable
under this Note, then Borrower shall pay Bank the amount of the deficiency on
demand; if the amount of such payments is more than the amount applicable
under this Note, then Borrower shall receive a credit for any excess payments
against the next payment coming due following the date of any notice of an
adjustment.
____________ (B) Four Year Fixed Rate.
Initial Here
The rate of interest on the amounts from time to time unpaid under
this Note until and including the Maturity Date shall be at two and three-
quarters percentage points (2.75%) per annum in excess of the Fixed Rate
Index (as hereinafter defined) and rounding the sum so determined to the
next highest one-eighth of one percentage point (0.125%). The "Fixed Rate
Index" shall be the yield calculated on the basis of the actual weekly
auction rate on four (4) year Treasury Bills sold by the U.S. Treasury during
the week preceding the week in which the amounts are advanced by Bank under
this Note. Bank shall compute the Applicable Term Loan "A" Rate from
information supplied in the Wall Street Journal or another reliable
Term Loan Facility "A" Note - Page 2
<PAGE>
publication or reporting service selected by Bank. The parties agree that
the Applicable Term Loan Rate under this Subparagraph 2(b)(B) is and shall be
______% per annum.
____________ (c) Term Offshore Rate-Based Loan.
Initial Here
Subject to Borrower's right to convert the Applicable Term Loan "A"
Rate as elsewhere provided in this Note and except as hereinbelow provided,
all amounts from time to time outstanding and unpaid under this Note shall
bear interest, on the Daily Balance owing, at the Term Offshore Rate (as
defined in the Loan Agreement). In the event that the Term Offshore Rate
announced is, from time to time hereafter, changed, adjustment in the rate of
interest payable by Borrower shall be made on the effective date of the
change in the Term Offshore Rate. The rate of interest, as adjusted, shall
apply to all amounts from time to time outstanding and unpaid under this Note
until the Term Offshore Rate is adjusted again. All interest chargeable
under this Agreement on a per annum basis shall be computed on a basis of a
360-day year for actual days elapsed.
(2) Conversion Option. Borrower may, from time to time, elect to
convert the Applicable Term Loan "A" rate from either a Prime Rate-Based loan
under Section 2(1)(a) above, a Term Fixed Rate-Based loan utilizing annual
adjustments under Section 2(1)(b) above, or a Term Offshore Rate-Based loan
under Section 2(1)(c), above to a rate of interest in an amount equal to
three percentage points (3.00%) per annum in excess of the Fixed Rate Index
(as hereinafter defined) and rounding the sum so determined to the next
highest one-eighth of one percentage point (0.125%). Borrower shall exercise
this conversion option, if at all, on written notice delivered to Bank, which
written notice shall (a) be on such form and in such manner as Bank may from
time to time specify; (b) specify the principal amount and the date of the
note to be so converted; (c) specify an effective date for such conversion;
and (d) be received by Bank not later than 10:00 a.m. Pacific local time
three (3) business days prior to the requested conversion date. The "Fixed
Rate Index" shall be the yield calculated on the basis of the actual weekly
auction rate on four (4) year Treasury Bills sold by the U.S. Treasury during
the week preceding the week in which Borrower's written election is received
by Bank. Bank shall compute the Applicable Term Loan "A" Rate from
information supplied in the Wall Street Journal or another reliable
publication or reporting service selected by Bank. Once the term loan
evidenced by this note is converted in accordance with the provisions of this
Section 2(2), Borrower shall not have any further right to elect additional
or other conversions. Borrower's conversion rights under this Section 2(2)
shall be exclusive, and Borrower shall not have any right to convert the
Applicable Term Loan "A" Rate from either a Prime Rate-Based loan under
Section 2(1)(a) above, a Term Fixed Rate-Based loan utilizing annual
adjustments under Section 2(1)(b) above, or a Term Offshore Rate-Based loan
under Section 2(1)(c), except as provided in this Section 2(2).
(3) Prepayment. Borrower may upon at least ten (10) "Business Days"
notice to Bank, prepay this Note in whole or in part with accrued interest at
the Applicable Rate to the date of such prepayment on the amount prepaid,
subject to the terms and provisions of this Section. If and only if the
Applicable Term Loan "A" Rate is the Four Year Fixed Rate determined in
accordance with the provisions of Section 2(1)(b)(B) of this Note, then
(concurrently with any prepayment of all or any part of the Obligations owing
under this Note) Borrower shall also pay to Lender an amount equal to the
interest which would be earned at the "Prepayment Rate" (as defined below) on
the principal balance prepaid to Lender (computed on the basis of a 360-day
year for actual days elapsed) for the period starting on the date of
prepayment and ending at the Maturity Date.
For purposes of this Note, the term "Business Day" shall mean any day
which is not a Saturday, Sunday, or other day on which commercial banks are
by law authorized or required to close.
Term Loan Facility "A" Note - Page 3
<PAGE>
For the purpose of this Note, the term "Prepayment Rate" shall mean the
value calculated by subtracting (i) the rate on the current coupon United
States Treasury Note which, as of the date of prepayment, has a remaining
term most closely approximating the time period between the date of such
prepayment and the Maturity Date of this Note from (ii) the actual weekly
auction rate on Treasury Bills sold by the U.S. Treasury and having a term of
four (4) years which sale occurs most nearly preceding the Funding Date.
(4) Maturity Rate. From and after the Maturity Date, amounts
outstanding and unpaid this Note shall bear interest at five (5) percentage
points more than the Applicable Term Loan "A" Rate that would have been
applicable hereunder had the Maturity Date not occurred. Anything herein to
the contrary notwithstanding, interest at the Maturity Rate shall be due and
payable on demand but shall accrue from the Maturity Date until this Note is
paid in full.
3. REPAYMENT OF PRINCIPAL, INTEREST AND EXPENSES. Borrower agrees to
make all payments of principal and interest in lawful money of the United
States of America free from any offset, deduction, or counterclaim, and
expressly waives all rights to compensation or cross demands it might
otherwise have.
(a) Commencing on the fifth day of be the calendar month after the
Funding Date, and continuing on the fifth day of each of the next forty-seven
(47) months thereafter, Borrower shall make (i) equal and consecutive monthly
principal payments with each payment being in an amount sufficient to repay
the aggregate principal amount advanced under this Note over forty-eight (48)
months on a straight-line basis, (ii) monthly interest payments on the
outstanding amount of the advances under the Term Loan Facility "A" at the
Applicable Term Loan "A" Rate, and (iii) all Bank Expenses incurred by Bank
in connection with Term Loan Facility "A." Subject to Borrower's obligations
to make installment payments of principal, interest and Bank Expenses in the
time and manner specified in this note, all unpaid principal, interest, Bank
Expenses and other amounts owing under this Note shall be due and payable on
the fourth anniversary of the Funding Date (as defined in this Note).
(b) The receipt of any check or other item of payment by Bank shall
not be considered a payment until such check or other item of payment is
honored when presented for payment, in which event, said check or other item
of payment shall be deemed to have been paid to Bank in accordance with
Bank's rules and regulations relating to credits to deposit accounts or, in
Bank's discretion, two (2) calendar days after the date Bank actually
receives possession of such check or other item of payment.
4. LATE FEES. If any payment due hereunder is not received by Bank
within fifteen (15) days after the due date thereof, Borrower shall pay to
Bank without claim, notice or demand a late payment charge equal to six
percent (6%) of the amount of the installment of principal and interest due
and delinquent to defray the administrative costs and expenses suffered by
Bank by reason of such delinquency. Borrower acknowledges and agrees that
the actual amount of damages that would be incurred by Bank as a result of
such delinquency are extremely difficult or impracticable to ascertain and
that the late charge set forth herein represents a reasonable attempt to fix
such damages. Collection of such late charge shall not excuse the
performance of the terms of this Note nor prejudice Bank's right to enforce
any right or remedy which it may have for the collection of principal and
interest or otherwise under the terms of this Note, under the Loan Agreement,
or applicable law.
5. AUTHORITY FOR ADVANCES. All Advances shall be conclusively presumed
to have been made to, for the benefit of, and at the request of Borrower when
deposited or credited to the account of Borrower with Bank or made in
accordance with the terms of the Loan Agreement or the oral or written
instructions of Borrower, or any one signing below for or on behalf of
Borrower.
Term Loan Facility "A" Note - Page 4
<PAGE>
6. EVENTS OF DEFAULT AND REMEDIES.
(a) Events of Default. Any one of the following occurrences shall
constitute an "event of default" under this Note:
(1) The failure by Borrower to make any payment of principal or
interest upon this Note as and when the same becomes due and payable in
accordance with the terms hereof and the continuation of such failure for
five (5) days after written notice thereof is given Borrower by Bank;
(2) The occurrence of any default under this Note other than as
described in the preceding clause (1) and the continuation of such default
for ten (10) days after written notice thereof is given Borrower by Bank; or
(3) The occurrence of any event of default as defined under the
Loan Agreement, or any other document securing the obligations under this
Note. For purposes of Subparagraph 6(a)(3) with respect to any event or
occurrence which constitutes an event of default hereunder solely by reason
of its constituting a default under a document or instrument other than this
Note, to the extent (if any) that such other document or instrument provides
a grace or cure period with respect to such default, the same grace or cure
period, and only such period, shall apply with respect thereof under this
Note.
(b) Remedies. Upon the occurrence of any event of default hereunder:
(i) the entire unpaid principal amount, any and all unpaid interest then
accrued on, and any other amounts owing under or evidenced by this Note,
shall (at the option of the Bank and without notice or demand of any kind to
Borrower or any other person) be and become immediately due and payable and
(ii) Bank hereof shall have and may exercise any and all rights and remedies
available at law or in equity and also any and all rights and remedies
provided in the Loan Agreement.
Upon the occurrence of an event of default hereunder (which has not been
cured as herein provided or waived by Bank in writing), at the option of
Bank, and in addition to any other remedies available to Bank, interest may
be charged on the Advances outstanding on the date of such event of default
at the rate of five (5) percentage points greater than the Term Loan Facility
"A" Rate (the "Term Loan Default Rate"). The Term Loan Default Rate shall
commence on the day following any event of default and shall continue until
such event of default has been cured to the satisfaction of Bank.
7. WAIVERS, MAKER(S) AND ENDORSER(S). Borrower, for itself and for its
successors, transferees and assigns, hereby waives all valuation and
appraisement privileges, presentment and demand for payment, protest, notice
of protest and nonpayment, dishonor and notice of dishonor, bringing of suit,
lack of diligence or delays in collection or enforcement of this Note and
notice of the intention to accelerate, the release of any party liable, the
release of any security for debt, the taking of any additional security and
any other indulgence or forbearance.
8. WAIVER OF STATUTE OF LIMITATIONS. The right to plead any and all
statutes of limitations as a defense to any demand on this Note is expressly
waived by each and all said parties.
9. FEES, COSTS AND LENDER EXPENSES.
(a) Attorneys' Fees and Costs. If Bank refers this Note to an
attorney for collection or seeks legal advice following a default under this
Note, the Loan Agreement, or other security agreements securing this Note, or
Term Loan Facility "A" Note - Page 5
<PAGE>
if an action is instituted on this Note, the Loan Agreement, or if any other
judicial or non-judicial action is instituted by the holder hereof or by any
other person, and an attorney is employed by the holder hereof to appear in
any such action or proceeding or to reclaim, sequester, protect, preserve or
enforce the holder's interest in the Collateral (as defined in the Loan
Agreement) or any other security for this Note, including, but not limited to
proceedings to foreclose the loan evidenced hereby, proceedings under the
federal bankruptcy laws, or in eminent domain, or under the probate code, or
in connection with any state or federal tax lien, or to enforce an
assignments of rents, or for the appointment of a receiver, or involving
mechanics' liens or stop notices, or in connection with disputes regarding
the proper disbursement of loan funds, Borrower promises to pay reasonable
attorneys' fees and for services performed by the holder's attorney, and all
costs and expenses incurred incident to such employment.
(b) Bank Expenses. Borrower shall immediately and without demand
reimburse Bank for all sums expended by Bank which constitute Bank Expenses
and Borrower hereby authorizes and approves all advances and payments by Bank
for items constituting Bank Expenses. The term "Bank Expenses" means: all
costs and expenses incurred by Bank in connection with this Note, the Loan
Agreement, or the transactions contemplated hereby, including, without
limitation, all costs or expenses required to be paid by Borrower under this
Note, the Loan Agreement, or the transactions contemplated hereby which are
paid or advanced by Bank; taxes and insurance premiums of every nature and
kind of Borrower paid by Bank; filing, recording, publication, search fees,
appraiser fees, auditor fees, title insurance premiums paid or incurred by
Bank in connection with Bank's transactions with Borrower; costs and expenses
incurred by Bank (with or without suit) in collecting or realizing upon any
collateral including, without limitation the Collateral (as defined in the
Loan Agreement), to correct any default or enforce any provision of this
Note, the Loan Agreement, or the transactions contemplated hereby, or in
gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, preparing for sale and/or advertising to sell the Collateral,
whether or not a sale is consummated; costs and expenses of suit incurred by
Bank in enforcing or defending this Note, the Loan Agreement, or the
transactions contemplated hereby or any portion hereof; and reasonable
attorneys' fees and expenses incurred by Bank in advising, structuring,
drafting, reviewing, amending, terminating, enforcing, defending or
concerning this Note, the Loan Agreement, or the transactions contemplated
hereby, any portion hereof, any Agreement related hereto, or any of the
transactions contemplated hereby, whether or not suit is brought, and
including, but not limited to, any expenses incurred in relation to opposing
or seeking to obtain relief from any stay or restraining order prohibiting
Bank from exercising its rights as a secured creditor, foreclosing upon or
disposing of Collateral, or such related matters.
10. DEFINITIONS. The term "Bank," as used herein, shall mean and
include Bank and any successor or assign of Bank, and any holder of this Note
shall, upon becoming such holder, be included in the term "Bank" wherever the
same appears in this Note.
11. OBLIGATION S UNDER LOAN AGREEMENT. The obligations arising under
this Note constitute Obligations under and pursuant to the terms of the Loan
Agreement and are secured under and pursuant to the terms of such Loan
Agreement.
12. MISCELLANEOUS.
(a) Governing Law and Time of Performance. This Note shall be
governed by and construed under the laws of the State of California. Time is
of the essence of this Note and each provision hereof.
(b) Successors and Assigns. This Note shall be binding upon Borrower
and its successors and assigns, and shall inure to the benefit of Bank and
its successors and assigns.
Term Loan Facility "A" Note - Page 6
<PAGE>
(c) Headings; Gender. The headings of the Paragraphs and
Subparagraphs of this Note are inserted for convenience only and shall not be
deemed to constitute a part hereof. All words and phrases shall be taken to
include the singular or plural number, and the masculine, feminine or neuter
gender, as may fit the case.
(d). Severability. If any provision of this Note or any payments
pursuant to the terms hereof shall be invalid or unenforceable to any extent,
the remainder of this Note and any other payments hereunder shall not be
affected thereby and shall be enforceable to the greatest extent permitted by
law.
(e) Modification. No waiver of any breach, default or event of
default under this Note or under the Loan Agreement, or any obligations
secured thereby, shall be implied from any failure of Bank to take, or any
delay by Bank in taking, any action with respect to any concurrent or
subsequent breach of or event of default, default or failure of condition or
from any previous wavier of any similar or unrelated breach of or event of
default, default, or failure of condition. A waiver of any term of this
Note, the Loan Agreement, or any of the obligations secured thereby must be
made in writing, shall be limited to the express written terms of such
waiver, and shall not be construed as a waiver or release of any subsequent
event of default, default or failure of condition.
(f) Joint Obligations. If this Note is executed by more than one
person or entity as Borrower, the obligations of each such person or entity
shall be joint and several, and all said parties are and shall be jointly and
severally, directly and primarily, liable for the amount of all sums owing
and to be owed hereon, and agree that this Note and any or all payments
coming due hereunder may be extended or renewed from time to time without in
any way affecting or diminishing their liability hereunder. No such person
shall be a mere accommodation maker, since each such person shall be
primarily and directly liable hereunder.
IN WITNESS WHEREOF Borrower has executed and delivered this Note as of the
date and year first above written.
Micrel Incorporated, a California corporation
By: _______________________________
Its:________________________________
By: _________________________________
Its:_________________________________
Term Loan Facility "A" Note - Page 7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 13,689
<SECURITIES> 47,475
<RECEIVABLES> 43,990
<ALLOWANCES> 0
<INVENTORY> 21,616
<CURRENT-ASSETS> 141,156
<PP&E> 72,655
<DEPRECIATION> 0
<TOTAL-ASSETS> 221,674
<CURRENT-LIABILITIES> 41,531
<BONDS> 0
0
0
<COMMON> 60,275
<OTHER-SE> 110,911
<TOTAL-LIABILITY-AND-EQUITY> 221,674
<SALES> 67,313
<TOTAL-REVENUES> 67,313
<CGS> 29,145
<TOTAL-COSTS> 29,145
<OTHER-EXPENSES> 17,536
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,244
<INCOME-TAX> 7,010
<INCOME-CONTINUING> 7,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,010
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.30
</TABLE>
