-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gf5Vw9S44bkAChmConR+lhXHpUtOl0XOSbvOdDfh7IHvYi3UD7B/Y9yow/OB0diI Y29zm291ue5RMAukGVURlQ== 0001012870-01-502738.txt : 20020410 0001012870-01-502738.hdr.sgml : 20020410 ACCESSION NUMBER: 0001012870-01-502738 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010929 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERICOM SEMICONDUCTOR CORP CENTRAL INDEX KEY: 0001001426 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770254621 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27026 FILM NUMBER: 1783237 BUSINESS ADDRESS: STREET 1: 2380 BERING DR CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084350800 MAIL ADDRESS: STREET 1: 2380 BERING DR CITY: SAN JOSE STATE: CA ZIP: 95131 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 2001 [_] 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 0-27026 Pericom Semiconductor Corporation (Exact Name of Registrant as Specified in Its Charter) California 77-0254621 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2380 Bering Drive San Jose, California 95131 (408) 435-0800 (Address of Principal Executive Offices and Issuer's Telephone Number, Including Area Code) 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 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 November 6, 2001 the Registrant had outstanding 25,221,107 shares of Common Stock. Pericom Semiconductor Corporation Form 10-Q for the Quarter Ended September 29, 2001 INDEX
PART I. FINANCIAL INFORMATION Page ---- Item 1: Financial Statements Condensed Balance Sheets as of September 30, 2001 and June 30, 2001 3 Condensed Statements of Income for the three months ended September 30, 2001 and three months ended September 30, 2000 4 Condensed Statements of Cash Flows for the three months ended September 30, 2001 and three months ended September 30, 2000 5 Notes to Condensed Financial Statements 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3: Quantitative and Qualitative Disclosures about Market Risk 20 PART II. OTHER INFORMATION Item 1: Legal Proceedings 21 Item 6: Exhibits and Reports on Form 8-K 21 Signatures 22
2 PART I. FINANCIAL INFORMATION Item 1: Financial Statements Pericom Semiconductor Corporation Condensed Balance Sheets (In thousands)
September 30, June 30, 2001 2001 (1) ---- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $85,894 $89,076 Short-term investments 66,078 61,811 Accounts receivable: Trade (net of allowances of $4,736, and $4,296) 6,642 7,096 Other receivables 1,101 1,050 Inventories 12,869 14,440 Prepaid expenses and other current assets 738 732 Deferred income taxes 1,699 1,776 ------------------------------ Total current assets 175,021 175,981 Property and equipment - net 10,240 10,473 Investment in and advances to joint venture 7,124 7,330 Goodwill, net of amortization 1,325 1,325 Other assets 3,829 1,318 ------------------------------ Total $197,539 $196,427 ============================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,574 $4,168 Accrued liabilities 3,536 3,747 ------------------------------ Total current liabilities 8,110 7,915 Deferred income taxes 1,322 1,322 Shareholders' equity: Common stock 136,462 136,007 Accumulated other comprehensive gain (loss) 187 (204) Retained earnings 51,458 51,387 ------------------------------ Total shareholders' equity 188,107 187,190 ------------------------------ Total $197,539 $196,427 ==============================
(1) Derived from the June 30, 2001 audited balance sheet included in the Company's Annual Report on Form 10-K. See notes to condensed financial statements. 3 Pericom Semiconductor Corporation Condensed Statements of Income (Unaudited) (In thousands, except per share amounts)
Three Months Ended September 30 2001 2000 ---- ---- Net revenues $13,114 $33,360 Cost of revenues 8,633 19,050 ------------- ---------- Gross profit 4,481 14,310 ------------- ---------- Operating expenses: Research and development 2,579 2,587 Selling, general and administrative 2,943 3,985 ------------- ---------- Total 5,522 6,572 ------------- ---------- Income (loss) from operations (1,041) 7,738 Equity in net loss of investee (206) (225) Interest income 1,357 2,223 ------------- ---------- Income before income taxes 110 9,736 Provision for income taxes 39 3,700 ------------- ---------- Net income $ 71 $ 6,036 ============= ========== Basic earnings per share $0.00 $0.24 ============= ========== Diluted earnings per share $0.00 $0.22 ============= ========== Shares used in computing basic earnings per share 25,189 24,694 ============= ========== Shares used in computing diluted earnings per share 27,114 27,475 ============= ==========
See notes to condensed financial statements. 4 Pericom Semiconductor Corporation Condensed Statements of Cash Flows (Unaudited) (In thousands)
Three Months Ended September 30, ------------- 2001 2000 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 71 $ 6,036 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,038 772 Equity in net loss of investee 206 225 Changes in assets and liabilities: Accounts receivable 599 (2,092) Inventories 1,571 1,314 Prepaid expenses and other current assets (6) (2) Accounts payable 406 673 Accrued liabilities (211) (82) Income taxes payable -- 1,854 --------- --------- Net cash provided by operating activities 3,674 8,698 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (805) (1,066) Purchase of short-term investments (10,489) (2,424) Maturities of short-term investments 6,690 1,440 Decrease (increase) in other assets (2,511) 18 Advances to investee (196) (183) --------- --------- Net cash used in investing activities (7,311) (2,215) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Sale of common stock, net 455 857 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,182) 7,340 CASH AND CASH EQUIVALENTS: Beginning of period 89,076 124,115 --------- --------- End of period $ 85,894 $ 131,455 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Income taxes $ 37 -- ========= =========
See notes to condensed financial statements. 5 Pericom Semiconductor Corporation Notes To Condensed Financial Statements (Unaudited) 1. Basis of Presentation The financial statements have been prepared by Pericom Semiconductor Corporation ("Pericom" or the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these unaudited financial statements include all adjustments, consisting only of normal recurring adjustments and accruals, necessary for a fair presentation of the Company's financial position as of September 30, 2001 and the results of operations and cash flows for the three month periods ended September 30, 2001 and September 30, 2000. This unaudited quarterly information should be read in conjunction with the audited financial statements of Pericom and the notes thereto incorporated by reference in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission. The preparation of the interim condensed financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the interim condensed financial statements and the reported amounts of revenue and expenses during the period. Actual amounts could differ from these estimates. The results of operations for the three month period ended September 30, 2001 are not necessarily indicative of the results to be expected for the entire year. The Company's fiscal periods in the accompanying financial statements have been shown as ending on June 30 and September 30. The Company's fiscal year 2001 ended on June 30, 2001. The three month periods in fiscal years 2002 and 2001 ended on September 29, 2001 and September 30, 2000, respectively. The Company participates in a dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on the Company's future financial position or results of operations: advances and trends in new technologies; competitive pressures in the form of new products or price reductions on current products; changes in the overall demand for products and services offered by the Company; changes in customer relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; risks associated with changes in domestic and international economic and/or political conditions or regulations; availability of necessary components; and the Company's ability to attract and retain employees necessary to support its growth. 2. Earnings Per Share Basic earnings per share is based upon the weighted average number of common shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. 6 Basic and diluted earnings per share for the three month periods ended September 30, 2001 and September 30, 2000 are computed as follows (in thousands, except for per share data):
Three Months Ended September 30, 2001 2000 ---- ---- Net income $ 71 $ 6,036 ======= ======= Computation of common shares outstanding - basic earnings per share: Weighted average shares of common stock 25,189 24,694 ------- ------- Shares used in computing basic earnings per share 25,189 24,694 ======= ======= Basic earnings per share $ 0.00 $ 0.24 ======= ======= Computation of common shares outstanding - diluted earnings per share: Weighted average shares of common stock 25,189 24,694 Dilutive options using the treasury stock method 1,925 2,781 ------- ------- Shares used in computing diluted earnings per share 27,114 27,475 ======= ======= Diluted earnings per share $ 0.00 $ 0.22 ======= =======
Options to purchase 2,395,192 shares of Common stock at prices ranging from $14.50 to $42.75 and options to purchase 102,535 shares of Common stock at prices ranging from $32.69 to $41.13 were outstanding as of September 30, 2001 and September 30, 2000, respectively, but not included in the computation of diluted net income per share because the options' exercise prices were greater than the average market price of the common shares as of such dates and therefore, would be anti-dilutive under the treasury stock method. 3. Inventories Inventories consist of (in thousands): September 30, June 30, 2001 2001 ---- ---- Raw materials $ 4,785 $ 5,674 Work in process 4,490 3,341 Finished goods 3,594 5,425 ----------------------------- $12,869 $14,440 ============================= 7 4. Accrued Liabilities Accrued liabilities consist of (in thousands): September 30 June 30, 2001 2001 ---- ---- Accrued compensation $1,338 $1,598 External sales representative commissions 805 819 Other accrued expenses 1,393 1,330 ----------------------------- $3,536 $3,747 ============================= 5. Industry and Segment Information In fiscal year 1999, 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, geographical areas and major customers. The Company operates in one reportable segment. 6. Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income" requires an enterprise to report, by major components and as a single total, the change in net assets during the period from non-owner sources. For the three month periods ended September 30, 2001 and 2000, comprehensive income, which was comprised of the Company's net income for the periods and changes in cumulative unrealized gain/(loss) on short-term investments was as follows: Three Months Ended September 30, ---------------------------- 2001 2000 ---- ---- Net income $ 71 $6,036 Unrealized gain on investment 391 73 ---------------------------- Comprehensive income $462 $6,109 ============================ 7. Derivative Instruments and Hedging Activities On July 1, 2000, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which defines derivatives, requires that all derivatives be carried at fair value, and provides for hedging accounting when certain conditions are met. The Company does not have any derivatives as of September 30, 2001. There was no impact to the Company's financial statements due to the adoption of SFAS No. 133. 8. Business Combinations On June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" which eliminates the pooling of interests method of accounting for all business combinations initiated after June 30, 2001 and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. 9. Intangible Assets As of July 1, 2001 the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside a business combination and for goodwill and other intangible assets subsequent to their acquisition. This 8 accounting standard requires that goodwill be separately disclosed from other intangible assets in the statements of financial position, and no longer be amortized but tested for impairment on a periodic basis. The provisions of this accounting standard also require the completion of a transitional impairment test within six months of adoption, with any impairments identified treated as a cumulative effect of a change in accounting principle. In accordance with SFAS No. 142, Pericom discontinued the amortization of goodwill effective July 1, 2001. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows: Three Months Ended September 30, -------------------------- 2001 2000 ---- ---- Reported net income $ 71 $6,036 Add: Goodwill amortization, net of tax - -- 48 -------------------------- Adjusted net income $ 71 $6,084 ========================== Reported basic earnings per share $0.00 $ 0.24 Add: Goodwill amortization, net of tax per basic share --- $ 0.00 -------------------------- Adjusted basic earnings per share $0.00 $ 0.24 ========================== Reported basic earnings per share $0.00 $ 0.22 Add: Goodwill amortization, net of tax per basic share --- $ 0.00 -------------------------- Adjusted basic earnings per share $0.00 $ 0.22 ========================== 10. Impairment or Disposal of Long-Lived Assets In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", and the accounting and reporting provisions of APB 30, "Reporting the results of Operations - Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for the disposal of a segment of a business. The Company is required to adopt SFAS No. 144 on July 1, 2002. The Company has not yet determined the impact that the adoption of SFAS No. 144 will have on its results of operations or financial position. 9 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Pericom Semiconductor Corporation The following information should be read in conjunction with the unaudited financial statements and notes thereto included in Part 1 - Item 1 of this Quarterly Report and the audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K (the "Form 10-K"). Results of Operations The following table sets forth certain statement of operations data as a percentage of net revenues for the periods indicated. Three Months Ended September 30, -------------------------- 2001 2000 ---------- ----------- Net revenues 100.0% 100.0% Cost of revenues 65.8% 57.1% ---------- ---------- Gross profit 34.2% 42.9% ---------- ---------- Operating expenses: Research and development 19.7% 7.8% Selling, general and administrative 22.4% 11.9% ---------- ---------- Total 42.1% 19.7% ---------- ---------- Income from operations (7.9%) 23.2% Other income, net 8.7% 6.0% ---------- ---------- Income before income taxes 0.8% 29.2% Provision for income taxes 0.3% 11.1% ---------- ---------- Net income 0.5% 18.1% ========== ========== Net Revenues Net revenues consist primarily of product sales, which are recognized upon shipment, less an estimate for returns and allowances. Net revenues decreased 60.7% from $33.4 million for the quarter ended September 30, 2000 to $13.1 million for the quarter ended September 30, 2001. The decrease in net revenues resulted from the rapid, steep and prolonged decline in world wide semiconductor demand and a decline in the weighted average selling price of certain products. Sales to domestic and international distributors as a percentage of total revenues decreased from 51.5% for the quarter ended September 30, 2000 to 45.9% for the quarter ended September 30, 2001. Direct sales to Techmosa, an international distributor, accounted for approximately 13.6% of sales in the quarter ended September 30, 2001 and approximately 10.7% of sales in the quarter ended September 30, 2000. Direct sales to Jabil Circuit, a global contract manufacturer, accounted for approximately 13.6% of sales in the quarter ended September 30, 2001 and less than 10% of sales in the quarter ended September 30, 2000. As a percentage of gross revenues, sales through distribution and contract manufacturing sales channels to one end-user customer, Compaq Computer Corp., decreased from 14.7% in the quarter ended September 30, 2000 to 11.8% in the quarter ended September 30, 2001. As a percentage of gross revenues, sales through distribution and contract manufacturing sales channels to another end-user customer, Cisco Systems, increased from 10.7% in the quarter ended September 30, 2000 to 11.4% in the quarter ended September 30, 2001. As a percentage of gross revenues, sales through 10 distribution and contract manufacturing sales channels to a third end-user customer, IBM were 10.3% in the quarter ended September 30, 2001. Gross Profit Gross profit decreased 68.7% from $14.3 million for the quarter ended September 30, 2000 to $4.5 million for the quarter ended September 30, 2001. Gross profit as a percentage of net revenues, or gross margin, decreased from 42.9% in the quarter ended September 30, 2000 to 34.2% in the quarter ended September 30, 2001. The decrease in gross margin resulted from a shift in mix towards lower margin products, pricing pressure resulting in lower average selling prices, and lower manufacturing volumes resulting in a higher fixed cost per unit all of which were partially offset by ongoing cost reduction efforts. Research and Development Research and development expenses were approximately flat at $2.6 million for both the quarter ended September 30, 2000 and the quarter ended September 30, 2001, and increased as a percentage of net revenues from 7.8% to 19.7%. Increases in personnel and equipment costs were offset by decreases in supplies expenses due to the very tight expense control climate. The Company believes that continued spending on research and development to develop new products and improve manufacturing processes is critical to the Company's success and, consequently, expects to increase research and development expenses in future periods over the long term. In the short term, research and development expenses are expected to be relatively flat, as the Company focuses on cost control during the current industry slowdown. Selling, General and Administrative Selling, general and administrative expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general management. Such costs also include advertising, sales materials, sales commissions and other marketing and promotional expenses. Selling, general and administrative expenses decreased 26.1% from $4.0 million for the quarter ended September 30, 2000 to $2.9 million for the quarter ended September 30, 2001, and increased as a percentage of net revenues from 11.9% to 22.4%. The decrease in expense in was primarily attributable to reduced sales commissions and bonus due to the sales decline. The Company anticipates that selling, general and administrative expenses will increase in future periods over the long term due to increased staffing levels, particularly in sales and marketing, as well as increased commission expense to the extent the Company achieves higher sales levels. In the short term, selling, general and administrative expenses are expected to be relatively flat as the Company focuses on cost control during the current industry slowdown. Other Income, Net Other income, net, includes interest income and the Company's allocated portion of net gains or losses of Pericom Technology, Inc. ("PTI"). Other income, net decreased from $1,998,000 for the quarter ended September 30, 2000 to $1,151,000 for the quarter ended September 30, 2001. From the quarter ended September 30, 2000 to the quarter ended September 30, 2001, the Company's share of the net gains or losses of PTI decreased from a loss of $225,000 to a loss of $206,000, and interest income declined from $2,223,000 to $1,357,000 due to a decline in the interest rate earned on the cash balances that resulted from the net proceeds from the Company's follow-on public offering in March 2000. Interest income increased from $3.6 million in fiscal 2000 to $8.3 million in fiscal 2001 primarily as a result of the investment of these net proceeds. 11 Provision for Income Taxes The provision for income taxes decreased from $3,700,000 for the quarter ended September 30, 2000 to $39,000 for the quarter ended September 30, 2001. The decrease in the provision for income taxes for the current fiscal quarter is due primarily to the decrease in taxable income. The effective tax rate of 36.0% in the quarter ended September 30, 2001 has decreased from the 38.0% rate used in the comparable period in the prior year. The provision for income taxes also differed from the federal statutory rate due to state income taxes. Liquidity and Capital Resources Prior to the Company's initial public offering in October 1997, the Company used proceeds from the private sale of equity securities, bank borrowings and internal cash flow to support the Company's operations, acquire capital equipment and finance inventory and accounts receivable growth. Operating activities generated $3.7 million of cash during the three months ended September 30, 2001 and $8.7 million of cash during the three months ended September 30, 2000. Net cash used for investing activities increased from $2.2 million for the three months ended September 30, 2000 to $7.3 million for the three months ended September 30, 2001. The Company made capital expenditures of approximately $805,000 during the three months ended September 30, 2001 compared with $1,066,000 in the comparable period of the previous year, and also increased net purchases of short-term investments by $2.8 million during the three months ended September 30, 2001 compared to the three months ended September 30, 2000. On March 8, 2000 the Company sold 2.2 million shares (on a pre-split basis before the Company's 2-for-1 stock split in September 2000) of common stock in a follow-on public offering. Net proceeds to the Company, before expenses, from this offering were $101,376,000 after underwriting discounts and commissions. Expenses were approximately $427,000. These funds are invested in short-term money market funds and other predominantly short-term taxable and tax advantaged instruments. As of September 30, 2001, the Company's principal sources of liquidity included cash, cash equivalents and short-term investments of approximately $152.0 million. Management believes that existing cash balances and cash generated from operations will be sufficient to fund necessary purchases of capital equipment and to provide working capital at least through the next twelve months. However, future events may require the Company to seek additional capital sooner. If the Company determines that it needs to seek additional capital, the Company may not be able to obtain such additional capital on terms acceptable to it. Factors That May Affect Operating Results This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including any statements regarding: projections of revenues, expenses or other financial items; the plans and objectives of management for future operations; the Company's tax rate; the adequacy of allowances for returns, price protection and other concessions; proposed new products or services; the sufficiency of cash generated from operations and cash balances; the Company's exposure to interest rate risk; future economic conditions or performance; plans for increases in research and development expenses and selling, general and administrative expenses; plans to seek intellectual property protection for the Company's technologies; expectations regarding export sales and net revenues; the expansion of sales efforts; acquisition prospects; and assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue," or the negative thereof or other comparable terminology. Although the Company believes that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking 12 statements. The Company's future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including but not limited to the factors set forth (i) below, (ii) in the Company's Form 10-K under the heading "Risk Factors; Factors That May Affect Future Results", and (iii) in Note 1 to the Notes to Condensed Financial Statements. All forward-looking statements and reasons why results may differ included in this Quarterly Report are made as of the date hereof, and the Company assumes no obligation to update any such forward-looking statement or reason why actual results may differ. Our results of operations have been adversely affected by the recent slowdown in the global economy. Recently the global economy has been experiencing a slowdown due to many factors, including decreased consumer confidence and reduced corporate profits and capital spending. As a result of these unfavorable economic conditions, our new customer order rates have stabilized at a much lower level than in the first half of fiscal 2001. The significant order cancellations that we experienced during the second half of fiscal 2001 have largely abated, however. In addition, the recent terrorist attacks on September 11, 2001 appear to have further depressed economic activity in the United States. If these weak economic conditions in the United States continue or worsen or if a wider or global economic slowdown occurs, our business, financial condition and results of operations may be materially and adversely affected. Downturns in the semiconductor industry, rapidly changing technology and evolving industry standards can harm our operating results. The semiconductor industry has historically been cyclical and periodically subject to significant economic downturns--characterized by diminished product demand, accelerated erosion of selling prices and overcapacity--as well as rapidly changing technology and evolving industry standards. We believe that the semiconductor industry is currently in such a downturn and that the decrease in our net revenues from $33.4 million for the quarter ended September 30, 2000 to $13.1 million for the quarter ended September 30, 2001 was primarily due to this downturn. Our net revenues may continue to be adversely affected if this downturn continues. In general, we may in the future experience substantial period-to-period fluctuations in our business and operating results due to general semiconductor industry conditions, overall economic conditions or other factors. Our business is also subject to the risks associated with the effects of legislation and regulations relating to the import or export of semiconductor products. If we do not develop products that our customers and end-users design into their products, or if their products do not sell successfully, our business and operating results would be harmed. We have relied in the past and continue to rely upon our relationships with our customers and end-users for insights into product development strategies for emerging system requirements. We generally incorporate new products into a customer's or end-user's product or system at the design stage. However, these design efforts, which can often require significant expenditures by us, may precede product sales, if any, by a year or more. Moreover, the value to us of any design win will depend in large part on the ultimate success of the customer's or end-user's product and on the extent to which the system's design accommodates components manufactured by our competitors. If we fail to achieve design wins or if the design wins fail to result in significant future revenues, our operating results would be harmed. If we have problems developing or maintaining our relationships with our customers and end-users, our ability to develop well-accepted new products may be impaired. The trading price of our common stock and our operating results are likely to fluctuate substantially in the future. The trading price of our common stock has been and is likely to continue to be highly volatile. Our stock price could fluctuate widely in response to factors some of which are not within our control, including: . general conditions in the semiconductor and electronic systems industries; 13 . quarter-to-quarter variations in operating results; . announcements of technological innovations or new products by us or our competitors; . changes in earnings estimates by analysts; and price and volume fluctuations in the overall stock market, which have particularly affected the market prices of many high technology companies. In the past, our quarterly operating results have varied significantly and are likely to fluctuate in the future. A wide variety of factors affect our operating results. These factors might include the following: . general conditions in the semiconductor industry; . changes in our product mix; . a decline in the gross margins of our products; . expenses incurred in obtaining, enforcing, and defending intellectual property rights; . the timing of new product introductions and announcements by us and by our competitors; . customer acceptance of new products introduced by us; . delay or decline in orders received from distributors; . growth or reduction in the size of the market for interface ICs; . the availability of manufacturing capacity with our wafer suppliers; . changes in manufacturing costs; . fluctuations in manufacturing yields; . the ability of customers to pay us; and . increased research and development expenses associated with new product introductions or process changes. All of these factors are difficult to forecast and could seriously harm our operating results. Our expense levels are based in part on our expectations regarding future sales and are largely fixed in the short term. Therefore, we may be unable to reduce our expenses fast enough to compensate for any unexpected shortfall in sales. Any significant decline in demand relative to our expectations or any material delay of customer orders could harm our operating results. In addition, if our operating results in future quarters fall below public market analysts' and investors' expectations, the market price of our common stock would likely decrease. The markets for our products are characterized by rapidly changing technology, and our financial results could be harmed if we do not successfully develop and implement new manufacturing technologies or develop, introduce and sell new products. The markets for our products are characterized by rapidly changing technology, frequent new product introductions and declining selling prices over product life cycles. We currently offer over 650 products. Our future success depends upon the timely completion and introduction of new products, across all our product lines, at competitive price and performance levels. The success of new products depends on a variety of factors, including the following: . product performance and functionality; . customer acceptance; . competitive pricing; . successful and timely completion of product development; . sufficient wafer fabrication capacity; and . achievement of acceptable manufacturing yields by our wafer suppliers. We may also experience delays, difficulty in procuring adequate fabrication capacity for the development and manufacture of new products or other difficulties in achieving volume production of these products. Even relatively minor errors may significantly affect the development and manufacture of new products. If we fail to complete and introduce new products in a timely manner at competitive price and performance levels, our business would be significantly harmed. 14 Intense competition in the semiconductor industry may reduce the demand for our products or the prices of our products, which could reduce our revenues. The semiconductor industry is intensely competitive. Our competitors include Cypress Semiconductor Corporation, Integrated Circuit Systems, Inc., Integrated Device Technology, Inc., Maxim Integrated Products, Inc., and Texas Instruments, Inc. Most of those competitors have substantially greater financial, technical, marketing, distribution and other resources, broader product lines and longer-standing customer relationships than we do. We also compete with other major or emerging companies that sell products to certain segments of our markets. Competitors with greater financial resources or broader product lines may have a greater ability to sustain price reductions in our primary markets in order to gain or maintain market share. We believe that our future success will depend on our ability to continue to improve and develop our products and processes. Unlike us, many of our competitors maintain internal manufacturing capacity for the fabrication and assembly of semiconductor products. This ability may provide them with more reliable manufacturing capability, shorter development and manufacturing cycles and time-to-market advantages. In addition, competitors with their own wafer fabrication facilities that are capable of producing products with the same design geometries as ours may be able to manufacture and sell competitive products at lower prices. Any introduction of products by our competitors that are manufactured with improved process technology could seriously harm our business. As is typical in the semiconductor industry, our competitors have developed and marketed products that function similarly or identically to ours. If our products do not achieve performance, price, size or other advantages over products offered by our competitors, our products may lose market share. Competitive pressures could also reduce market acceptance of our products, reduce our prices and increase our expenses. We also face competition from the makers of ASICs and other system devices. These devices may include interface logic functions, which may eliminate the need or sharply reduce the demand for our products in particular applications. Product price declines and fluctuations may cause our future financial results to vary. Historically, selling prices in the semiconductor industry generally, as well as for our products, have decreased significantly over the life of each product. We expect that selling prices for our existing products will continue to decline over time and that average selling prices for our new products will decline significantly over the lives of these products. Declines in selling prices for our products, if not offset by reductions in the costs of producing these products or by sales of new products with higher gross margins, would reduce our overall gross margins and could seriously harm our business. The demand for our products depends on the growth of our end users' markets. Our continued success depends in large part on the continued growth of markets for the products into which our semiconductor products are incorporated. These markets include the following: . computers and computer related peripherals; . data communications and telecommunications equipment; . electronic commerce and the Internet; and . consumer electronics equipment. Any decline in the demand for products in these markets could seriously harm our business, financial condition and operating results. These markets have also historically experienced significant fluctuations in demand. We may also be seriously harmed by slower growth in the other markets in which we sell our products. 15 Our contracts with our wafer suppliers do not obligate them to a minimum supply or set prices. Any inability or unwillingness of our wafer suppliers generally, and Chartered Semiconductor Manufacturing Ltd. in particular, to meet our manufacturing requirements would delay our production and product shipments and harm our business. In fiscal 2001, 2000 and 1999 we purchased approximately 59%, 75% and 85%, respectively, of our wafers from Chartered Semiconductor Manufacturing Ltd., and in the first three months of fiscal 2002 we purchased 60% of our wafers from Chartered. In fiscal 2001 and 2002, only five other suppliers manufactured the remainder of our wafers. In fiscal 2000 and 1999, only four other suppliers manufactured the remainder of our wafers. Our reliance on independent wafer suppliers to fabricate our wafers at their production facilities subjects us to possible risks such as: . lack of adequate capacity; . lack of available manufactured products; . lack of control over delivery schedules; and . unanticipated changes in wafer prices. Any inability or unwillingness of our wafer suppliers generally, and Chartered in particular, to provide adequate quantities of finished wafers to meet our needs in a timely manner would delay our production and product shipments and seriously harm our business. At present, we purchase wafers from our suppliers through the issuance of purchase orders based on our rolling six-month forecasts. The purchase orders are subject to acceptance by each wafer supplier. We do not have long-term supply contracts which obligate our suppliers to a minimum supply or set prices. We also depend upon our wafer suppliers to participate in process improvement efforts, such as the transition to finer geometries. If our suppliers are unable or unwilling to do so, our development and introduction of new products could be delayed. Furthermore, sudden shortages of raw materials or production capacity constraints can lead wafer suppliers to allocate available capacity to customers other than us or for the suppliers' internal uses, interrupting our ability to meet our product delivery obligations. Any significant interruption in our wafer supply would seriously harm our operating results and our customer relations. Our reliance on independent wafer suppliers may also lengthen the development cycle for our products, providing time-to-market advantages to our competitors that have in-house fabrication capacity. In the event that our suppliers are unable or unwilling to manufacture our key products in required volumes, we will have to identify and qualify additional wafer foundries. The qualification process can take up to six months or longer. Furthermore, we are unable to predict whether additional wafer foundries will become available to us or will be in a position to satisfy any of our requirements on a timely basis. We depend on single or limited source assembly subcontractors with whom we do not have written contracts. Any inability or unwillingness of our assembly subcontractors to meet our assembly requirements would delay our product shipments and harm our business. We primarily rely on foreign subcontractors for the assembly and packaging of our products and, to a lesser extent, for the testing of finished products. Some of these subcontractors are our single source supplier for some of our new packages. In addition, changes in our or a subcontractor's business could cause us to become materially dependent on a single subcontractor. We have from time to time experienced difficulties in the timeliness and quality of product deliveries from our subcontractors and may experience similar or more severe difficulties in the future. We generally purchase these single or limited source components or services pursuant to purchase orders and have no guaranteed arrangements with these subcontractors. These subcontractors could cease to meet our requirements for components or services, or there could be a significant disruption in supplies from them, or degradation in the quality of components or services supplied by them. Any circumstance that would require us to qualify alternative supply sources could delay shipments, result in the loss of customers and limit or reduce our revenues. 16 We may have difficulty accurately predicting revenues for future periods. Our expense levels are based in part on anticipated future revenue levels, which can be difficult to predict. Our business is characterized by short-term orders and shipment schedules. We do not have long-term purchase agreements with any of our customers, and customers can typically cancel or reschedule their orders without significant penalty. We typically plan production and inventory levels based on forecasts of customer demand generated with input from customers and sales representatives. Customer demand is highly unpredictable and can fluctuate substantially. If customer demand falls significantly below anticipated levels, our gross profit would be reduced. We compete with others to attract and retain key personnel, and any loss of, or inability to attract, key personnel would harm us. To a greater degree than non-technology companies, our future success will depend on the continued contributions of our executive officers and other key management and technical personnel. None of these individuals has an employment agreement with us and each one would be difficult to replace. We do not maintain any key person life insurance policies on any of these individuals. The loss of the services of one or more of our executive officers or key personnel or the inability to continue to attract qualified personnel could delay product development cycles or otherwise harm our business, financial condition and results of operations. Our future success also will depend on our ability to attract and retain qualified technical, marketing and management personnel, particularly highly skilled design, process and test engineers, for whom competition is intense. In particular, the current availability of qualified engineers is limited and competition among companies for skilled and experienced engineering personnel is very strong. During strong business cycles, we expect to experience continued difficulty in filling our needs for qualified engineers and other personnel. Our limited ability to protect our intellectual property and proprietary rights could harm our competitive position. Our success depends in part on our ability to obtain patents and licenses and preserve other intellectual property rights covering our products and development and testing tools. In the United States, we hold 36 patents covering certain aspects of our product designs and have at least 14 additional patent applications pending. Copyrights, mask work protection, trade secrets and confidential technological know-how are also key to our business. Additional patents may not be issued to us or our patents or other intellectual property may not provide meaningful protection. We may be subject to, or initiate, interference proceedings in the U.S. Patent and Trademark Office. These proceedings can consume significant financial and management resources. We may become involved in litigation relating to alleged infringement by us of others' patents or other intellectual property rights. This type of litigation is frequently expensive to both the winning party and the losing party and takes up significant amounts of management's time and attention. In addition, if we lose such a lawsuit, a court could require us to pay substantial damages and/or royalties or prohibit us from using essential technologies. For these and other reasons, this type of litigation could seriously harm our business. Also, although we may seek to obtain a license under a third party's intellectual property rights in order to bring an end to certain claims or actions asserted against us, we may not be able to obtain such a license on reasonable terms or at all. In July 2001, Cypress Semiconductor Corporation ("Cypress"), a competitor of Pericom, filed a complaint with the U.S. International Trade Commission against Pericom, alleging, among other things, patent infringement. Cypress also filed suit in federal district court against Pericom with respect to the same alleged patent infringement. Pericom disputes Cypress'claims and intends to defend these proceedings vigorously. For further information, see "Item 1: Legal Proceedings" in Part II of this Quarterly Report. Because it is important to our success that we are able to prevent competitors from copying our innovations, we intend to continue to seek patent, trade secret and mask work protection for our technologies. The process of seeking patent protection can be long and expensive, and we cannot be certain that any currently 17 pending or future applications will actually result in issued patents, or that, even if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us. Furthermore, others may develop technologies that are similar or superior to our technology or design around the patents we own. We also rely on trade secret protection for our technology, in part through confidentiality agreements with our employees, consultants and third parties. However, these parties may breach these agreements. In addition, the laws of some territories in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as do the laws of the United States. The process technology used by our independent foundries, including process technology that we developed with our foundries, can generally be used by them to produce their own products or to manufacture products for other companies including our competitors. In addition, we may not have the right to implement key process technologies used to manufacture some of our products with foundries other than our present foundries. We may not provide adequate allowances for exchanges, returns and concessions. We recognize revenue from the sale of products when shipped, less an allowance based on future authorized and historical patterns of returns, price protection, exchanges and other concessions. We believe our methodology and approach are appropriate. However, if the actual amounts we incur exceed the allowances, it could decrease our revenue and corresponding gross profit. The complexity of our products makes us highly susceptible to manufacturing problems, which could increase our costs and delay our product shipments. The manufacture and assembly of our over 650 products are highly complex and sensitive to a wide variety of factors, including: . the level of contaminants in the manufacturing environment; . impurities in the materials used; and . the performance of manufacturing personnel and production equipment. In a typical semiconductor manufacturing process, silicon wafers produced by a foundry are cut into individual die. These die are assembled into individual packages and tested for performance. Our wafer fabrication suppliers have from time to time experienced lower than anticipated yields of suitable die. In the event of such decreased yields, we would incur additional costs to sort wafers, an increase in average cost per usable die and an increase in the time to market for our products. These conditions could reduce our net revenues and gross margin and harm our customer relations. We do not manufacture any of our products. Therefore, we are referred to in the semiconductor industry as a "fabless" producer. Consequently, we depend upon third party manufacturers to produce semiconductors that meet our specifications. We currently have third party manufacturers that can produce semiconductors that meet our needs. However, as the industry continues to progress to smaller manufacturing and design geometries, the complexities of producing semiconductors will increase. Decreasing geometries may introduce new problems and delays that may affect product development and deliveries. Due to the nature of the industry and our status as a "fabless" semiconductor company, we could encounter fabrication-related problems that may affect the availability of our products, delay our shipments or increase our costs. A large portion of our revenues is derived from sales to a few customers, who may cease purchasing from us at any time. A relatively small number of customers have accounted for a significant portion of our net revenues in each of the past several fiscal years. We expect this trend to continue for the foreseeable future. Techmosa, an international distributor that in turn ships to many end users, accounted for approximately 10.7% of net 18 revenues during the first three months of fiscal 2001 and approximately 13.6% of net revenues during the first three months of fiscal 2002. Jabil Circuit, a global contract manufacturer, accounted for approximately 13.6% of net revenues in the first three months of fiscal 2002 and less than 10% of net revenues in the first three months of fiscal 2001. Sales to our top five direct customers accounted for approximately 43.5% of net revenues in the first three months of fiscal 2001 and approximately 51.4% of net revenues in the first three months of fiscal 2002. Of our end-user customers, Compaq Computer, Cisco Systems and IBM accounted for approximately 11.7%, 11.4% and 10.3%, respectively, of our gross revenues in the first three months of fiscal 2002 and sales to our top five end-user customers accounted for approximately 44.2% of gross revenues in the same period. For the first three months of fiscal 2001, sales to Compaq Computer were approximately 14.7% and sales to Cisco Systems were approximately 10.7% of gross revenues. Also during the first quarter of fiscal 2001, sales to our top five end-user customers were approximately 46.0% of gross revenues. We do not have long-term sales agreements with any of our customers. Our customers are not subject to minimum purchase requirements, may reduce or delay orders periodically due to excess inventory and may discontinue selling our products at any time. Our distributors typically offer competing products in addition to ours. For the three months ended September 30, 2000, sales to domestic and international distributors represented approximately 51.5% of net revenues, and for the three months ended September 30, 2001 sales to our distributors were 45.9% of net revenues. The loss of one or more significant customers, or the decision by a significant distributor to carry the product lines of our competitors, could decrease our revenues. Almost all of our wafer suppliers and assembly subcontractors are located in Southeast Asia, which exposes us to the problems associated with international operations. Almost all of our wafer suppliers and assembly subcontractors are located in Southeast Asia, which exposes us to risks associated with international business operations, including the following: . disruptions or delays in shipments; . changes in economic conditions in the countries where these subcontractors are located; . currency fluctuations; . changes in political conditions; . potentially reduced protection for intellectual property; . foreign governmental regulations; . import and export controls; and . changes in tax laws, tariffs and freight rates. In particular, there is a potential risk of conflict and further instability in the relationship between Taiwan and the People's Republic of China. Conflict or instability could disrupt the operations of one of our principal wafer suppliers and several of our assembly subcontractors located in Taiwan. Because we sell our products to customers outside of the United States, we face foreign business, political and economic risks that could seriously harm us. In the three months ended September 30, 2000, approximately 30% of our net revenues derived from sales in Asia excluding Japan, approximately 11% from sales in Europe and approximately 7% from sales in Japan. In the three months ended September 30, 2001, approximately 46% of our net revenues derived from sales in Asia excluding Japan, approximately 7% from sales in Europe and approximately 5% from sales in Japan. We expect that export sales will continue to represent a significant portion of net revenues. We intend to expand our sales efforts outside the United States. This expansion will require significant management attention and financial resources and further subject us to international operating risks. These risks include: . tariffs and other barriers and restrictions; 19 . unexpected changes in regulatory requirements; . the burdens of complying with a variety of foreign laws; and . delays resulting from difficulty in obtaining export licenses for technology. We are also subject to general geopolitical risks in connection with our international operations, such as political and economic instability and changes in diplomatic and trade relationships. In addition, because our international sales are denominated in U.S. dollars, increases in the value of the U.S. dollar could increase the price in local currencies of our products in foreign markets and make our products relatively more expensive than competitors' products that are denominated in local currencies. Regulatory, geopolitical and other factors could seriously harm our business or require us to modify our current business practices. Our potential future acquisitions may not be successful because we have not made acquisitions in the past. We have depended on internal growth in the past and have not made any acquisitions. As part of our business strategy, we expect to seek acquisition prospects that would complement our existing product offerings, improve market coverage or enhance our technological capabilities. We have no current agreements or negotiations underway with respect to any acquisitions, and we may not be able to locate suitable acquisition opportunities. Future acquisitions could result in the following: . potentially dilutive issuances of equity securities; . large one-time write-offs; . the incurrence of debt and contingent liabilities or amortization expenses related to goodwill and other intangible assets; . difficulties in the assimilation of operations, personnel, technologies, products and the information systems of the acquired companies; . diversion of management's attention from other business concerns; and . risks of entering geographic and business markets in which we have no or limited prior experience and potential loss of key employees of acquired organizations. We are not certain that we will be able to successfully integrate any businesses, products, technologies or personnel that may be acquired in the future. Our failure to do so could seriously harm our business. Our operations and financial results could be severely harmed by natural disasters. Our headquarters and some of our major suppliers' manufacturing facilities are located near major earthquake faults. One of the foundries we use is located in Taiwan, which suffered a severe earthquake during fiscal 2000. We did not experience significant disruption to our operations as a result of that earthquake. However, if a major earthquake or other natural disaster were to affect our suppliers, our sources of supply could be interrupted, which would seriously harm our business. Item 3. Quantitative and Qualitative Disclosures about Market Risk At September 30, 2001, our investment portfolio consisted of investment-grade fixed income securities, excluding those classified as cash equivalents, of $66.1 million. These securities are subject to interest rate risk and will decline in value if market interest rates increase. For example, if market interest rates were to increase immediately and uniformly by 10% per annum from levels as of September 30, 2001, the fair market value of the portfolio would decrease. However, we do not believe that such a decrease would have a material effect on our results of operations over the next fiscal year. Due to the short duration and conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk. 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings. On July 20, 2001, a complaint was filed with the U.S. International Trade Commission ("USITC"), under section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. ss.1337, on behalf of Cypress Semiconductor Corporation ("Cypress"), of San Jose, California, a competitor of Pericom. Supplements to the complaint were filed on July 30, August 1, and August 3, 2001. The complaint, as supplemented, alleges violations of section 337 in the importation into the United States, the sale for importation and the sale within the United States after importation of certain power saving integrated circuits and products containing those power saving integrated circuits that infringe claims 1-4, 6-10, and 12-15 of United States Patent No. 5,949,261 entitled "Method and Circuit for Reducing Power and/or Current Consumption." ("the `261 patent"). The complaint further alleges that an industry in the United States exists as required by subsection (a)(2) of section 337. Among the power saving integrated circuits and products that Cypress alleges infringe the `261 patent are certain of Pericom products. In the complaint, Cypress requested that the USITC institute an investigation and, after the investigation, issue a permanent exclusion order and permanent cease and desist order. On August 16, 2001, the USITC ordered that (1) Pursuant to subsection (b) of section 337 of the Tariff Act of 1930, as amended, an investigation be instituted to determine whether there is a violation of subsection (a)(1)(B) of section 337 in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain power saving integrated circuits and products containing same by reason of infringement of claims 1-4, 6-10, 12-14, or 15 of the `261 patent and whether an industry in the United States exists as required by subsection (a)(2) of section 337. Pericom disputes Cypress' claims and intends to defend the lawsuit vigorously. On July 24, 2001, Cypress Semiconductor Corporation ("Cypress") filed suit in Federal District Court in the Eastern District of Texas - Sherman Division, generally alleging that Pericom infringes United States Patent No. 5,949,261 entitled "Method and Circuit for Reducing Power and/or Current Consumption." The suit seeks injunctive relief, damages, costs, attorney fees, and pre-judgment and post-judgment interest, and further alleges that Pericom's infringement is willful and that any damages awarded should be trebled. Pericom disputes Cypress' claims and intends to defend the lawsuit vigorously. Item 6. Exhibits and Reports on Form 8-K. a. Exhibits Exhibit Number Description ------ ----------- 10.15 Sublease of 2249 Zanker Road, San Jose, California b. Reports on Form 8-K. No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended September 30, 2001. 21 SIGNATURES 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. Pericom Semiconductor Corporation (Registrant) Date: November 12, 2001 By: /s/ Alex Hui ------------ Alex Hui Chief Executive Officer Date: November 12, 2001 By: /s/ Michael D. Craighead ------------------------ Michael D. Craighead Chief Financial Officer (Chief Accounting Officer) 22 EX-10.15 3 dex1015.txt SUBLEASE OF 2249 ZANKER ROAD, SAN JOSE, CA. Exhibit 10.15 SUBLEASE CONSENT AND AGREEMENT This Sublease Consent and Agreement ("Agreement") dated as of August 28, --------- 2001 (for reference purposes only), is made by and among, CARRAMERICA REALTY CORPORATION, a Maryland corporation ("Landlord"), PERICOM SEMICONDUCTOR -------- CORPORATION, a California corporation ("Tenant"), and YESVIDEO.COM, INC., a ------ Delaware corporation ("Subtenant"). --------- RECITALS: -------- A. Pursuant to that certain Lease and First Addendum thereto dated November 29, 1993 between Orchard Investment Company Number 510, a California general partnership, Landlord's predecessor in interest as Landlord, and Tenant, as amended by that certain Acceptance Agreement dated January 28, 1994, that certain First Amendment to Lease dated February 5, 1996, that certain Second Amendment to Lease dated July 31, 1997, that certain Third Amendment to Lease dated April 23, 1999, that certain Fourth Amendment to Lease dated January 21, 2000, that certain Fifth Amendment to Lease dated May 1, 2000, and that certain Sixth Amendment to Lease dated October 31, 2000 (collectively, the "Master Lease"), Tenant leases from Landlord certain premises (the "Premises") consisting of approximately 66,264 square feet in the buildings commonly referred to as "Valley Business Park II", all as more particularly described in the Master Lease. B. Tenant desires to sublease that portion of the Premises referred to in the Master Lease as the "Fifth Expansion Space" (the "Subleased Premises") to ------------------ Subtenant in accordance with that certain sublease (the "Sublease") dated August -------- 23, 2001, between Tenant and Subtenant, a copy of which is attached hereto as Exhibit A. C. Landlord is willing to consent to the Sublease upon the terms and conditions of this Agreement. AGREEMENT: --------- NOW, THEREFORE, in consideration of the foregoing and the covenants, promises and undertakings set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Landlord's Consent. Landlord hereby consents to the Sublease in the form ------------------ attached hereto as Exhibit A. The Sublease shall not be amended or modified without the prior written consent of Landlord. This consent is granted only upon the terms and conditions of this Agreement, and Tenant and Subtenant hereby agree to each of such terms and conditions. 2. Master Lease. ------------ 2.1 The Sublease shall be subject and subordinate at all times to the Master Lease and to all of its provisions, covenants and conditions. Landlord shall not be bound or estopped in any way by any of the terms, covenants, or conditions of the Sublease, nor shall any provision of the Sublease or this Agreement operate as an express or implied consent to or approval or ratification by Landlord of any specific provisions of the Sublease or as an endorsement, representation or warranty of any kind by Landlord regarding the Premises, Tenant, the Master Lease or any other matter, all of which are expressly disclaimed. In case of any conflict between the provisions of the Master Lease and the provisions of the Sublease, as between Landlord and Tenant, the provisions of the Master Lease shall prevail unaffected by the Sublease. Tenant and Subtenant agree that the Sublease is hereby amended to conform to the terms and conditions of this Agreement. Without limiting the generality of the foregoing, the Sublease is hereby amended as follows: (a) Section 6.1 of the Sublease is hereby deleted in its entirety and replaced with the following: "6.1 Use. The Premises shall be used and occupied only for office, administration, research and development, system assembly, light manufacturing, storage, and distribution and for no other purpose." (b) Sections 8.1, 8.2, and 9.5 of the Sublease are hereby deleted in their entirety. (c) Section 9.6 of the Sublease is hereby deleted in its entirety and replaced with the following: "9.6 Sublessee shall have the right to cure any default of Sublessor described in any notice of default within ten (10) days after service of such notice of default on Sublessee. If such default is cured by Sublessee then Sublessee shall have the right of reimbursement and offset from and against Sublessor." 2.2 Nothing contained in the Sublease shall alter, amend, expand or reduce any of the obligations of Landlord or Tenant under the Master Lease, nor impose on Landlord any obligation to provide notice to, or obtain consent from, Subtenant with respect to amendments, defaults, waivers or any other matters pertaining to the Master Lease or the Premises. Except to the extent the Sublease becomes a direct lease between Landlord and Subtenant pursuant to Section 4.1 below, all communications with Landlord regarding the Master Lease, the Premises, the Sublease or Subtenant shall be recognized by Landlord only if made by Tenant, not Subtenant, including without limitation, requests for approvals as required under the Master Lease and requests for any service to be supplied by Landlord to the Subleased Premises. Tenant consents that Landlord may elect to communicate directly with Subtenant regarding Subtenant's occupancy of the Subleased Premises or the Sublease without any implied waiver of this provision. Tenant shall indemnify, protect, defend and hold Landlord harmless from any liability of, or claim against Landlord by Subtenant which arises from Tenant's failure to timely provide notice to Landlord of requests made by Subtenant to Tenant, as the sublandlord under the Sublease. 3. Relationship with Landlord. -------------------------- 3.1 Except as otherwise provided by law, nothing contained in this Agreement or the Sublease shall be deemed to create privity of contract between Landlord and Subtenant, to make Subtenant a third party beneficiary of the provisions of the Master Lease, or to create or permit any direct right of action by Subtenant against Landlord for breach of the covenant of quiet enjoyment or any other covenant of Landlord under the Master Lease. Landlord shall have no obligations nor incur any liability to Subtenant with respect to any warranties of any nature, whether pursuant to the Master Lease or the Sublease, or otherwise, including, without limitation, any warranties respecting use, compliance with zoning, construction, or fitness of the Subleased Premises for Subtenant's purposes. 3.2 Tenant hereby irrevocably authorizes and directs Subtenant, upon receipt of any written notice from Landlord stating that a default exists in the performance of Tenant's obligations under the Master Lease, to pay to Landlord the rents and other amounts due and to become due under the Sublease as such rents and other amounts shall become due and payable under the Sublease. Tenant agrees that Subtenant shall have the right to rely upon any such statement and request from Landlord, and that Subtenant shall pay such rents and other amounts to Landlord without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Tenant to the contrary, and Tenant shall have no right or claim hereunder against Subtenant for any such rents or other amounts so paid by Subtenant. Such payments to Landlord shall satisfy and discharge Subtenant's obligation for the payment of rent and other amounts under the Sublease to the full extent of such payments made to Landlord. 4. Termination of Master Lease. --------------------------- 4.1 Any termination of the Master Lease for any reason shall constitute, without further act or deed, a termination of the Sublease, provided that Landlord shall have the option, at its sole election, to: (a) elect by written notice to continue the Sublease solely with respect to the Subleased Premises without any additional or further agreement of any kind on the part of Subtenant and with the same force and effect as if Landlord, as landlord, and Subtenant, as tenant, had entered into a lease as of the effective date of such expiration, termination or surrender of the Master Lease for a term equal to the then unexpired term of the Sublease, and containing the same terms and conditions as those contained in the Sublease (except as specifically provided in this Agreement), in which event Landlord shall assume Tenant's obligations as sublandlord thereunder and Subtenant shall attorn to Landlord as landlord on such terms and conditions. (b) enter into a lease directly with Subtenant for the balance of the term remaining under the Sublease, for the same consideration and upon the same terms and conditions as in the Sublease. If Landlord exercises such option, Landlord and Subtenant shall enter into a new lease directly between Landlord and Subtenant upon such terms and conditions. 4.2 If Landlord elects to proceed under either Sections 4.1(a) or 4.1(b) above, in no event shall Landlord be: (a) bound by or liable for any rent paid by Subtenant to Tenant; or any security deposit paid by Subtenant to Tenant that is not transferred to Landlord; (b) liable for any act or omission of Tenant or for any default of Tenant under the Sublease which occurred prior to Landlord's assumption; (c) subject to any defenses or offsets that Subtenant may have against Tenant which arose prior to Landlord's assumption; or (d) bound by any changes or modifications made to the Sublease without the written consent of Landlord. 5. Non-Release of Tenant. Nothing contained in this Agreement or the --------------------- Sublease shall be deemed to alter the primary liability of Tenant to pay the Rent and perform all of Tenant's obligations under the Master Lease (including, without limitation, the payment of all bills rendered by Landlord for charges incurred by Subtenant for services and materials supplied to the Subleased Premises), nor release Tenant from its obligations under the Master Lease, nor waive any rights that Landlord may now have or later acquire against Tenant under the Master Lease. The acceptance of any sums by Landlord from Subtenant or any third party shall not be deemed a waiver by Landlord of Tenant's obligation to pay Rent or any other amounts as provided in the Master Lease. The performance of any obligation required of Tenant under the Master Lease by Subtenant or any third party shall not be deemed a waiver by Landlord of Tenant's duty to perform such obligation. Any act or omission by Subtenant or any of its agents, employees or invitees in, on, or about the Premises or the Building, or any act by Subtenant or any of its agents, employees or invitees pursuant to the terms and conditions of the Sublease, shall constitute the act or omission of Tenant. Any sums that may be payable under the Master Lease by virtue of any act or omission of Subtenant shall be the obligation of Tenant to pay and discharge in accordance with the terms of the Master Lease. 6. Further Transfers. The consent of Landlord is limited solely to the ----------------- Sublease. Any assignment of the Master Lease or the Sublease or further subletting of any part of the Premises shall be subject to Landlord's consent as provided in the Master Lease. Landlord may consent in its absolute and sole discretion to subsequent subleases and assignments of the Sublease or any amendments or modifications to the Sublease without notifying Tenant or anyone else liable under the Master Lease, and without obtaining their consent. No such action by Landlord will relieve those persons from any liability to Landlord or otherwise with regard to the Subleased Premises, and Tenant and Subtenant, waive any provision of California law to the contrary, including without limitation Sections 2787 to 2855, inclusive, of the California Civil Code. In addition, no provision of the Sublease or this Agreement shall limit Landlord's right, in the event of a proposed future assignment or subletting of any portion of the Premises, including the Subleased Premises, to recapture such portion of the Premises, including the Subleased Premises, affected by that proposed assignment or subletting, as provided in Section 14.1(c) of the Master Lease, or to receive any payment required under Section 14.1(d) of the Master Lease, and, without limiting the generality of any of any other provision of this Agreement relating to the Sublease, no provision of the Sublease pertaining to sharing of excess rentals or profits on further subletting shall in any way diminish or affect Landlord's rights under Article 14of the Master Lease. 7. Conditions to Landlord's Consent. Landlord's consent to the Sublease -------------------------------- is expressly conditioned on the following: 7.1 Prior to the Subtenant's taking occupancy of the Subleased Premises, Tenant shall deliver to Landlord certificates of insurance evidencing Subtenant's compliance with Section 9.1 of the Master Lease and indicating that Landlord is named as an additional insured on such policies. 7.2 Tenant shall reimburse Landlord for (a) the reasonable expenses incurred by Landlord in connection with Tenant's request for such consent, including attorneys' fees and disbursements, the costs of investigating the acceptability of Subtenant, and any leasing or brokerage commissions, and (b) all reasonable direct and indirect expenses incurred by Landlord due to Subtenant taking possession of the Premises, including, but not limited to, costs relating to freight elevator operation, security service, janitorial service and rubbish removal (collectively, "Transfer-Related Costs"). ---------------------- Tenant shall reimburse Landlord for the Transfer-Related Costs incurred by Landlord within ten (10) days following Tenant's receipt of an invoice. 7.3 Tenant shall pay to Landlord as and when required under the Master Lease, the amounts set forth in Section 14.1(D) of the Master Lease regarding Subrent, and upon request by Landlord, Tenant shall provide Landlord with reasonable documentation of Tenant's payment of the Permitted Transfer Costs and Tenant's calculations of the Subrent. 7.4 Neither Landlord nor the other Indemnitees (as defined below) shall be liable to Subtenant or to any of Subtenant's Agents (as defined in Section 1.4 of the Master Lease), and Subtenant waives all claims against Landlord and such other Indemnitees, for any injury to or death of any person or for loss of use of or damage to or destruction of property in or about the Premises or Project by or from any cause whatsoever, including without limitation, earthquake or earth movement, gas, fire, oil, electricity or leakage from the roof, walls, basement or other portion of the Premises or Project, except only, with respect to any Indemnitee, to the extent such injury, death or damage is caused by the gross negligence or willful misconduct of such Indemnitee and not covered by the insurance required to be carried by Subtenant under the Sublease and hereunder or except to the extent such limitation on liability is prohibited by law. The provisions of this Section 7.4 shall survive the expiration or earlier termination of the Sublease until all claims within the scope of this Section 7.4 are fully, finally, and absolutely barred by the applicable statutes of limitations. 7.5 Subtenant shall hold harmless, indemnify and defend Landlord, and its employees, agents and contractors (the "Indemnitees"), on the terms and conditions contained in Section 10.3 of the Master Lease, as if the term "Subtenant" were substituted for "Tenant" therein. 8. Representations of Tenant and Subtenant. --------------------------------------- 8.1 Tenant and Subtenant represent and warrant to Landlord that a true copy of the Sublease, and all agreements relating to Subtenant's use and occupancy of the Subleased Premises, and all exhibits, addendum, amendments, modifications and supplements thereto, is attached hereto as Exhibit A. 8.2 Tenant and Subtenant represent and warrant to Landlord that, except as set forth in the Sublease attached hereto as Exhibit A, Subtenant is not paying to Tenant any rent, additional rent or other consideration whatsoever in connection with the Sublease and/or Subtenant's use and/or occupancy of the Subleased Premises or any portion thereof (including, but not limited to, payments for Tenant's assets, trade fixtures, equipment and/or other personal property, goodwill, intangible property and/or any capital stock or other equity ownership of Tenant). 8.3 Tenant and Subtenant represent and warrant to Landlord that Tenant has provided Subtenant with a complete copy of the Master Lease, and Subtenant further represents and warrants to Landlord that Subtenant is familiar with the provisions thereof. 8.4 Tenant and Subtenant represent and warrant that Landlord will not be liable for any brokerage commission or finder's fee in connection with the consummation of the Sublease or this Agreement. Tenant and Subtenant, jointly and severally, shall protect, indemnify, defend and hold Landlord harmless from and against any claims for any such commissions, fees or costs, and for all costs, expenses and liabilities incurred in connection with such claims, including, without limitation, attorneys' fees and costs. 9. Miscellaneous. ------------- 9.1 Should any party to this Agreement bring an action against another party, by reason of or alleging the failure of the other party to comply with any or all of its obligations hereunder, whether for declaratory or other relief, then the party which prevails in such action shall be entitled to its reasonable attorneys' fees and expenses related to such action, in addition to all other recovery or relief. A party shall be deemed to have prevailed in any such action (without limiting the generality of the foregoing) if such action is dismissed upon the payment by the other party of the sums allegedly due or the performance of obligations allegedly not complied with, or if such party obtains substantially the relief sought by it in the action, irrespective of whether such action is prosecuted to judgment. Attorneys' fees shall include, without limitation, fees incurred in discovery, contempt proceedings, and bankruptcy litigation. The non-prevailing party shall also pay the attorneys' fees and costs incurred by the prevailing party in any post-judgment proceedings to collect and enforce the judgment. The covenant in the preceding sentence is separate and several and shall survive the merger of this provision into any judgment on this Agreement. 9.2 Promptly upon Landlord's request, Tenant and Subtenant shall execute and deliver such further customary documents and/or instruments and perform such further customary acts as may be required to give full effect to the transaction herein contemplated. 9.3 Capitalized terms used but not defined herein shall have the respective meanings ascribed to them in the Master Lease. Captions to the paragraphs and sections in this Agreement are included for convenience only and do not modify any of the terms of this Agreement. No one party shall be deemed to have drafted this Agreement and it shall be construed according to its fair meaning and not against any party. All indemnity obligations under this Agreement and any other provision hereof the survival of which is necessary to its enforcement shall survive the expiration or earlier termination of the Sublease and this Agreement. 9.4 LANDLORD, TENANT AND SUBTENANT EACH ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTIONS OF THE UNITED STATES AND THE STATE OF CALIFORNIA. EACH PARTY EXPRESSLY AND KNOWINGLY WAIVES AND RELEASES ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER ON ANY MATTERS ARISING OUT OF OR IN ANY WAY RELATED TO, EITHER DIRECTLY OR INDIRECTLY, THIS AGREEMENT, OR THE SUBJECT MATTER HEREOF, SUBTENANT'S USE OR OCCUPANCY OF THE SUBLEASED PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE. Landlord's Initials ______ Tenant's Initials _______ Subtenant's Initials ______ 9.5 Landlord's consent hereunder shall not be effective until this Agreement has been executed by Landlord, Tenant and Subtenant and delivered by Landlord and Tenant. 9.6 If any provision of this Agreement shall be invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in effect. 9.7 This Agreement is the entire agreement between the parties with respect to the subject matter hereof, and no alteration, modification or interpretation hereof shall be binding unless in writing and signed by all parties. This Agreement shall be construed and enforced in accordance with the laws of the State of California. This Agreement may be executed and delivered in any number of counterparts, each of which so executed and delivered shall be deemed to be an original and all of which shall constitute one and the same instrument. [signatures on next page] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by duly authorized representatives on the date set forth under their respective signatures below. LANDLORD: TENANT: CARRAMERICA REALTY CORPORATION, PERICOM SEMICONDUCTOR CORPORATION, a Maryland corporation a California corporation By: ________________________________ By: _____________________________ Name: ______________________________ Leah Segawa Managing Director Title: _____________________________ Date: ___________________________ Date:_______________________________ By: ________________________________ Name: ______________________________ Title: _____________________________ Date: ______________________________ SUBTENANT: YESVIDEO.COM,INC., a Delaware corporation By: _____________________________ Name: ___________________________ Title:___________________________ Date: ___________________________ By: _____________________________ Name: ___________________________ Title: __________________________ Date: ___________________________ Exhibit A Sublease -------- [See Attached] [LOGO] EXHIBIT A STANDARD TRIPLE NET SUBLEASE 1. Parties. This Sublease, dated, for reference purposes only, August23, 2001 is made by and between Pericom Semiconductor Corporation, a California corporation (herein called "Sublessor") and YesVideo, a Delawarecorporation (herein called "Sublessee"). 2. Premises. Sublessor hereby subleases to Sublessee and Sublessee hereby subleases from Sublessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of Santa Clara, State of California, commonly known as 2249 Zanker Road, San Jose, California and described as approximately Twelve Thousand Eight Hundred Eighty Eight (12,888) Square Feet(the "Premises"), part of a larger building (the "Building"). 3. Term. 3.1 Term. The term (the "Term") of this Sublease shall be for eighteen (18) months commencing on the date (the "Commencement Date") that is the later of October 1, 2001 or the date by which all of the following have occurred (a) Sublessor has delivered possession of the Premises to Sublessee; (b) Master Lessor's written consent is obtained in accordance with the Master Lease, and ending on March 31, 2003, unless sooner terminated pursuant to any provision hereof. 3.2 Delay in Commencement. If the Commencement Date has not occurred due to Sublessor's inability to obtain consent of the Master Lessor before commencement of October 1, 2001 or for any reason whatsoever on or before October 15, 2001, then, in addition to Sublessee's other rights and remedies, Sublessee may terminate the Sublease by written notice to Sublessor, whereupon any monies previously paid by Sublessee to Sublessor shall be reimbursed to Sublessee, or, at Sublessee's election, the date Sublessee is otherwise obliged to commence payment of rent shall be delayed by one (1) day for each day that the Commencement Date is delayed beyond such date. 4. Rent. Sublessee shall pay to Sublessor as rent for the Premises equal monthly payments of $21,265.20, in advance, on the first day of each month of the term hereof. Sublessee shall pay Sublessor upon the execution hereof $21,265.20 as rent for the first month. Rent for any period during the term hereof which is for less than one (1) month shall be a pro-rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Sublessor at the address stated herein or to such other persons or at such other places as Sublessor may designate in writing. Sublessee shall also be obligated to pay any additional rents applicable to the Premises and Term pursuant to the Master Lease as incorporated herein. Sublessor agrees to bill Sublessee for any and all applicable additional rent (and such bill shall include information provided by Master Lessor) and Sublessee shall pay all additional rents to Sublessor within ten (10) days of its receipt of any invoice. 5. Security Deposit. Sublessee shall deposit with Sublessor upon execution hereof $63,795.60 as security for Sublessee's faithful performance of Sublessee's obligations hereunder. If Sublessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Sublease, Sublessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Sublessor may become obligated by reason of Sublessee's default, or to compensate Sublessor for any loss or damage which Sublessor may suffer thereby. If Sublessor so uses or applies all or any portion of said deposit, Sublessee shall within ten (10) days after written demand therefore deposit cash with Sublessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Sublessee's failure to do so shall be a material breach of this Sublease. Sublessor shall not be required to keep said deposit separate from its general accounts. If Sublessee performs all of Sublessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Sublessor, shall be returned, without payment of interest or other increment for its use to Sublessee (or at Sublessor's option, to the last assignee, if any, of Sublessee's interest STANDARD SUBLEASE Page 2 of 6 hereunder) within fifteen (15) days following the expiration date, and after Sublessee has vacated the Premises. No trust relationship is created herein between Sublessor and Sublessee with respect to said Security Deposit. 6. Use. 6.1 Use. The Premises shall be used and occupied only for office, administration, research and development, system assembly, light manufacturing, storage, distribution and any other legal related use and for no other purpose. 6.2 Compliance with Law. (a) Sublessor warrants to Sublessee that the Premises, in its existing state, as of the Commencement Date, does not violate any applicable building code regulation or ordinance. In the event that it is determined that this warranty has been violated, then it shall be the obligation of the Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole cost and expense, rectify any such violation. Except as provided in paragraph 6.2(a), Sublessee shall, at Sublessee's expense, comply promptly with all applicable statues, ordinances, rules, regulations, orders, restrictions of record, and requirements in effect during the term or any part of the term hereof regulating the use by Sublessee of the Premises. Sublessee shall not use or permit the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be more than one tenant of the building containing the Premises, which shall tend to disturb such other tenants. 6.3 Condition of Premises. Except as provided in paragraph 6.2(a) or otherwise in this Sublease, Sublessee hereby accepts the Premises in their condition existing as of the date of the execution hereof, subject to all applicable zoning, municipal, county and state laws, ordinances, and regulations governing and regulating the use of the Premises, and accepts this Sublease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Sublessee acknowledges that neither Sublessor nor Sublessor's agents have made any representation or warranty as to the suitability of the Premises for the conduct of Sublessee's business. 7. Master Lease. 7.1 Sublessor is the lessee of the Premises by virtue of that Lease, the "Lease", , by and between Orchard Investment Company Number 510 ("Orchard"), predecessor in interest to Master Lessor (as defined herein) and Sublessor, dated November 29, 1993, as amended by that certain First Amendment to Lease dated February 5, 1996 between Orchard and Sublessor, that certain Second Amendment to Leasedated July 31, 1997 by and between CarrAmerica Realty Corporation ("Master Lessor") and Sublessor, that certain Third Amendment to Lease dated April 23, 1999 by and between Master Lessor and Sublessor, that certain Fourth Amendment to Lease dated January 21, 2000 by and between Master Lessor and Sublessor, that certain Fifth Amendment dated May 1, 2000 by and between Master Lessor and Sublessor,and that Sixth Amendment dated October 31, 2000 by and between Master Lessor and Sublessor (the Lease and the First through Sixth Amendments are hereinafter collectively referred to as the "Master Lease"). A copy of the Master Lease is attached hereto as Exhibit A. Sublessor leases approximately sixty-six thousand two hundred sixty-four (66,264) square feet of space (the "Master Premises"). 7.2 This Sublease is and shall be at all times subject and subordinate to the Master Lease. The terms, conditions and respective obligations of Sublessor and Sublessee to each other under this Sublease shall be the terms and conditions of the Master Lease except for those provisions of the Master Lease which are directly contraindicated by this Sublease in which event the terms of this Sublease document shall control over the Master Lease and except as otherwise expressly provided in the Sublease including, without limitation in Section 7.4. Therefore, for the purposes of this Sublease, wherever in the Master Lease the word "Lessor" is used it shall be deemed to mean the Sublessor herein and wherever in the Master Lease the word "Lessee" is used it shall be deemed to mean the Sublessee herein, wherever in the Master Lease the word "Premises" is used shall be deemed to mean the Premises herein, wherever in the Master Lease the word "Term" is used it shall be deemed to mean the Term hereof. STANDARD SUBLEASE Page 3 of 6 During the term of this Sublease as applicable to the Premises , the Master Lease is hereby incorporated into the Sublease and Sublessee does hereby expressly assume and agree to perform and comply with, for the benefit of Sublessor and Master Lessor, each and every obligation of Sublessor under the Master Lease except that (a) the following paragraphs of the Master Lease not incorporated herein: Summary of Lease (except O and N) , 1.3,1.6, 1.7, 1.8, 1.11, 1.17, 1.18, 1.21, 1.25, 1.27, 2.2, 2.3, 2.4, 3.1, 3.3, 3.5, 8.1-(reference to Section G only), 10.2 (except subsection (I)), 15.3, 15.8 (references to Sections Q and R only), 15.10, 15.13, 15.15, First Addendum, First Amendment to Lease, Second Amendment to Lease, Third Amendment to Lease (except Section 18), Fourth Amendment to Lease, Fifth Amendment to Lease, Sixth Amendment to Lease (except Section 13) (b) references in the following provisions to "Landlord" shall mean "Master Lessor" only: Sections 4.5, 4.6, 5.4, 6.2, 6.3, 7.1.D, 8.2, 8.3, 9.2, 11.1, 11.2, 11.3, (except the second reference), 12.1, 12.2, 12.5, 15.4, 15.5, (c) reference to "Tenant's Share" shall mean 7.72%; and (d) reference to "Tenant's Allocated Parking Stalls" shall mean 50 stalls. In the event of a conflict between the provision of this Sublease and the Master Lease, as between Sublessor and Sublessee, the provisions of this Sublease shall control. The obligations that Sublessee has assumed under paragraph 7.4 hereof are hereinafter referred to as the "Sublessee's Assumed Obligations". The obligations that Sublessee has not assumed under paragraph 7.4 hereof are hereinafter referred to as the "Sublessor's Remaining Obligations". Sublessee shall hold Sublessor free and harmless of and from all liability, judgments, costs, damages, claims or demands, including reasonable attorneys fees, arising out of Sublessee's failure to comply with or perform Sublessee's Assumed Obligations. Sublessor agrees to maintain the Master Lease during the entire term of this Sublease, subject, however, to any earlier termination of the Master Lease without the fault of the Sublessor, and to comply with or perform Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and from all liability, judgments, costs, damages, claims or demands arising out of Sublessor's failure to comply with or perform Sublessor's Remaining Obligations. 7.8 Sublessor represents to Sublessee that (i) the Master Lease is in full force and effect and that no default exists on the part of any party to the Master Lease nor has there occurred any event which with the passage of time or giving of notice or both would constitute a default under the Master Lease and (ii) the form of the Master Lease attached as Exhibit "A" is true, correct and complete and has not been modified in any respect. 8. Assignment of Sublease and Default. 8.1 Sublessor hereby assigns and transfers to Master Lessor the Sublessor's interest in this Sublease and all rentals and income arising therefrom, subject however to terms of Paragraph 8.2 hereof. 8.2 Master Lessor, by executing this document, agrees that until a default shall occur in the performance of Sublessor's Obligations under the Master Lease, that Sublessor may receive, collect and enjoy the rents accruing under this Sublease. However, if Sublessor shall default in the performance of its obligations to Master Lessor then Master Lessor may, at its option, receive and collect, directly from Sublessee, all rent owing and to be owed under this Sublease. Master Lessor shall not, by reason of this assignment of the Sublease nor by reason of the collection of the rents from the Sublessee, be deemed liable to Sublessee for any failure of the Sublessor to perform and comply with Sublessor's Remaining Obligations. 8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon receipt of any written notice from the Master Lessor stating that a default exists in the performance of Sublessor's obligations under the Master Lease, to pay to Master Lessor the rents due and to become due under the Sublease. Sublessor agrees that Sublessee shall have the right to rely upon any such statement and request from Master Lessor, and that Sublessee shall pay such rents to STANDARD SUBLEASE Page 4 of 6 Master Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Sublessor to the contrary and Sublessor shall have no right or claim against Sublessee for any such rents to paid by Sublessee. 8.4 No changes or modifications shall be made to this Sublease without the consent of Master Lessor. 9. Consent of Master Lessor. 9.1 In the event that the Master Lease requires that Sublessor obtain the consent of Master Lessor to any subletting by Sublessor then, this Sublease shall not be effective unless, Master Lessor consent to this Subletting. 9.2 In the event that the obligations of the Sublessor under the Master Lease have been guaranteed by third parties then this Sublease, nor the Master Lessor's consent, shall not be effective unless, said guarantors consent to this Sublease. 9.3 In the event that Master Lessor does give such consent then: (a) Such consent will not release Sublessor or its obligations or alter the primary liability of Sublessor to pay the rent and perform and comply with all of the obligations of Sublessor to be performed under the Master Lease. (b) The acceptance of rent by Master Lessor from Sublessee or any one else liable under the Master Lease shall not be deemed a waiver by Master Lessor of any provisions of the Master Lease. (c) The consent of this Sublease shall not constitute a consent to any subsequent subletting or assignment. (d) In the event of any default of Sublessor under the Master Lease, Master Lessor may proceed directly against Sublessor, any guarantors or any one else liable under the Master Lease or this Sublease without first exhausting Master Lessor's remedies against any other person or entity liable thereon to Master Lessor. (e) Master Lessor may consent to subsequent sublettings and assignments of the Master Lease or this Sublease or any amendments or modifications thereto without notifying Sublessor nor any one else liable under the Master Lease and without obtaining their consent and such action shall not relieve such persons from liability. (f) In the event that Sublessor shall default in its obligations under the Master Lease, then Master Lessor, at its option and without being obligated to do so, may require Sublessee to attorn to Master Lessor in which event Master Lessor shall undertake the obligations of Sublessor under this Sublease from the time of the exercise of said option to but Master Lessor shall not be liable for any prepaid rents nor any security deposit paid by Sublessee unless actually received by Sublessor, nor shall Master Lessor be liable for any other defaults of the Sublessor under the Sublease unless continuing. 9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at the end of this document shall constitute their consent to the terms of this Sublease. 9.5 Master Lessor acknowledges that, to the best of Master Lessor's knowledge, no default presently exists under the Master Lease of obligations to be performed by Sublessor nor has there occurred any event which with the passage of time or giving of notice or both would constitute a default under the Master Lease, and that the Master Lease is in full force and effect. 9.6 In the event that Sublessor defaults under its obligations to be performed under the Master Lease by Sublessor, Master Lessor agrees to deliver to Sublessee a copy of any such notice of default. Sublessee shall have the right to cure any default of Sublessor described in any notice of default within ten (10) days after service of such notice of default on Sublessee. If such default is cured by Sublessee then Sublessee shall have the right of reimbursement and offset from and against Sublessor. STANDARD SUBLEASE Page 5 of 6 10. Brokers Fee. 10.1 Upon execution hereof by all parties, Sublessor shall pay to Colliers International, Inc., a licensed real estate broker, (herein called "Broker"), a fee as set forth in a separate agreement between Sublessor and Broker. 10.2 Sublessor agrees that if Sublessee decides to either to extend the term of this Sublease, to renew this Sublease, pertaining to the Premises or any adjacent property which Sublessor may own or in which Sublessor has an interest, then as to any of said transactions Sublessor shall pay to Broker a fee, in accordance with the schedule of Broker in effect at the time of the execution of this Sublease. Notwithstanding the foregoing, Sublessor's obligation under this Paragraph 10.2 is limited to a transaction to which Sublessor is acting as a sublessor. Sublessee shall have no liability whatsoever for payment of any Broker's fees. 10.3 Intentionally Deleted 10.4 Intentionally Deleted 10.5 Any transferee of Sublessor's interest in this Sublease, or of Master Lessor's interest in the Master Lease, by accepting an assignment thereof, shall be deemed to have assumed the respective obligations of Sublessor or Master Lessor under this Paragraph 10. 11. Attorney's Fees. If any party brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party in any such action, on trial and appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the Court. Additional Provisions. A. Sublessee shall accept the Premises in its "As Is" condition, subject to a letter to be agreed upon by both Sublessee and Sublessor which is attached hereto as Exhibit C. B. Sublessor shall deliver the Premises with all cubicles in good working order and both parties shall agree and execute a list of equipment that will remain in the Premises during the term of the sublease and will remain the property of the Sublessor at the end of the sublease term. Such equipment list is attached hereto as Exhibit B. C. Sublessee shall have access, not occupancy to the Premises on September 15, 2001, upon Sublessor receiving Master Lessor's consent, for the purpose of installing items that are pertinent to Sublessee's business. D. Sublessor agrees to warrant that the mechanical system (HVAC) shall be in good working order for the first thirty (30) days after the commencement date. If this Sublease has been filled in it has been prepared for submission to your attorney for his approval. No representation or recommendation is made by Colliers International, Inc. or its agents or employees as to the legal sufficiency, legal effect, or tax consequences of this Sublease or the transaction relating thereto. Executed at _____________________________ PERICOM SEMICONDUCTOR CORPORATION ----------------------------------- _________________________________________ a California corporation on ______________________________________ By ________________________________ address _________________________________ By ________________________________ _________________________________________ "Sublessor" (Corporate Seal) STANDARD SUBLEASE Page 6 of 6 Executed at __________________________ YESVIDEO, INC., a Delaware corporation --------------------------------------- on ___________________________________ By ____________________________________ address ______________________________ By ____________________________________ ______________________________________ "Sublessee" (Corporate Seal) Executed at __________________________ CARRAMERICA REALTY CORPORATION ------------------------------- ______________________________________ a Maryland corporation on ___________________________________ By ____________________________________ address ______________________________ By ____________________________________ ______________________________________ "Master Lessor" (Corporate Seal) -----END PRIVACY-ENHANCED MESSAGE-----